April23

May 2013 Market Update

Although business hasn’t been terribly strong and New England weather hasn’t been very conducive for construction over the past several months, building materials in general have endured a steady increase since the beginning of February. The pricing run-up has not been controlled so much by an overall strong demand as it has been by a short supply. There were only pockets of building activity going on (Cape Cod being one of them), so many buyers remained conservative and chose to withhold purchases. By the time that mid-April arrived, demand subsided, so pricing flattened on many products and several increases announcements were postponed. Lumber (with the exception of studs) leveled off and items such as pressure treated and plywood flattened out after consistent increases. Studs remained one item that continued to climb, due to a strong import demand. The buzz on the street is that we can anticipate the market to become active again as spring “building season” kicks in.

 

If there is one thing that we can bank on in this industry, it’s that it is cyclical. There are many causes for demand fluctuations (economic, natural disasters, regional growth, current trends, etc.) that will always impact our supply and, subsequently, pricing. We can resolve that whatever today’s market conditions are will likely change in the near future, because building materials are a dynamic staple that can be substituted and well-controlled, unlike food and fuel. For instance, Ipe decking was in short supply last year and so the market ran up right through the end of 2012 as buyers over-bought under the guise that Ipe was always going to be hard to obtain. As dealers were scrounging to obtain what they needed, they put their orders in and waited and waited for shipments that were coming from Brazil, all the while entertaining and accepting higher prices. As more realized that the lead times and prices were unreasonable, alternatives sprouted up and business was directed away from the imported wood. Then, as containers arrived (in late Fall, well past decking season), a glut occurred which eroded pricing and sent distributors (who don’t want to be overstocked on a big ticket item like Ipe) scrambling to move inventory by discounting prices. What happened to Ipe last year is a good example of a dramatic market condition that spurred emotional buying, which inevitably runs up pricing to the point of collapse.

 

There is no crystal ball for predicting the path that the market will take, but there are historical patterns that prove that what goes up must come down. The market is taking a breath after climbing a long and steady hill and evaluating what is coming next, which appears to be steady business backed up by economic stability, fair weather and thin inventories. Based upon this, our expectations are that buying will take place on the wholesale level (while prices are flat) and selling will increase at the retail level. Both actions will drive up the market again in May, but supply will be better this time around and it will flatten again. We have strategically bought against the market and are well stocked with competitive material, and are ready and grateful for your business.

 

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