Materials Prices
plumb_bob
| Posted in General Questions on
Does anybody have an educated opinion on how construction material prices are rising, and if they are anticipated to drop? I heave heard various opinions about what is driving the rise but have not heard what prices are forecasted to be in the coming months and years.
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I have no idea but I’m interested. I sold my house and now living in a camper. I wanted to build but I cannot. I’ve heard demand is up because COVID lockdowns have projects on the rise. I’ve heard we’re not importing from Canada like we did with the prior administration. I’ve heard the fires out west caused issues. I’ve heard goofy things that aren’t worth repeating Google search “lb00” (zeros on the end not o’s) for the lumber futures price. It goes up about 20-30 points a day. I’m bummed! I listened to a dude on YouTube called “economic ninja” who predicts people will refuse to build (like me) and stores will build inventories causing price to go down on summertime. Looking forward to hearing input from others.
Efficient market theory says that commodities markets encapsulate the consensus of everyone in the market. So you can see what the consensus is around lumber prices by looking at the futures markets. I like this page:
https://www.marketwatch.com/investing/future/lb00
The standard unit of commodity lumber is 1,000 board feet. Right now it's trading at $1454. For September delivery you'd pay $1182 and for May 2022 deliver you'd pay $979. So the market is saying that people expect costs to come down over the next year, but still stay high by historical standards. One year ago it was at $319.
Yes I may postpone my own project due to high prices, hoping they come down in the next year.
Expect the prices to bounce up again when they finally come down. Too many people waiting on the side lines right now will jump right in.
Personnally, I think the prices will fall somewhere in august/september but I'm not expecting anything close to normal until 2022.
I keep a close eye on this stuff since I bid out project packages for my customers. I work mostly with electrical and steel structures, so I'm most familiar with products involved in those types of projects, but I do try to have an idea on some other things too. I check with my vendors every few days. This is a summary of what I've been hearing:
Copper prices are up A LOT -- about 250% compared with last fall. This is due to a combination of reduced supply (some reduced output issues at several mines, especially the big one in Chile, that are related to COVID issues), and banksters playing the commodities market. Prices have leveled off a bit over the past month or so. My suppliers are warning of possible materials shortages (as in they won't have stock for you to buy) come summer, but no one is sure how severe those shortages may be. The biggest hit items right now seem to be building wire in the 14, 12 and 10 gauge sizes, which unfortunately includes the most common sizes used in residential construction. Prices are not expected to drop until at least this coming winter, and maybe later. No one is certain. I would not expect prices to return to normal levels for at least a year, and we're likely to see some more increases before things start to drop.
There is a global shortage of PVC feedstock resin which affects PVC pipe and conduit production. The US is the largest producer of PVC, and several chemical plants are offline or operating at reduced capacity due to COVID issues and/or issues related to the recent storms and power problems in Texas and the surrounding area. PVC prices are up maybe double compared to the beginning of this year. Many PVC items are in very short supply and are hard to get. I personally have seen certain sizes of PVC conduit completely unavailable. My primary commerical supplier is warning of shortages (again, as in "no stock for you to buy") come summer, but has not had issues getting material yet. I've been seeing box stores get cleaned out before commerical supply houses, which is likely due to manufacturers prioritizing the commerical supply houses for deliveries.
There is expected to be a shortage of treated lumber again this summer just like last year. Prices are up A LOT (I don't keep track of lumber prices as much, so I can't give good comparisons here). Regular lumber and panel products are up A LOT too. I've been told this is due to a combination of mills still not fully back online since COVID related shutdowns last year, and low inventories. I've been told that the shortages of treated lumber are due to Southern Yellow Pine (SYP) shortages and that the plants that do the pressure treating could treat more, but can't get SYP stock in to treat.
I've heard about, but haven't tried to confirm, that there have been some efforts to get a sort of carbon trading market going in the SE US, and there is a group that has been paying SYP growers to not cut timber. If this is the case, then we're likely to continue to see high prices on lumber, especially SYP and pressure treated lumber (which is usually SYP with treatment), and may never see these prices recover to near where they were. I personally think if this "carbon market" is what is going on, it's a dumb idea to implement in this way -- they'd be better off cutting and replanting as an ongoing cycle. As I said though, I have NOT confirmed this is what's going on with SYP and treated lumber.
Steel is up about double from it's long term average, and suppliers aren't holding prices -- I've been told no one will hold prices for even 24 hours. I don't have a cause here, but I've heard the same from multiple vendors.
Many other parts, some seemingly random, are in short supply. My main generator vendor, for example, is telling me there is a national shortage of radiator hoses of all things, and that is what is holding up their production. I'm seeing 20 week lead times on commercial generators (100kw+), and smaller residential generators are back ordered until this Fall. Many parts are in short supply which can make service work difficult for existing equipment too.
During all the shutdowns last year, inventory was depleted since production was reduced or shut down completely. Inventories right now are very low, and production isn't fully back online yet, which is the primary cause of many of the shortages. One of my vendors has mentioned that he thinks 40 hour work weeks working at home are closer to 20 productive hours, which results in lower productivity. Many of my vendors have also mentioned a lot of places have wanted to raise prices for a long time, and now they can without getting blamed "sorry, it's because of COVID... Yeah, I understand..., etc...". There is probably some of that too, and likely some inflationary pressures as well.
There have been some issues of vendor A needing vendor B's product to get their production back up, but vendor B can't get fully back online until receiving product from vendor A too -- chicken and egg stuff. I have no idea how much of that is going on, but there is at least some.
Ford cut a shift of F150 production as a result of a semiconductor shortage due to some plants being offline as a result of the power problems in Texas. I personally have had an issue sourcing a number of electronic components, notably some small-signal relays, and have seen very long lead times (one of my relay orders was supposed to arrive at my vendor April 9 and ship April 12, I recently got an update that they now expect product to arrive May 28. This is an order of just shy of 6,000 units).
Two major electronic component warehouses in Japan apparently burned to the ground in the past months, many component manufacturers overseas are not back at full production yet, and global shipping is all screwed up (greatly reduced numbers of flights, and shipping too, apparently). The guy who runs the local mideast market (a sort of specialty grocery store) told me he's having a hard time importing things due to reduced flights/shipments, and the shippers won't ship partial containers -- they are waiting until everything is full to the max before shipping. I've heard similar things from suppliers I know in Moldova and Bulgaria, and there are likely issues in other places in Europe as well. I owe some people at Continental a call, they're a big auto supplier out of Germany, I'll have to ask them what they're seeing too.
This concludes today's building materials availability update :-)
Project planning has been interesting lately. I've been warning all my customers to plan for longer lead times, and to order materials earlier than they normally would to avoid shortages and work stoppages on their projects. If you have an ongoing project right now, I highly recommend keeping in touch with your suppliers to make sure you can manage any unexpected shortages or extended leadtimes.
Bill
Zephyr wrote: "Steel is up about double from it's long term average, and suppliers aren't holding prices -- I've told no one will hold prices for even 24 hours. I don't have a cause here, but I've heard the same from multiple vendors."
It is due to Amazon's relentless construction of distribution centers.
https://www.colliers.com/en/news/cincinnati/the-amazon-effect-on-everything
"One national steel producer has reported that orders for construction projects related to Amazon in 2021 comprises effectively 33% of their national capacity and has increased lead times to a 20-year high."
Bill, what I'm hearing is that stump prices of lumber -- what the landowner gets -- haven't increased at all, that there's no shortage of trees, the problem is all in the supply chain.
Anecdotally it seems a lot of smaller sawmills are ramping up, particularly for non-structural stuff that doesn't need to be stamped.
I've heard the same regarding prices for the timber. The only oddball thing was when I heard some people being paid NOT to cut timber. That was strange. Most everyone I've talked to said the big issue is mills being offline or not back to full capacity yet.
There are lumber grading places that could grade custom milled lumber. No idea on the costs, or minimums, to do that though -- and freight costs to ship the lumber might more than offset whatever cost savings the small mill had to offer to begin with.
Bill
I've heard that as well. Specifically that USDA has programs that encourage landowners to plant fast-growing species like radiata, and that stump prices are low enough right now to trigger price supports, where USDA pays growers not to harvest.
The sensible side of me believes that the markets are predictive, the optimist says the mills will get their act together and in a few months the plywood will be flowing freely again.
>"The sensible side of me believes that the markets are predictive, the optimist says the mills will get their act together and in a few months the plywood will be flowing freely again."
This reminds me of an old quote, I don't remember who said it: "Never attribute to malice what can adequately be explained by incompetance". I suspect at least a part of what we're seeing is every little glitch in everyone's plans getting out in front and causing trouble. Stressful situations of any kind always bring out the worst (and sometimes best) in things.
Basically I suspect there are plenty of screwups going on out there and not enough inventory or excess capacity to cover them up. Crazy times.
bill
Thank you. This was really a great news roundup and very enlightening. Appreciate you sharing your experience and expertise.
> One of my vendors has mentioned that he thinks 40 hour work weeks working at home are closer to 20 productive hours, which results in lower productivity.
LOL. I think most companies were lucky if they got 10 productive hours a week out of employees in a modern office. 20 seems like found money!
> Ford cut a shift of F150 production as a result of a semiconductor shortage due to some plants being offline as a result of the power problems in Texas.
Semiconductor constraints are definitely real and global. In my day job, we accelerated 2-3 quarters of purchases to account for known and unknown delays across the semiconductor supply chain. Even Apple, who is literally first in line for semiconductor fab capacity, yesterday (2021-04-28) warned that they will be supply constrained due to shortages and expect an upcoming $3 - 4 billion revenue hit because of it.
LOL. I think most companies were lucky if they got 10 productive hours a week out of employees in a modern office. 20 seems like found money!
The optimal word in your answer is "modern". I don't disagree at all.
I am in Northern BC and a sheet of 1/2" standard spruce plywood is around $80. It seems completely unsustainable but property values are rising faster than material costs so the boom continues. I am hearing of anything with foamed plastic (ICF, exterior doors etc) are getting hard to find.
Thanks for the thesis Bill! Interesting...
These videos are from a softwoods market analyst, and provide some explanation for the current prices on the lumber side. I know some people are putting their project on hold, but it seems many are willing to pay any price -- which should keep prices high.
https://www.youtube.com/channel/UCIxRWeR1MCv1aTosFuCR_zw/featured
I read recently that a typical new home uses 10,000 board feet of lumber. At $1.40 that's $14,000 worth of lumber, which sounds a little low to me but gives a sense of scale. If you've bought the site, gotten plans approved, cleared the land and dug the foundation, the cost of stopping now is a lot more than the incremental cost of lumber.
Interest rates are extreamly low right now too, which helps people to absorb the increased materials costs. Low rates are a powerful incentive to do the build right now if you can. The issue for those people is going to be the shortages more than the cost increases. If some of the predictions I've been hearing for summertime materials shortages come through, we're going to have a lot of people with stalled projects waiting on those last few pieces of pipe, or the last bit of wire, to get the job done.
Bill
I appreciate all of the information provided here.
I bought a lot of lumber in December 2019/January 2020 for my own house. Current prices for dimensional lumber are about 3x what they were in December 2019/January 2020. Current prices for engineered products are 2-3x, depending on product, if you can even get it.
My normal lumberyard is large (spans multiple locations, has multiple yards with direct rail access). They've been completely out of all 3/4" subfloor material with the exception of Fir plywood with no indication of when they will get a restock.
Another very large vendor I've previously bought from told me they couldn't just sell me sheathing; I'd have to buy something else as well. (Also, their prices were absolutely insane.)
It's pretty wild, to say the least.