Unprecedented Supply Disruptions and Record Prices in Lumbers and Panels
See the charts below, as reported prices continue to soar with no peak yet in sight!
To understand how unique and unnerving this time is, here’s what experienced lumber traders are saying:
- “This is insanity”
- “Unprecedented increase in demand”
- “Supply chain in severely stressed position”
- “Unmanageable chaos”
- “Numbers are scary, but it’s not a market that appears ready to tumble”
- “Demand greatly outpaces supply”
- “Numbers are simply not sustainable”
- “With how busy we are, I simply can’t stop buying”
- “Logistics chain is so stressed that it is becoming more of a survival mode – to provide viable product in useable timeframe”
What Happened? In summary: “Production curtailed, demand picked up more quickly, nobody had inventory in the channel, and it’s just been a scramble ever since.” When the pandemic first hit, mills anticipated reduced demand and they curtailed production. Instead, Americans stuck at home without much to do, started building and fixing. Government stimulus checks buoyed long-delayed home improvements, as did less money spent eating out and on vacations. Though manufacturers have tried to ramp back up, they have struggled with Covid-19 related issues that have reduced production levels. Mills that normally run 3 shifts (24 hrs) have had to cut back to 2 shifts (16 hrs) with 4 hours of cleaning between shifts.
As a result, inventory levels and availability are nowhere near normal operating conditions. In addition, transportation issues have caused delayed shipments and trade disputes have impacted products like mouldings and plywoods. On Friday, the OSB composite price at Random Lengths (the industry’s reporter) reached $605, surpassing the previous 2004 housing boom record of $528. Framing Lumber and Structural Panel prices have doubled from last year (and are still climbing)!
Any Relief in Sight? No, not yet. Mill order files (which are a gauge of demand) are stretching into late September and even October. At some point, these high prices are unsustainable and projects may get delayed or canceled – but for now, buyers are paying the premiums to keep the jobs supplied and moving. LMC, our buying group, “does not anticipate these conditions changing in the near term”.
What is Davis-Hawn Doing About It? Fortunately, Davis-Hawn is a member of the best buying group in the country (LMC), which has billion-dollar buying power among our 1,400+ locations. LMC is larger than BMC, 84 Lumber and Builders FirstSource combined, and LMC’s staff is regularly meeting with suppliers to discuss our position and gain assurances that we continue to be treated as one of their top customers. We are working tirelessly to manage our inventory in the yard to meet your needs and minimize the impact to your business.
However, we are now paying up to $100,000 for a carload of framing lumber that historically cost $50,000. Such sharply higher prices have more than doubled the cost of some framing packages! The emphasis, however, remains more on availability than price – everyone is scrambling for wood!
What Can You Do About It? Of course, communication will be the key – both between Davis-Hawn and you, and between you and your homeowner clients. Budgets must be addressed immediately! Banks and credit lines may come into play. See the Price Trends chart below for price comparisons versus last month, last year and last 5-year averages. This will help you gauge budgets off of recent jobs you have completed. All quotes need to be re-priced at the beginning of each month. Homeowners need to be informed of the impact of this market on their projects overall budget.
Davis-Hawn needs to know of your upcoming projects as early as possible so we can adequately manage our inventory and the availability of product for when you need it. Job site security will become essential (if it isn’t already), as thieves will be seeking valuable “surplus” materials. Alternative products – different species, different grades, even alternative construction methods – may need to be considered, based upon availability.
Some Other Options to Consider: Please be flexible, if possible, willing to substitute similar products that may still meet your project’s needs. Consider LSL studs or plywood on your high-end project since there is less of a premium over dimensional studs and OSB than normal. Certain grades or species may not be readily available in the time frame your carpenter needs them, so consider alternatives – Doug Fir vs. SPF, #2 vs #3, etc. Keep in mind that Engineered Wood Products (EWP) and certain other components to the framing package have not jumped in price like the commodity products. Floor systems, fasteners, adhesives, flashings and similar products have maintained much more stable pricing.
For Perspective: In a high-end project costing $400 per square foot to build, the percentage impact of an increase of $10 per square foot in framing lumber will increase the cost of the home by just 2.5%. For a production home costing $100 per square foot, that impact is 10% – enough to possibly delay the project. These prices will eventually come down – but no one can predict when or how fast.
There continues to be a housing shortage in the U.S. and the need to build is strong. NAHB just announced on Monday that its housing index jumped to 78 (from 72 in July) – equaling its highest level on record! With this upcoming election, civil unrest in the big cities and the continuing Covid-19 virus – who knows how this plays out?!
Gratitude. Compared to many other industries that have been shut down this year, we are really grateful to be in an industry that is operating strong, even if it is oversold, undersupplied and stressed to fulfill such great demand. Sure beats the alternative!
We at Davis-Hawn remain ready to help you and your team in any way we can. It is in the difficult times like these that a united front and banding together will serve us best. We hope that you, your families and your team continue to stay safe. Please do not hesitate to call us with any questions.