Plywood hits the roof with record-high prices - Low supply
meets increased demand from home building
Olympia, WA - 4/12/04 - Plywood prices have reached record highs
after climbing steadily through the summer, like an innocent gust
turning into a gale.
Builders, wholesalers, retailers, home buyers and do-it-yourself remodelers are getting lashed.
Plywood mills are just about the only ones who are benefiting from the price spike.
What's to blame?
Slower plywood production in the winter and a flurry of home building in the summer.
Plus, the Pentagon recently sent a huge plywood shipment to Iraq.
These factors combine to create high demand and low supply.
"We get grumbling and complaining," said Scott Richardson, manager of Lincoln Creek Lumber Co.'s Tumwater store.
"But I think people are aware of conditions that are driving up prices."
The rise of spring
Lincoln Creek sells half of its wood to contractors and half to home owners.
A sheet of veneer plywood costs $22, up from $12 in April, Richardson said.
And customers now pay $19 for a 7/16-inch panel of oriented-strand board -- plywood glued together from chips -- compared to $7 in April.
In late spring, plywood prices began rising, which is normal this time of year when home building heats up, Richardson said. It's also normal for prices to taper as house construction wanes -- but this never happened.
"They jumped, and they jumped, and they jumped," Richardson said.
He half-joked that he and his colleagues waited -- in a state of denial -- for the prices to at least flatten.
Low interest rates are fueling the home-building boom, he said.
Lincoln Creek is passing some of the added costs to customers and absorbing some, Richardson said. "As far as profitability, it's a wash."
Into the record books
Plywood prices now are surpassing records set in July 1999, said Shawn Church, an editor with Random Lengths, a Eugene, Ore.-based publication that tracks wood-product trends.
Half-inch veneer plywood now sells for $528 per 1,000 square feet, compared with $268 a year ago, Church said. The previous record was $511.
And 7/16-inch oriented-strand board is priced at $460 per 1,000 square feet, up from $158 a year ago. This eclipses the former record of $355.
Production has been down in the past few years, partly because prices were depressed and partly because plywood mills have closed, Church said.
With the economy still weak, mill owners held back early in the year until they could get a clear sense of what 2003 would be like, Church said. This resulted in about 5 percent less plywood being produced nationally this winter.
Dealers let their stocks dwindle, prompting mills to be even more cautious, he said.
Then home building exploded.
"It caught a lot of people short," Church said.
Moreover, in August, the Pentagon shipped about 766,500 sheets of plywood to Iraq for such uses as building tent floors in Kuwaiti camps, Church said. It wasn't so much the volume as the timing, which compounded an already stressed market.
And as Hurricane Isabel crept closer to the East Coast, many people in threatened areas bought plywood to nail across their windows, Church said.
This rush will exacerbate the national supply crunch, though it's uncertain how much it will affect the Northwest.
Richardson, of Lincoln Creek, thinks every dealer will feel the hurricane's wrath.
"We're already in a bad situation," Richardson said. "The hurricane has made things worse."
Home Depot stockpiles plywood to prepare for hurricanes and other emergencies, thereby preventing supply from running out during a crisis, said Ron Jarvis, Home Depot's vice president in charge of lumber.
Still, Home Depot is feeling the same supply pinch as everyone else, Jarvis said. The emergency surplus merely kept inventory from being emptied.
Jarvis agreed that producers scaled back earlier this year when the economy didn't pick up as quickly as some experts had forecast.
"So we've been playing catch-up ever since," Jarvis said.
Rising prices have proved a boon for many manufacturers, though the Shelton plywood plant has benefited to a lesser degree because of its specialized niche.
In April, Simpson Timber Co. sold the 270-employee plant to Connecticut-based Atlas Holdings, which created a subsidiary called Olympic Panel Products to oversee the mill.
Olympic Panel makes plywood for signs, roll-up doors on delivery trucks and forms for molding concrete on commercial projects.
Demand for its plywood hasn't skyrocketed the way it has for commodity producers that serve the housing market, said Jim Zmudka, Olympic sales manager.
"I would say for the most part, our prices are up 10 (percent) to 15 percent," Zmudka said. "We have a different business than, say, Hardel."
So what is increasing Olympic's sales?
As commodity producers rush to keep pace with the home-building rush, they must forego the more specialized orders, Zmudka said. Olympic has picked up these clients.
One area builder decried the steeper plywood prices, saying they add to contractors' growing costs.
Lacey-based Phoenix Construction Solutions bid a remodeling job based on 3/4-inch plywood costing $16 to $18 a sheet; it's now $30 per panel.
"Now I have to go back to the customer with my hat in my hand and ask for a change, which I don't like to do," said Ed Duran, Phoenix owner. "Somebody's getting rich off this -- it ain't me."
Plywood prices will probably be higher next week, and the week after that, Duran said.
He estimates that the plywood on a 2,000-square-foot house would cost at least $2,500 more than last year.
"It's crazy out there," said Yuchen Santory, project manager for Olympia-based MC Construction, which builds custom homes.
About 2 1/2 months ago, he bid plywood costs at $25,000 for a 4,000-square-foot house, and factored in some inflation, Santory said. But he didn't foresee prices rising with no letup.
The plywood portion of the job now costs at least $3,000 more, he said. MC seldom tries to revise the original bid to cover such costs.
"In general, we'll probably eat it," Santory said.
Projects are bid in the winter with the expectation that plywood prices will climb, he said. But in the summer, these prices typically drop.
Many contractors have been absorbing the heftier plywood costs rather than passing them to customers, though that will soon change, he said.
In a recent bid on a $500,000 house, he worked in the higher panel prices, he said. Because of the pricier plywood, this house will cost $1.25 per square more to build than a year ago -- or about $5,000.
People can take comfort in history, if nothing else, said Random Lengths' Church.
History shows that surging prices eventually lose momentum and that prices then fall dramatically, he said.
The only question is when the current inflationary wind will abate.
Scott Wyland is a business reporter for The Olympian. He can be reached
at 360-357-0748 or firstname.lastname@example.org.
Bill Easley grades patched veneer Thursday afternoon as Theresa
Freeman operates a patching machine at the Olympic Panel Products
plywood mill in Shelton.
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