January 10th Market Update
At this time last year, we were already 10-weeks into an unprecedented winter lumber market spike that caught the building and lumber industry off guard and left everyone concerned whether it would have a significant negative impact on the rebounding housing market. Before the dust settled in the early second quarter of 2013, the market had elevated to over $450 mbf (Contract Lumber Commodity Lumber Price Index), saw nearly 24 straight weekly increases and perched itself close to all-time lumber market highs. Then, just as quick, the market softened as housing growth stalled, lumber production rebounded better than expected, interest rates increased, and political turmoil eroded consumer confidence. We are happy to report that the current environment in the lumber market seems considerably less volatile as demand seems generally on par with production as we head into what many describe as construction’s seasonal lull. Of course, as we have all witnessed, supply-demand balance in the lumber market can be incredibly temperamental so we can only hope that some sense of stability and predictability greets us as we enter the New Year. The current Contract Lumber Commodity Index stands at $332 mbf.
Distributors and dealers continue to run inventories lean trying to stay on the sidelines, where possible, hoping to take advantage of some values in early first quarter. Construction activity has remained solid throughout the country with many dealers reporting optimistic business expectations heading into the New Year. The latest housing data released in December posted sharp gains in both single and multifamily starts for November with combined starts registering over one million. Single family starts were up over 20-percent from October and over 26-percent from the previous year. Multifamily saw even stronger increases. But, rather than lumber dealers taking inventory positions and covering needs well out into the first quarter, many are simply stepping out into the market and filling inventory holes to meet immediate demands. This more conservative approach is partly due to the large number of dealers who were burned holding big inventory positions in a falling market during the market correction in the second quarter last year. This hand-to-mouth tactic helps promote equilibrium between consumption and production and has allowed the market to trade in a relatively narrow range for the past five months since the market bounced off its low back in June. For instance, 8-foot SPF studs and 7/16” OSB have both traded in a $30 range since the 13-week market correction ended in June. Southern Pine 2 x 10, another construction market staple, has traded in a $50 range during that same timeframe so some semblance of stability is currently being exhibited in the market.
Looking ahead, double-digit growth is once again projected in the housing sector for 2014. This expected increase in construction activity is sure to inject upward pressure and increased volatility to lumber prices throughout the year. Winter weather continues to impact building activity and thus, building material consumption in certain parts of the country right now but demand for single-family housing and apartments is expected to remain strong nationwide. Analysts are forecasting more than a million units will be built this coming year. The housing market seems to be on solid footing and while it is certainly not immune to some potential hiccups, expect strong market conditions to give way to pricing pressures for both materials and labor during this recovery period.