The summer of 2020 will be one that won’t be forgotten too soon as unprecedented outages of material and record price increases turned the market on its head. Construction surged across all sectors and a perfect storm of sorts outstripped supplies, doubled lead times, and escalated pricing to record territory. Due to Covid-19, production was reduced about 1 billion board feet over last year. With the uncertainty of what demand would be like once the economy reopened, few thought that it would be what it has been: off the hook. Much of the demand is attributed to do-it-yourselfers, who continue to spend cancelled vacation funds on their homes. As buyers awoke to what was going on, they often learned that they were too late to snap up any available stock and so were forced to wait until next production runs, which have commonly stretched out four to six weeks. This especially affected plywood, with producers going off market at times and leaving behind panicking buyers who were under-bought and unable to fulfill their needs. With prices from this recent rally escalating double digits, the Random Lengths Framing Composite broke new records, posting over $700 and far surpassing the $350-$400 range that it was at this spring and what it had been operating in since the fall of 2018. No buyer wanted to pay the asking prices but had to jump in to cover their needs and, with lead times stretching so far out, were angst-ridden with the prospects of a severe market correction before the high-priced material landed. As everything has a breaking point (and knowing how cyclical the lumber market is), sales retractions first started to appear with a growing trend of larger contractors from across the nation deciding to put projects on hold in order to let the market settle. Although setting projects aside hasn’t seemed to have occurred much in the Northeast, demand has subsided and anticipation of a correction is growing. Nonetheless, business is still strong and many contractors are reporting a busy fall. For September, we anticipate that prices will retreat to more reasonable levels but we advise you to stay in touch with your Shepley sales person to closely monitor the situation as it develops.
The Covid-19 pandemic has created unprecedented price and supply disruptions in all facets of commerce. Although you can track late shipments and price hikes on a graph, you can’t measure the level of anxiety, anger, disappointment, and frustration it’s caused (but you can assume that they coincide with the peaks and valleys on those same graphs). Fear of the unknown will drive people in to action, but not necessarily the right action. For instance, all buyers have a penchant for buying more than they need when they don’t know when they will be able to get more, which seems like a prudent thing to do. However, when dealing with commodities, it isn’t always the best action to take as markets can flip in an instant (and often do), gutting whatever margin dollars that could have been realized if a little more restraint with purchasing was used during the rally. Yes, there are shortages, but they have been exacerbated by emotional, reactionary buying that has been fueled by the anguish of the unknown (think of toilet paper few short months ago). We know that what goes up must come down and supply always counter-balances demand. Wwhen we have a lower supply, we’ll have a greater demand and when we have a greater supply, we’ll have a lower demand. To this end, how much extra material has been purchased beyond “needs” will be a deciding factor as to when and how much the market corrects.
In the meantime, the important thing is to keep our situation in perspective by looking at it globally, support each other through clear and frequent communication, and don’t let our emotions take control. Rational thinkers know that no situation in our market is static for long and crises soon pass. For our part, our best defense to protect you from such volatility is to understand and buy against your needs and temper the price fluctuations through contract purchasing and average-costing. We are well-stocked and ready to do business with the quality products and exceptional service you’ve come to expect from us. Thank you for your business!By Andrew Tyner
2020 has been full of uncertainty and a real challenge for businesses, to say the very least. But for those of us in the building industry we have had some cause for celebration over the last several months. Being deemed essential business has allowed us to continue to work, and keep people employed throughout the pandemic. Even with the market declines in April, the record jobless rate, and the drop in US real GDP, the building industry has been more resilient in its recovery than other sectors of the economy and Builder Confidence is already at levels we were seeing before the pandemic.
How have the last 6 months affected the lumber market?
Mills and manufactures adjusted production based on project future demand which early in the year looked grim, based purely on the economic indicators, and there was a real slowing of the market in April when we were all trying to figure out what was next. Then we all had to figure out how to get back to work safely, which took its own toll on production. Now we are all getting the hang of this “next normal” just in time for mill shutdowns that happen every year around this time both for re-tooling and safety during fire season.
There is not much out there that gets lumber speculators more animated than the combination of pent up demand and the chance of crisis, whether real or imagined, and if you have been watching the lumber futures the last few weeks it is clear they are not holding back. My guess is these guys are still working through the toilet paper they bought back in March!
What does this mean?
In the short term, we are going to see prices adjust upwards as mills use futures projections to justify increases, and on a whole nationally, we may experience some shortages in materials while mills retool for fall. As generally is the case, what rises quickly falls quickly, and as lumberyards and distributors get their stock levels up in response to futures forecasts and mills get back to production we should see a correction.
What is Shepley doing?
Shepley is fortunate to have a buying group that both understands the market and takes the appropriate action to minimize the effects of volatile pricing on our customers. We have watched the demand in our market closely and maintain regular dialog with our customers regarding upcoming volume to ensure a good stock position. Beyond that, in anticipation of the increase in lumber futures we have taken a stronger than normal in stock position. So even though prices may adjust up on some products we will not increase as quickly or as much as the market. Additionally, we continue to hold our commitment to honor quoted pricing for 30 days, even in a volatile market.
Most importantly we are here as a trade partner and welcome dialog on how we can work together to support the success of your business. Price is important but it is not the only way to add value and profit to a project. So please reach out to your sales person to discuss upcoming projects and how we can work together to ensure their success and profitability.