September19

September 2012 Market Report

Unexpectedly strong demand has been reported by our building material suppliers as everything from pressure treated to roofing experienced an upsurge in sales in recent weeks. Lumber mills in particular, after being closed for several weeks for their annual shut-downs, re-opened to encounter full order files and busy phone lines for prompt shipments. Dealers were hard-pressed to get prompt deliveries and available loads were few and far between, causing numerous holes in inventories.

 

According to our buying group’s Lumber Futures department, most dealers are still very optimistic that sales will remain strong for the next 2-3 months and that any pricing corrections will be minimal. The Random Lengths Framing Composite (our barometer for lumber market pricing) has remained solidly above the $300 break-even mark since the beginning of 2nd quarter 2012, an encouraging sign that there is a sustained demand. Determining what to forecast for usage into the next coming months is a hard call for most dealers as the unexpected business can lead one to believe that it was Fall business coming early, but some took early positions while others decided to ride it out. Although this industry has a tendency to be a little over-zealous regarding market conditions (for the sake of profiting from these fears), we do believe that the consistent message from the supply end of the trade is that prices will remain firm to up through September.

With U.S. housing starts showing a 27% increase over for the first half of 2012 as compared 2011, there is no doubt that the rate of building is growing as a result of consumer confidence, low mortgage rates and low real estate prices. News reports are focusing on American’s weak consumer confidence and that is bolstered by the fact that the majority of American’s household finances are still tight enough to make it a real struggle just to make ends meet; the aspiration to build a new home or addition is still too big a risk to even consider for most. Although the toll of the recession on the psyche of the average consumer has made consumer spending weak, the hopes are that fewer fluctuations in the economy with spur job growth and will, eventually, help to quell some of the fears of taking on debt for the sake of living space. As the American population continues to grow and housing inventories decline, the command for more homes will certainly spur a need for more building.

The cost of just about every commodity that we consume has increased dramatically over the past decade, and much of it can be attributed to the cost of fuel. Whereas consumer confidence is often spurred by the opportunity to take advantage of a “deal” or “discount” (such as our Massachusetts Tax-Free weekend has proven), the recent decline in gas prices has encouraged more Americans to hop in their vehicles to travel (as anyone who has spent time on Cape Cod roads this summer will attest to). As we all well know, the reality is that gas isn’t a bargain today in terms of what it was a decade ago ($3.60 per gallon today versus $1.38 per gallon then); gas is only “cheap” in terms of what it has cost recently. The perception and reality of what is considered a good deal should not be disregarded when it comes to lumber; we’d like to think that the current deflated prices of real estate and lumber should encourage more Americans to be building. Although lumber prices have rebounded somewhat from the lows of 2009, they are still only on the average 15-30% higher than they were at this time a decade ago. In terms of value, lumber is one commodity that has remained relatively unaffected by inflation despite the paradox of being in a significantly reduced volume of supply. This summer’s unexpected activity may be a turning point for the lumber market, in which prices remain at more of a constant price level than in year’s past. If demand sustains at today’s levels, supply will be tight, but manageable. If any significant increase happens, we will experience more shortages and higher prices until production can catch up. However, one shouldn’t be lulled into a false sense of security to the notion that production will instantly ramp up to demand. Log inventories are low (and cannot be harvested, dried and milled quickly) and available producing mills and trucks that would be available to handle the business are merely fractions of the whole that used to be available a decade ago. Lumber market predictions of late have left much to be desired as no one’s crystal ball is nearly as clear as they would hope it be, so wise lumber yards buy enough to cover their needs and just a little more, just in case.

It’s key that successful lumber yards work to remain as stable with their pricing as they do with their inventory in order to keep customers in the best position that they possibly can. We’re happy to say that we’ve strategically positioned ourselves with great quality, competitively priced material and are ready to be the stable supplier for all of your lumber needs this Fall and beyond. We commit to keeping you well apprised of any significant changes in market conditions, and welcome you to share any concerns you may have regarding any upcoming jobs. Thank you for your business!

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