Appreciating Lumber Market Fluctuations, Part 1: The Bad News

While the North American quest for reduced prices is certainly not limited to the lumber industry, at J. Gibson McIlvain, that’s where we live. Our perspective is probably quite different from that of our customers: When see various exotic lumber prices plummet, we know it’s really not good news. By contrast, when we see them start to climb, we realize it’s a healthy thing.

One example of a species that’s suffering right now is African Mahogany. The prices kept getting lower and customers were thrilled, but we were shaking our heads. Eventually, if the profit margin isn’t wide enough, logging companies simply can’t continue. They need to make a profit, and their employees need living wages (which area is already significantly lower than the American definition). We have a completely different scenario right now with Poplar. The higher-than-usual prices indicate a growing market, and a growing market is a healthy one. While some might think that the inflated prices are results of price gouging, that is far from the case.

Understanding the origins of the situation can help customers understand the reasons for the shift. Over the the past half century or so, manufacturing has steadily been shifting away from North America. From the 1950s through the 1980s, manufacturing companies fled offshore for many reasons, usually tied to reducing overhead and escaping high taxation. Developing countries provided a means to the end of achieving higher profits. Along with many other industries, the lumber industry suffered greatly.

When low interest rates and new types of home loans became available, the housing boom created a growing demand for lumber. In the wake of the soon-to-come housing bust, new construction is at a low, resulting in lower lumber production. At the same time, overseas competitors continually drive prices down. Why are they so low? They basically have no choice, if they’re going to compete with domestic lumber rates that mirror those of the 1960s. Unable to compete, many saw mills and lumber distributors are closing their doors.

The continual devaluation of raw materials can lead to lower labor rates, as well. While the customer seems to win out in such situations, in the end, the local source once taken for granted is eliminated altogether. When both manufacturers and builders slash prices on their work in order to compete, they do so hoping more production or more jobs will help them cover the loss. Of course, trying to get two projects done in the same amount of time as one in order to recoup lost profits leads to lower quality workmanship. Losing their main value-add can lead formerly loyal customers to see no benefit to sticking with domestic sources when equally low-end products are available from Asia. They see only price and immediate availability, rather than looking at the big picture.

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