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Sunday, September 12, 2004
Copyright © 2004 Blethen Maine Newspapers Inc. | ||||||
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The real estate boom, credited with keeping the economy from crumbling during the past three years, is paying dividends to lumber producers. Prices for framing lumber, plywood and oriented strand board are skyrocketing and some retailers are having trouble keeping enough of the building material in stock. The price for framing lumber, such as 2-by-4s and 2-by-10s, is 40 percent higher than a year ago, when prices had already started climbing, according to the lumber industry publication, Random Lengths. Prices for structural panels, which include plywood and oriented strand board, are on track to easily exceed the average annual prices for the past eight years and are more than double what they were just two years ago. "It's a real scramble," said Jon Anderson, the publisher of Random Lengths. Anderson noted that not only are builders putting up new homes, but those new houses are generally larger than most homes built a decade or two ago, requiring more lumber. In addition, owners of existing homes have used cash generated by refinancing to add rooms. "Our builders are booked, most of them, for at least a year," said Jeff Meehan, the director of purchasing for Hancock Lumber, which is headquartered in Casco. Even though fall is approaching and mortgage rates are inching up, Meehan said the boom shows no signs of a dramatic slowdown. "I think our business is going to be very steady," he said. The demand for lumber is such that some retailers are having trouble keeping enough supplies on hand, particularly as a string of hurricanes in Florida add to the already high demand for building materials. At The Home Depot in Portland last weekend, a small sign warned customers that plywood and generators are in short supply. That's because the chain is trying to keep stores in Florida stocked as residents board up windows in the face of a string of hurricanes and will need plywood and lumber to rebuild after the storms pass, said Don Harrison, a spokesman for the chain. Even though the amount of plywood being sent to Florida is small compared to the overall national consumption, it is causing spot shortages for The Home Depot, Harrison said. "This is unprecedented," he said. "The Home Depot is 25 years old and this resupply is off the charts." The chain sold 400,000 sheets of plywood in southwest Florida in the four days before Hurricane Charley hit last month, Harrison noted. Despite the disruption in supplies to The Home Depot, the hurricanes amount to little more than a ripple in the overall trend of higher lumber prices, Anderson said. "The markets were already extremely strong and have been for about a year-and-a-half," he said. Anderson said the seeds of the current high prices were planted in 2001, when a slowdown in the economy caused the industry to cut back on production. Interest-rate cuts buoyed the home-building market and a mortgage-refinancing wave helped push home renovations and expansions. The combination of lower supplies and growing demand started to push prices higher, Anderson said, with the biggest increases coming in the last year. "There's no question there's a housing boom we've gone into in the last several years," he said. "It's pretty simple, really." The equation has worked out well for the lumber industry. Louisiana-Pacific, which owns 13 mills making oriented strand board - which accounts for a majority of structural panels used in home construction - has been generating record production, said Mary Cohn, a spokeswoman for the company. That's also the case at the company's two Maine mills, in Houlton and Woodland, she said. Louisiana-Pacific has about 120 workers at each of the mills. The company has seen some increase in demand since two hurricanes hit Florida, Cohn said, "but it's been a strong pricing market before the hurricanes." The high prices have been a boon to the Brochu family, which bought the Pleasant River Lumber Co. in Dover-Foxcroft in June. Chris Brochu, the company's vice president, said the mill added about 10 workers and a second shift at its adjacent planer mill, although that was related to a decision to try to produce more finished lumber as much as prices. "It was a good time to start," he said of the family's purchase of the mill from a Canadian company three months ago. "But, in a month it could turn around and go the other way." And, Brochu pointed out, the raw material is expensive as well. "Yes, lumber prices are high, but log prices are too," he said, because of the high demand. Anderson said his publication avoids trying to predict prices, but the abnormally high costs, a slight increase in interest rates and signs that the housing boom might be easing all raise the question of whether the market has peaked. In fact, Random Length's market basket of prices for 11 popular structural panels stood at $485 per thousand square feet in August, down from a peak of $598 in April. On the other hand, framing lumber prices in Random Length's survey were $473 per thousand board-feet last month, the highest price since July 1999. The volatile market means retailers have to work hard to get the best prices, said Meehan, the director of purchasing for Hancock Lumber. "It's very cyclical and very supply-and-demand oriented," he said. Hancock Lumber has been able to maintain its stocks, Meehan said, by keeping a close watch on the market. "Supply issues are the worst," he said. "But if you're involved with this every day, you can see the shortages coming." Meehan said Maine lumber dealers are probably attuned to a tight market more than others elsewhere. Because the state wasn't hit as hard by the economic slowdown as many other parts of the country over the last couple of years, the construction industry has been steadily busy. That meant lumber yards here have been reliable customers of lumber dealers and brokers, perhaps giving them a bit of an edge when supplies get tight. But Meehan said the market still demands vigilance to keep supplies on hand at reasonable prices. "It's up and down, all the time," he said. Staff Writer Edward D. Murphy can be contacted at 791-6465 or at:
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