November 2012 The Home Builders Association Wood Commodity Index (Index) for November 2012 demonstrates just how America’s vulnerable supply chain has been damaged by the Great Recession, as prices have soared in the aftermath of Hurricane Sandy. One month ago, many in our industry felt that the 2012 Atlantic hurricane season was over with cooler temperatures invading the country, and then came along Hurricane Sandy, which devastated huge areas in New Jersey and New York.
In the wake of the storm, commodity prices have shot straight up. Since mid-October, the Index has increased a whopping 16.9% to $371.01 per thousand. These types of huge price increases are unheard of in November as most markets are historically winding down for the holidays. This really speaks to the level of inventories in the supply chain and how cash constraints have left the nation’s builders vulnerable to these types of events.
The lumber portion of the Index jumped 15.2% to $370.41 as every item increased in price. Studs were up from $25 to $65 per thousand as buyers searched for available wood. Dimensional spruce lumber increased on average $15 per thousand while wide width pine saw huge increases of plus 30%. Narrow width pine increased 14% as supply became tighter.
In the wood sheathing portion of the Index, OSB sheathing skyrocketed in price over the last 30 days with prices jumping $68 per thousand--or plus 25%. CDX pine sheathing was up from 6% to 14%, which is far less than OSB, but prices were still brutal for such a short time period. Supply concerns are really growing in sheathing as repairs and reconstruction begin on the east coast.
A huge market increase of this type is very unusual for November and does not bode well for lower pricing in 2013. This disaster will also put tremendous pressure on drywall, roofing, doors and windows as those manufactures are struggling to keep up with production now. There is also another factor that cannot be ignored--the Chinese are starting to move into the commodity markets again and huge parts of the inventory could be moved to Asia.
Builders should protect themselves in bids and quotes by implementing an escalation clause in their contracts and bids. They also need to do something else--develop relationships with suppliers who can ensure supply. Any increase in housing starts in 2013, with a huge rebuilding effort on the east coast, coupled with a larger Chinese market presence could make supply untenably short. Be careful.
Finally, I’d like to wish everyone a very joyous and happy Thanksgiving holiday. It is my prayer that we all remember all of the blessings we should be most thankful for.
Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at firstname.lastname@example.org.