August 2019 RoMac Lumber & Commodity Report

Wood

LUMBER AND COMMODITY REPORT – August 2019

by Don Magruder, CEO of RoMac Building Supply

The wood commodity markets have been flashing warning signs about construction demand over the last 30 days. The flashing lights may not be red, but they are certainly bright yellow. The RoMac Building Supply Lumber and Commodity Index (Index) for August 2019 dropped 9.8% to $287.81 per thousand, which is significant for a 30-day period.

Although two items in the Index had minor increases, most items suffered solid drops. You can blame the economy, rain, a slow hurricane season, or whoever you want, but there is no doubt the demand equation for wood construction materials is waning because supply is overtaking the equation. Unfortunately, the rumblings on Wall Street and the Bond Markets could further impact demand as seniors and nervous real estate investors put their wallets away.

The dimensional lumber portion of the Index dropped $31.90 per thousand or 8.1%. Dimensional 2×4 spruce was down 8.6% to 15.0%, depending on length, while 2×6 gave back 8.6%. Studs were down 3.0% to 8.8%, once again depending on length. Only 2×6 studs posted a positive gain of a meager 1.2%. Despite significant mill closures and curtailments in Canada, the manufacturers have not been able to cement a bottom in the wood markets.

The sheathing portion of the Index dropped 9.8% with both CDX Pine and OSB sheathing losing close to 10% of its value. The actual loss in the sheathing portion was $30.78 per thousand, which equates to about 99 cents per sheet. That is a rough drop considering the country is entering the worst part of hurricane season. Typically, plywood and OSB mills are holding the line on pricing, but this year too much supply is creating an environment which is mimicking the Great Recession. Numbers are low, and I am not real sure at these levels and production if a hurricane risk will really move these markets significantly. Hurricane Michael shattered that theory last year.

My concern is the overall turmoil in other parts of the market could spill over and weaken demand further. While I suggest builders remain cautious during the next two months of hurricane season, I see little by way of fundamentals to drive these markets higher. Unfortunately, the signals are now flashing a slowdown and caution. Let’s hope not. Keep both eyes on the weather and the markets and bid close to protect short-term projects the next couple of months.

Don Magruder is the Chief Executive Officer of RoMac Building Supply in Central Florida (romacfl.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 don.magruder@romacfl.com.