Lumber Prices at Lowest Level in Nearly 5 Years As Housing Inventories Rise
By Greg Stiles, Mail Tribune, Medford, Ore.
Oct. 6–When lumber prices were good, they were really good for wood products firms.
Now, after a decade of sustained price increases, lumber has tumbled dramatically in recent months.
According to Random Lengths, the Eugene-based wood products industry newsletter, lumber prices have slumped to their lowest weekly level in nearly five years.
Weekly composite prices per thousand board feet of framing lumber have plummeted to $274 from $401 a year earlier. On an average monthly basis, prices are at their lowest levels since mid-2003.
“Basically, the numbers are as bad as they were in the early ’80s,” said Rob Brown, a broker with Western Lumber in Medford. “The difference is that we’re not in a recession like we were then.”
He’s seen the price of Douglas Fir 2-by-4s fall to $175 per thousand board feet, down from $400 not too many months ago. At the same time, mills are paying $500 to $600 per thousand board feet for logs.
“You do the math and it’s not real pretty,” said Brown, who has been a middle man between mills and buyers since the 1970s.
Rising inventories of new houses in major West and Southwest markets have reduced demand for lumber and panel production in the Northwest and South.
“It’s just been a steady downturn during the past four months,” Brown said.
“Orders just aren’t coming in because of housing inventories in all the major markets.”
Boise Cascade spokesman Bob Smith said mills are eliminating overtime schedules, running less than 40 hours and periodically shutting down.
“It’s starting to have an impact,” he said. “You might see reduced shifts, or operating four days a week instead of five.”
Smith said Boise’s engineered wood products plant will likely curtail operations in the near future, resulting in a layoff of 20 people.
“Hopefully, it will be temporary and the demand for building materials will return,” Smith said. “In bridging from summer to fall, it’s not unusual for reduced demand, but in the last two or three years we’ve been in a pretty sustained market whether it has been due to multi-family or single-family residential construction. Maybe we’re getting into a more typical cycle.”
Back in 2004, industry economists predicted an impending housing slump, but builders stayed in high gear and mills obligingly pumped out lumber and panels until climbing prices and interest rates combined to put a damper on the market. One of Brown’s major customers in Arizona told him that speculators who have ordered three or four homes are backing out when it comes time for the final inspection.
“They’re losing their down payment, which is maybe $5,000,” Brown said. “But they’d rather do that than get stuck with the house.”
The composite price for structural panel products last month was $255, down more than 50 percent from the previous year when it peaked at $517 last year following Hurricane Katrina, according to Random Lengths, an industry journal.
Kevin Daugherty with Swanson Group Sales’ Medford office said plywood producers capable of shifting from roofing and underlayment panels to sanding, siding and industrial panels are holding their own for now.
“We’re in an over-produced market and that’s starting to diminish production as mills look at minimal, or sometimes negative, returns,” Daugherty said.
“Mills that are able to shift to specialty higher-end stuff are leaning that way. I haven’t seen that much downward pressure on the higher-grade products, but as more mills shift that way, then there will be an over-supply there, too.”
Chuck Smith, Timber Products’ vice president of Southern Oregon operations, said his company hasn’t laid off anyone, but realigned workers into other shifts.
“The conditions certainly haven’t allowed us to add people,” Smith said.
“There are two issues: Price and the availability of orders. If there are no buyers, you can’t sell. There’s no doubt our volumes are down, probably as much as 10 percent in some areas.”
The silver lining is that this year’s overall numbers stack up nicely against historic norms.
“Even though sales are down 25 to 30 percent, we’re coming off one of the best years ever,” Brown said. “So people are doing better than they were four, five or six years ago. They were making money back then and they’re still making money. Historically, we’re up and down during a two- or three-year cycle. We’re very fortunate and it’s been one heck of a ride.”
Brown said if housing starts climb back to 1.2 million, prices will pick up.
“We’ll be fine,” he said. “The business is not going to stop.”
Creation arises, is sustained for awhile, and then things change. ThatÃ¢â‚¬â„¢s the dance.