End of credit, rising imports hammer lumber prices

As LuveeR PRICES retreat to Alo*, fior the year, calls for production to again conform to current demand levels are growing. This is reminiscent of 2008 and 2009, when the long slog to bring production and consumption into balance was occurring. Eventually, in the latter half of 2009, a balance was restored.

Now that the housing stimulus in the form of homebuyers tax credits ended April 30, demand is wavering. The pace of housing starts and permits has the appearance of slowing, builders are less confident about what the future holds, and the real estate industry is forecasting a two to three month period in which home sales will decline. Within the wood products industry, reports of a downturn in the business climate surfaced early in the second quarter.

As to whether the homebuilder tax credit worked, it would be hard to argue against its success in the short term. Home construction was stimulated, certainly more than what the industry expected. Due in large part to the stimulus, lumber consumption increased and so, too, did lumber prices, giving producers and the distribution chain a long-awaited dose of price volatility and profitability.

It is also within reason to argue that results from the tax credit, estimated at around $35 billion. fell short of the cost. For example, the National Association of Realtors estimates that out of the 4.4 million homes purchased during the stimulus period, only I million were purchased because of the stimulus. In other words, $27 billion was spent on sales that would have occurred without the stimulus.

It is widely believed that the tax credit helped limit inventories of unsold houses in the market. which helped stabilize home prices. A stabilization of home prices in turn limited the loss of equity in homes. Some estimates show the stimulus saving $2 trillion in homeowner equity, equating to an average of about $21,000 per homeowner.

As for home construction, it appears the market has stalled, despite affordability figures that are quite favorable. Future buying and construction was likely pushed forward by the tax credits, giving the appearance of a sustainable upward trend. For instance, new home sales in May totaled just 300,000 units on an annualized basis-32.77o below the April Census Bureau figure of 446,000.

Within the industry, signs of a troubled economy, even while housing starts increased, were evident in the western red cedar market. Even after significant cutbacks in production over the last couple of years, demand has lagged. Not as strongly tied to housing starts as other species, consumer spending on deck and other outdoor projects remains limited.

In southern pine treated lumber, sales have stagnated since May, a time when buying is usually in full swing. Treaters report that their sales in May and June were down l0-20Vo compared to the same months last year. Disappointing treated wood sales played a large role in the steep and extended downturn in southern pine lumber prices. Even sales surrounding the Memorial Day holiday, typically a big weekend for big box store sales, were below expectations for treaters.

The slower pace of consumption is not the only factor driving down fram- ing lumber prices. Traders are pointing to June's increase in Canadian lumber exports into the U.S. as a contributing factor. Their premise is not only are buyers seeing more imports ship into the states in June, they also expected in May that imports from Canada would multiply this month.

Therefore, it is the well-founded stance of traders that even the perception of greater supplies available in June helped stifle demand in May.

Actually, a strong connection exists between two of the largest factors influencing lumber prices over the past few months: the U.S. government's housing stimulus and increased imports from Canada. Simply put, the homebuyer tax credit helped stimulate demand beyond production levels, pushing lumber prices higher. Elevated prices led to the elimination of duties on Canadian softwood lumber exports for June.

Canadian exporters, taking advantage of the suspension of export taxes, are now shipping at a pace of nearly 1.0 billion bd. ft. into the U.S. for the month, far exceeding the pace set in either April or May. Again, it is a widely held perception within the industry that those volumes entering the U.S. from Canada are now having a negative influence on pricing.

The big question from here forward is whether the housing market can stand on its own two feet without the crutch of more government spending. Whether the tax credit was successful is certainly debatable, but it is clear that the underlying economy was not strong enough to gather much momentum from the stimulus.

- Gary Zauner is editor of Crow's Weekly Market Report, the longest-run' ning source of prices in the North American lumber and panel industry. Reach him at gzauner@risi.com or sign up for a free trial subscription at wlrw. risiinfo.com/crows.

Fifth-generation, family-owned Collins Lumber Corp., Troy, N.Y., has closed after 122 years in the same location.

Stock Building Supply, Raleigh, N.C., has completed its purchase of the assets of Bison Building Materials, Houston, Tx.

The operation will retain the Bison name, under Tom Tolleson, who has been with Bison for '10 years, most recently as chief operating officer.

Dells Lumber & Gonstruction, Wisconsin Dells, Wi., closed July 30 after 63 years, with the retirement of John and Joanne Van Wie.

Paitson Bros. Ace HardWafe, Terre Haute, In., closed July'16 after 88 years due to "remediation.'

Owner Chuck Procarione hopes to reopen, if his landlord pays to remodel, including repairing damages caused by 18 months of a leaking roof.

Ace Hardwar€ franchise owners Joe Smith Jr. and his wife, Cindy, opened their 6th location last month in Vineland, N.J.

Ace Hardw?r€, Dututh, Mn., has closed after a 7-week liquidation sale.

Ace Hardware opens a 10,000sq. ft. store this fall in Greensboro, N.C. (Doug Brown, managing partner).

27 Hardware & Supply, noct Spring, Tn., has opened store #2 in the former Ace Hardw?ro location in Chickamauga, Tn.

Geneva Ace Hardware, Geneva, ll., suffered roof damage from a June 29 fire.

Cleveland Ace Hardware. Raleigh, N.C., was opened July 9 by Eric Jensen and Sarah Mcconnell.

Ace Fix-it Hardware. Duncanville, Pa., willopen its 7th store next month in Oakmont, Pa.

Aubuchon Hardware ctosed its Port Henry, N.Y., store June 30.

Jim Junga, BZNDS Enterprise, is opening a 10,500-sq. tt. ACe Hardware early this fall in Saline, Mi.

84 Closes 7 Stores, Reopens 1

84 Lumber Co. is closing seven money-losing locations, reducing its count to 281 stores in 35 states. Earlier this month, however, the chain reopened its yard in Milton, Fl., closed since April 2008.

Closing are Macedonia, Oh.; Florence, Ky.; Wyoming, Mi.; Overlea, Md.; Michigan City, In.; Austin and McAllen, Tx.

Except for McAllen, said spokesman Jeff Nobers, "these are older stores, with a small footprint and in markets that have either matured with minimal housing starts or that can be consolidated into other existing stores making our overall market presence stronger."

East Haven Adds 2 Locations

US LBM Holdings subsidiary East Haven Builders Supply, East Haven, Ct., has added two locations, in partnership with their former owners.

East Haven acquired 78-year-old Millwood Lumber, Millwood, N.Y., from Michael Malara, who will stay on to help run the business under the Millwood name.

In addition, East Haven teamed with Tom Mort to reopen a truss and wall panel plant in Branford, Ct., which he had run as Universal Components Corp.

ProBuild Expands in East

ProBuild has agreed to purchase some of the assets of Chopp Lumber, Waldorf, Md., which supplies trusses, wall panels, and lumber to the residen- tial and commercial markets in southern Maryland and Washington, D.C.

"These are two very important markets for us," said Paul Hylbert. c.e.o. of ProBuild. "The combination of their local market expertise and ProBuild's national scope will be of tremendous value to our customers in these markets."

ProBuild also opened a new millwork facility in San Antonio, Tx., which it said will serve the market more quickly and efficiently than its millwork operation in Austin, Tx.

Michigan Dealer Reviving, Remodeling Defunct Store

This month, Peter Grebeck, owner of Peter's True Value Hardware, Milford, Mi., is reopening True Value South Lyon Lumber, a year after the yard closed.

He is remodeling the unit in the Destination True Value format and adding power equipment rentals and service, and party rentals.

Fire Again Rips MarylandYard

Yet again, fire has struck Bond Lumber & Home Center. Lutherville. Md., consuming 90Vo of its inventory, as well as trucks and forklifts.

Owner Bunnie Gleiman suspects kids or drifters are to blame for the July ll blaze. "This is, I think, fire No. 7 in 13 years," she said. "They've all been arson."

"My life is gone. It's honible," she lamented. "This has been my life, my family's life, since 1937 when my grandfather started it."