February 2012 Market Report

February 2012

Very strong lumber sales in New England in December gave way to moderate demand in January. Thin inventories at the reload and dealer levels pushed an unanticipated demand on mills, and obtaining material was difficult even with the mild weather. As we’ve become accustomed to, a lack of “putting a truck under the inventory” has been the leading cause for late shipments, although production is certainly an issue as well. Prices remained firm to up, depending upon the availability of the item and the requested tally. Dealers are still very under-bought against the market as they know that whatever little activity that is occurring can come to a screeching halt if winter makes a dramatic appearance. The fear of owning too much inventory is proving to be a weaker argument, though, as prices are firm and availability is spotty. Mills are trying to keep up with the demand, but are still only producing as much as wholesalers and dealers are willing to buy. As a result, there is very little material in current production that is going to surplus inventory. This has had the greatest impact on the plywood market, which simply has not been able to keep up with demand. Plywood prices have been climbing, lead-times have grown substantially and many dealers and wholesalers have completely run out of inventory. In particular, ½” x 4 x 10 CDX and Advantech have been very difficult to obtain over the past six weeks and continue to be a problem.

One of the more common sentiments heard around the holidays was to hope for a better and busier 2012 as 2011 was particularly tough for many lumber professionals. However, the general consensus amongst the industry is that 2012 will be a repeat of 2011, but with the expectation that lumber pricing will stabilize (a concept that hasn’t been around since before the recession). Lumber pricing has ridden a roller coaster ride since the recession, but with many more low valleys than moderate peaks. The stabilization of the economy is expected to keep annual housing starts in excess of 650,000 and, based upon numerous mill closures in recent years and increased global demand for lumber, a real-time shortage of lumber is expected. For many in the supply chain, the projected shortage is bringing the anticipation that there will be an end to margin erosion as it has been, by far and large, the result of deflating prices due to a lackluster demand and a surplus of inventory.

In the meantime, lumber prices are still historically low. To clarify what “low” lumber prices mean, we need to compare them to the averages that we had seen during the peak of homebuilding.  As of print, the Random Lengths Framing Composite (the price barometer for the lumber industry) is at $279.  The average composite price from 1996 through 2006 (which was the peak of homebuilding), was at $368, a 32% increase over today’s prices. Also consider that today’s composite is within 2% of the 5 year average between 2006 and 2010 (our great recession period), which was at $284. Unlike so many other commodity items that seemingly have double-digit increases overnight, lumber is still a real bargain. When factored along with low interest rates and real-estate values, lumber prices make homebuilding an even a more attractive venture, especially right now.

As we head into our last stretch of the winter season, business continues to be unexpectedly better than anticipated and material is moving. Replacement stock is firm to market levels, but has the potential to fluctuate depending upon the weather and continued demand. The general consensus is that prices are expected to remain at least firm over the next six weeks (even if the weather makes a turn for the worse) as production will take a while before inventories are stocked to normal levels. Here at Shepley, we had bolstered our lumber and plywood inventories prior to the rise in the market so we are well-stocked with quality material at very competitive pricing.  Our commitment to you remains the same as we promise stock quality products at competitive pricing for when you need them. In addition, we will keep you well apprised of any market conditions that may affect your business. Please remember to contact your sales person should you have any questions or concerns and, on behalf of all of us, thank you for your business!

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