As we build our company from survival mode to growth mode, we are focusing on meeting the needs of our customers in a supply chain that is strained. In essence, many product categories do not have the available supply to meet current and future demand based on growth. This requires planning and forecasting. As we move forward, please help us plan for your needs. An easy example is the communication when we are awarded a job with your company. Continued communication can help us plan inventory needs at Zeeland Lumber and Supply, and design and production needs at Zeeland Truss and Components. We are in an industry that is challenged with forecasting and we completely understand this. Often the starting date of a new home or project is a moving target and contingent on many factors. However, it is our goal to partner with you and meet, and exceed your expectations, with products and service. Communication and lead time allow us to best meet your needs and operate efficiently. This is a win-win for both of us.
A Recap of the Year in the Lumber and OSB Markets
It is hard to believe that this year is already coming to a close. It is even harder to believe that business professionals are already planning for 2013 and trying to forecast what they will be paying for building materials in the coming months. To understand and forecast what next year will bring, I believe it is important to review the previous year. So here is my recap of 2012 and the reasons for its outcomes.
When 2012 started we were paying higher prices for both lumber and OSB than we were paying in 2011. I had stated in the November, 2011 letter that the recession was over and business would increase like a slow freight train leaving the station. I had predicted we would be paying perhaps 10% to 20% more for material in 2012 than what we were paying at the beginning of that year. Looking back, we reached that elevated price in the April-May area and it continued higher as the year progressed.
Demand for materials for new construction in all facets of the building trades grew as the year progressed. The key issues were that production and supply did not exceed the demand that was created. Supply adequately kept up, but buyers were unwilling to pay increased prices and bought basically just in time, or just out of time, depending when materials were shipped. Buying in a continuum rather than position buying is inherently bullish because mills keep getting orders for prompt material. Most dealers were practicing this buying technique. Coupled with the buying patterns, mills were reluctant to add shifts and re-open shuttered mills. Mills for the past several years had not made a profit; if they did it was insignificant. To open mills and add shifts, a mill needs people, logs, loggers, and distribution equipment to facilitate the increased production. This takes time and money. Also the mills wanted to see if it was a sustainable demand and that prices would hold before that capital outlay would occur. The industry had predicted home and multi-family starts to be in the 600,000 plus range. With the production facilities that were operational at the beginning of calendar year 2012 that figure was manageable. No large predictor of home starts at the beginning of the year came close to predicting the 860,000+ home starts that we have seen this year. As demand increased, mills raised their prices in order to insure they were going to make a profit. These prices have held and are continuing to do so.
Frankly, prices in the past few years for many mills were below break-even.
So looking back, we are at higher numbers. However, these prices are not as high as they were during the 1980’s and parts of the 1990’s. For those of you waiting, or hoping, that prices will return to 2011 levels it is not going to happen without a serious recession. As of this writing; I do not see even the normal winter ‘pull back’ happening because mills are already selling next year’s material. By and large most mills have sold this year’s production. So for this reason, I believe the prices you see now are going to be the lowest of the winter season and I recommend you price your jobs accordingly. In the next newsletter I will do my predictions for next year. I believe, however, you have an idea of what I am thinking already.
Have a great November