Last month it was wildfires in Canada and now Mother Nature 2.0 has stuck again with Hurricane Harvey along the Texas Coast. While we are all thinking about those displaced by the storm one cannot help but think about the next storm to hit—Recovery and its effects on the DFW local economy.
The last time the name Harvey got this much attention was when Jimmy Stewart received the nomination for Best Actor in the film by the same name. Stewart’s character (Elwood P. Dowd) befriends a spirit in the form of a human size rabbit that only he can see. Based on my observations over the past week it would appear lots of people are seeing things that others are not.
So, what do we know?
Well, the information age is better at speculation than seeing into the future. If you were in the DFW area last week you most certainly fell pray to the rumor of ‘fuel supplies shortages’ sending every Soccer Mom in Dallas waiting in lines at the gas station to top off their suburban. It had all the earmarks of an old fashion run. The question is, was it an “I-Phone Run” or something more? An I-Phone Run just has everyone camping out for something you can get tomorrow, the next day or next week and those that wait choose to do so (perception of Scarcity) or is it shortage (actual Scarcity)? Let’s just say the lines are gone and my fuel gage is on “F”.
So are fuel prices going up? Gasoline reached a 2 year high after the hurricane forced the nation’s largest refinery in Port Arthur, TX to shut down. Raise your hand if you remember the last time the Oil Industry took a pass on increasing their profits when the market conditions were right.
Houston is one of the top homebuilding markets in the country before Harvey (27,000 single family homes & 23,000 apartments). There was already a labor shortage in Houston but this will place an already strained construction industry into an even greater state. Builders and remodelers throughout the major markets in Texas were running at full capacity before the storm.
The replacement and repairs for thousands of homes and businesses will add to the shortage of construction workers. Roofers, electricians, carpenters and other construction workers will likely be busy building new houses and rewiring, repainting and ripping out and replacing moldy carpeting in old ones over the next 18 months.
In an economy that has been “frothy” material has continued to flow despite labor shortages, natural disasters, government posturing and price increases.
Product Availability: With an estimated 150,000 buildings impacted by Harvey, certain product lines will be in high demand to get folks back into their homes quickly after the flooding (for most homes – anything in the house up to 4’ high): gypsum, flooring, doors and cabinets.
Rebuilding from wind damage typically plays out over many months and does not significantly impact the pricing or availability of materials. Harvey came in faster than expected so there was not a huge demand for panels (OSB and Plywood) for protection ahead of time (like we are seeing for Irma in Florida). Of course, roofing damage and rebuild will increase roofing demand for a while.
As we saw with the gasoline panic in Dallas last week, people don’t deal with uncertainty well. We expect similar behavior in the lumber markets, especially panels.
Expect prices to surge short-term and then as the uncertainty fades and reality sets in the market will once again find its equilibrium. The manufacturing capacity is available (since our housing industry supplied 2.0 million new starts 10 years ago), but it takes a little time to ramp up to increased demand. We expect that increase in lumber and panel demand to be short-term, however, and prices should settle back in. Of course, that may depend on Irma’s impact.
Experts are contemplating the temporary disruption (several weeks) in supply of imported goods like stock mouldings (South America), and plywood (China Birch, Radiata), but this should smooth out rather quickly as ports have re-opened along Gulf Coast.
Trucking interruptions around Houston and the re-opening of I-10, should also sort itself out rather quickly as the flood waters recede.
WHAT IS THE MARKET SAYING?
Sales of framing lumber hit a higher gear in most species. Traders continue to weigh a changing landscape of factors impacting supply and demand.
The postponement of the final determination in the Canadian Tariffs (CVD/AD) as investigations extended the period in which NO tarriff will be collected (until at least the end of the year). Historic flooding shut down shipping in and out of parts of Texas. The Houston area consumes far more Southern Pine lumber than it produces, so the storm’s initial impact was much more extensive on the demand side. Forest fires continued to affect production in the B.C. Interior, and some forests in southern Oregon were shut down to logging this week. There is a high degree of uncertainty as experts struggle to assess how all these factors will affect framing lumber markets.Beyond the impact to commodities it will take months for economists to measure the economic effect of the storm with any degree of accuracy.
So, “keep your friends close and your Lumbermen [sic] closer” as we continue to track this and report back.