October 2012 Market Update

Although September sales weren’t particularly strong for most New England dealers, the tepid demand didn’t have much of an effect on pricing. Unlike historical patterns, pricing remained relatively firm with the exception being panels (especially OSB) which, in some cases, gained in double digits. A certain prescient attitude has developed amongst the lumber traders as they seem to have more confidence than usual in stating that they think that pricing will remain firm because they are convinced that dealers are “under-bought”, meaning that they don’t have enough stock on hand to cover normal demand.


Throughout the summer, prices climbed due to a limited supply but, as mills came back on line and began producing, pricing slightly retracted. However, the retraction was not enough for secondary’s and dealers to bulk up on inventories so the “buy only what you need” was the most common strategy employed. With October upon us and typically being one of the busiest building months of the year, prices are relatively firm and have the potential to climb if business picks up. Traders are warning dealers to cover their needs for the next four to six weeks, although it should be noted that these warnings have become a common and handy tool to spur sales. Pulling out the threads of truth from the statements of impending increases can be a challenge (if not an art-form), so some buyers are taking the advice to heart while others are passing. As of print, pricing has come off a little since the beginning of September and has stabilized, but there is anticipation that October business will stimulate the market and pricing.


It’s interesting to note that (from strictly a pricing perspective) today’s lumber prices are still considerably lower than where they were five and even ten years ago. In pre-Recession years 1996 through 2006, the Random Lengths Framing Composite average was $368, or approximately 10% higher than today’s number. Considering the low of $197 in 2009, it’s been a slow but steady climb back but yet it still hasn’t reached equilibrium as compared to the increases that we’ve seen in other building materials such as sheet rock, insulation and roofing. It’s remarkable that lumber pricing has remained as constant as it has despite the fact that we have lost so many producing mills due to the Recession. If building today, know that lumber is still a bargain despite the limited resources.


In the competitive market of lumber, successful dealers quickly learn that they have to pay close attention to market pricing and position their inventory accordingly in order to maintain sales. One of the biggest disparities we come across in this industry is the apples-to-apples comparisons of building products, as there are plenty of items that appear to be apples on paper, but are oranges in reality. This is further complicated by the many seemingly equal brands of products in today’s world (take PVC and composite decking for example, as there are dozens of available brands with very few outward differences). When comparing lumber and determining that specie, grade and mill are on par, the focus goes to the current market price for the product, and how a dealer is positioned against that market price. As you’re well aware of, this is a highly competitive industry that keeps professionals finely tuned to the “going rate” of goods, and sometimes wise (or lucky) purchases allow the benefit of an exceptional profit in the face of a market price. Then there are “loss leaders”, which is a term for a marketing technique utilized by retailers in which popular “lead” products are significantly discounted (most often below cost) to draw the attention of consumers and to lead them into believing that all of the pricing supplied by the dealer is at bargain pricing. Although a successful tactic, it’s a misleading one that cannot be sustained for too long in the lumber industry. At Shepley, we have built our reputation on consistently offering honest and fair prices for a quality product and so we find gimmicks such as loss leaders a manipulative tactic. We work very hard to monitor market pricing and will never give you a trick number to get your attention.  We also view our relationship with you as a partnership and so we don’t want to give you any reason for doubting our prices. In fact, we want to be a part of your success so, rather than playing those games, we aim to make our prices fair across the board with the intention of having a net bottom line that will make you as sharp as you can be on your project. Our goal is to provide you with a comprehensive, complete list of goods at competitive pricing that will not surprise you with hidden expenses during the course of your job. To us, value of this nature is where long lasting relationships are built: we try to instill a trust in you that we are not angling and scheming to gain your business through ruse pricing or dishonest actions.  We want to be the company that you want to buy from, and for all of the right reasons.


Speaking on behalf of all of us at Shepley, thank you for the opportunity to be your building materials supplier and we all look forward to being at your service.


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