Posts Tagged ‘Lumber Prices’

Lumber, Materials Prices to Rise as Housing Recovers

March 9th, 2010 by admin | Tags: , | Posted in Cost of Construction |


Barely beginning to emerge from the most devastating housing downturn since the Great Depression, home builders in the early months of this year have been confronted by a significant run-up in lumber prices.

For the week ending on Feb. 19, the Random Lengths composite index stood at $317 per 1,000 board feet, its highest level since the first half of July 2006. That price was up more than 26% from the start of this year, when framing lumber was averaging $251.

During the first half of 2009, the index fluctuated around the $200 mark, before moving into the $250 range in late November.

(Random Lengths’ composite index is a weighted average of 15 softwood lumber product prices.)

With the index registering declines in the past two weeks, NAHB Senior Economist Bernard Markstein said that home builders may have seen the worst of climbing lumber prices, at least for the short term.

Residential construction is the chief driver of demand for softwood lumber, Markstein said. With residential construction activity remaining at historically low post-World War II levels, mostly supply-side factors were responsible for the dramatic surge in lumber prices in January and February:

Under the Softwood Lumber Agreement (SLA) between the U.S. and Canada that went into effect in the fall of 2006, Canada is subject to a complex set of export fees and quotas whenever the Random Lengths composite index price falls below $355 per 1,000 board feet. At prices below $315, the most stringent fees and quotas are imposed. Recent rulings against some Canadian provinces have added an extra 10% to their cost of exported lumber. These export fees have been exacerbated by the strengthening of the Canadian dollar against the U.S. dollar. “Although the SLA and the stronger Canadian dollar have not put new pressure on the price of lumber, they have limited the ability of the market to respond quickly to sharp price increases and temporary shortages,” Markstein said.

With the Random Lengths cost of lumber remaining low — below $300 — for about two-and-a-half years, companies shut down many of their mills and cut back on logging operations by the second half of 2009, with significant layoffs of workers. This led to severe lumber supply constraints by the end of last year, which were probably worsened by normal mill shutdowns for the holidays in December and January.

Unusually cold and wet weather in much of the southern U.S. and parts of Canada limited logging operations even further, helping to drive up prices.

Demand has increased from paper and pulp mills.

Given the cost and time involved in restarting shuttered mills, mill operators have been reluctant to ramp up production until they can be confident that higher lumber prices will prevail for an extended period and not just a few weeks. Once a decision is made to reopen a mill, it can still take several weeks to check out and service idled equipment and to rehire workers.

Some segments of the market — notably dealers — also temporarily nudged up demand as they moved to rebuild their depleted inventories of lumber. Working inventories had thinned in response to weak demand but also because of difficulties in obtaining adequate financing for them.

“As the need to rebuild inventories abates and weather-supply constraints slacken, presumably lumber prices will decline in coming weeks,” Markstein said.

Overall, Markstein said, low levels of residential construction have been exerting downward pressure on building materials prices. This has been offset in some industries, he said, by suppliers reducing output in the face of soft demand and prices.

Unwelcome News From Suppliers

Home builders also have been receiving unwelcome news from their suppliers of late, according to Markstein. An index produced by the Bureau of Labor Statistics that tracks building material prices for builders of single-family homes and multifamily structures has now risen three months in a row. In January, both measures jumped 1% from December.

Chief contributors to the recent rise are lumber, fuel products (gasoline and diesel), plumbing fixtures and copper prices.

On a year-over-year basis, the single-family index is up only 0.3% and the multifamily index is up a slight 0.2%. Nonetheless, with a number of countries around the world on the expansion path, buildering material prices are likely to continue to rise in coming months, he said.

Among recent price trends in other building materials, as of January, he reported:

Gypsum prices, which rebounded somewhat last fall as producers reduced capacity by taking less efficient plants offline, have generally been falling since February 2009 and are at their lowest levels since June 2004. However, both U.S. Gypsum and National Gypsum announced price increases in early January.

Insulation prices hit a low in July 2008, when they were at their lowest levels since June 2004. Although up a bit in recent months, they were only up 1.4% from their July low point and were below their levels in March through July of last year.

Despite some fluctuations, cement prices generally fell throughout 2009 and at the start of this year were down 4.5% from a year earlier. Following a similar path, concrete prices were down 3.2% from a year earlier.

The copper market has remained characteristically volatile, with labor disputes in Chile and expectations for rising industrial demand globally pushing prices higher recently. Copper prices, which had been running close to $4 a pound in April and May of 2008, fell below $1.50 a pound by the end of that year and into January and February of 2009. They were trading in the $3.10 to $3.20 range by the end of last year, and early this year moved up to around $3.40 a pound. They were up 63.5% from January 2009 to January 2010.

Steel prices fell from September 2008 through May 2009 and have been rising since, by 11.8% as of November 2009. Markstein said that steel prices were likely to remain weak for the next few months, but “general global recovery is likely to produce higher steel prices in the latter half of this year and into 2011. All eyes will be on China. Chinese steel output is expected to rise rapidly in 2010, but Chinese demand for steel is forecast to rise even more rapidly, putting upward pressure on steel prices.” After falling in November and December, steelprices rose 2% in January and now are only down 3.7% from January 2009.

“Given expected growth in world industrial demand over the next several years, particularly China, building materials prices will tend to rise faster than general inflation,” he said.

This excerpt was taken from “Nations Building News Online”

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