The Unintended Consequence of China's Lumber Demand, OSB Prices Soften

Many people have heard me talk about the unintended consequences that result from situations in the lumber market. While China's demand for lumber has helped the lumber industry in North America, one unintended consequence could be that there will be less lumber supply available for U.S. homebuilding, and prices will rise as domestic demand increases.

As China's demand for lumber increases, it could reduce lumber available for U.S. homebuilding. China in now the second largest user of North American lumber. Only the United States uses more. Low-grade lumber that would be used for building houses in Atlanta is used largely in concrete forming when shipped to China, and also in furniture construction. Inventories are low for building material supply yards for this time of year. However, there is very little residential construction in Georgia, and the record-breaking rains of the last week have made jobsite delivery nearly imposible.
Lumber sales to China continue to see growth
B.C. continues to ramp up lumber shipments to China and has already exceeded its lumber shipments to the Asian economic giant over last year despite the difficult global economic conditions.
Typically, OSB prices start to fall at this time of year, unless there is tropical activity to stimulate buying. Mill files are growing shorter, and secondaries are trying to move off contract loads. Two Atlantic Ocean weather systems being watched
The National Hurricane Center is monitoring two systems in the Atlantic Ocean this morning.

Georgia Lumber & Building Material Suppliers Get Good News

The U.S. Census Bureau announced on September 15 that housing permits and starts for August were up from July. Things are looking up for building material supply businesses in Georgia and the Atlanta – Athens area:
Housing Starts in U.S. Climb to Nine-Month High
Sept. 17 (Bloomberg) -- Builders in the U.S. broke ground in August on the most houses in nine months, led by a jump in multifamily dwellings that overshadowed a decrease in construction of single-family homes.
In a related story, the Bureau of Labor Statistics released its producer price index for residential construction:
A Bright Spot in Housing: Construction Costs
On September 15th, the Bureau of Labor Statistics released its producer price index for residential construction. The increase from July to August is a good sign for suppliers to the housing market.
Lumber futures indicated that a major component of construction costs continues to deflate:
CME lumber ends lower on easier cash market

Georgia Construction, Lumber & Building Material Supply update

This has been a cool, rainy week in Atlanta, Georgia. The unusually wet weather dampened sales of Yellow Pine Lumber in Atlanta and Athens this week. The heavier rains being experienced in producing areas will make it hard to get logs out, which should result in a short- to medium term reduction in log decks. Lumber Futures closed higher September 15th, due to short-covering.
CME lumber ends higher on short covering
CHICAGO, Sept 15 (Reuters) - Chicago Mercantile Exchange lumber futures closed higher on Tuesday amid short covering prompted partly by a firm expiration in the September contract.
Construction Starts Up 13% in August vs July
Reed Construction Data (RCD) announced today that the year-to-date value of construction starts through August 2009, excluding residential contracts, totaled $162.3 billion, 13.0% less than in the same period in 2008. Individual month of August starts were 12.7% higher than in July.

Prices for Georgia Lumber & Building Material continue to decline

Lumber and building material prices are slowly grinding lower again. As a result ofhousing market fundamentals, lumber & building material supply businesses in Georgia continue to suffer:
James Hardie: US Housing Market Hasn't Bottomed, But Close
NEW YORK (Dow Jones)--James Hardie Industries NV (JHX) Chief Executive Louis Gries said Monday he expects positive year-on-year housing starts data in the U.S. between March and May 2010.
DJ CME Lumber Review: September Slips But Most Others Gain
Trading Markets (press release)
A broker said better-than-expected housing starts in Canada during August reported early in the day might have been mildly supportive for lumber futures.
-There seems to be little support for OSB prices, other than 2-3 week order files at the mills. With the mill curtailments and shutdowns in effect, development of any tropical activity could cause a further surge in prices.

Tax Credit for New Home Buyers, 2010 Atlanta Recovery, Mortgage Applications Increase, Lumber Mixed

Buy now: The first-time buyers tax credit will expire soon, don't lose out on this once-in-a-lifetime event!
"The combination of near historically low interest rates, favorable pricing by builders, along with this tax credit, makes buying now the deal of the century,"
Economist: Atlanta's recovery will start next year
Atlanta is poised for an economic recovery starting in the second half of 2010
U.S. MBA Mortgage Applications Index Soared 17% Last Week
Mortgage applications in the U.S. jumped the most since March last week...
CME Lumber Review: Ends Mixed In Quiet Session
The September contract settled down $0.50 per 1,000 board feet at $175.00, while November was up $2.70, or 1.55%, at $177.10. January settled up $1.60 at $197.90

US West Coast Lumber and Log Exports Up, Atlanta Home Sales Report

West Coast's log, lumber exports increase in second quarter of 2009
By USDA Forest Service, Pacific Northwest Research Station
A total of 239.5 million board feet of softwood logs and 80.2 million board feet of softwood lumber was exported from Washington, Oregon, northern California, and Alaska in April, May, and June of this year, according to the U.S. Forest Service's Pacific Northwest Research Station.
Log exports for the second quarter of 2009 from Oregon and Washington totaled 189.5 million board feet, up 38.6 percent from the first quarter volume of 136.7 million board feet.
-As these exports increase, there will be less raw materials for domestic production of lumber, plywood, OSB, doors and windows. This could result in material shortages for lumber & building material producers, builidng material suppliers and builders.
Atlanta Home Sales Report
2007-2008 Home sales overview by county- Atlanta
Gwinnett 2008 10,467 units -31.30% from 2007.

Signs of economic recovery growing locally

The good news is the bad news is getting better.

June retail sales in the Pensacola Bay Area turned in the fourth-best performance among Florida's 20 major metropolitan areas, slightly trailing only Fort Walton Beach, Panama City and Melbourne.
Although still down 2.3 percent over same month in 2008, June's $453 million in taxable retail sales was a $60 million improvement over April's figures, and $33 million better than in May.
University of West Florida economist Rick Harper said the strong showing by Pensacola and Panhandle cities is due in large part to its huge military payroll.
"The fact that Pensacola, Fort Walton and Panama City had among the least bad retail sales and unemployment numbers across the state, is consistent with the fact this region has one of the heaviest shares of government and military employees," Harper said.

*** When parts of Florida pick up, it is a good sign for neighboring states. It shouldn't be long before housing picks up and the demand for lumber, plywood, OSB and other building materials increase. This is good news for every building material supply and lumber yard left standing. Reid Adams www.coferadams.com
www.coferadams.net