Lumber futures rebound, metal markets heat up, and construction inflation dips…

Markets continue digesting the impact of heartburn-inducing interest rates. PPI for construction materials sinks by 2.7% in December, month-on-month – recording the steepest drop in 2022. 

LUMBER

Lumber markets tanked throughout last year; in response to slumping prices and lower demand, North American mills and lumber suppliers are “right sizing” their operations and tapering production. Theoretically, this creates endogenous supply shocks should mortgage rates stabilize any time soon to seduce prospective homebuyers and revitalize homebuilding. Homebuilder sentiment was positive in January after a 12-month consecutive decline. Single-family housing starts rose in December by 11.3%, month-on-month.

Lumber markets may be undersupplied, a condition that will put upward pressure on prices should homebuilders come back to the foray. Futures for forestry products showed buoyancy in the first few weeks of 2023. After recording a 52-week low of $360/mbf on January 6, futures rebounded 14% (YTD). A spring in prices may be on the horizon.   

STEEL and others

Metal markets ticked upwards at the end of 2022. Hot-rolled coil (HRC) steel futures trade nearly 16% higher than a month ago – but the reasons aren’t due to demand growth. No, US steelmakers are hiking prices to defray rising operating costs and address dwindling demand from the industrial sector. Earlier in the month, 2 of the largest US steelmakers, Nucor and Cleveland-Cliffs, announced a $50/st hike on HRC.

In non-ferrous industrial metals, be on the lookout for weeping and gnashing of teeth in copper markets and products. Futures jumped up nearly 14% this month and the drums of supply shortages are beating. Nonmetallic mineral products ended the year on a high note. PPI for gypsum products +16.2%, insulation materials +14.0%, ready-mix concrete +13.6%, prestressed concrete products +30.8%, year-on-year.

There’s growing pressure to decarbonize the cement industry and shepherd it into a net-zero world. Levying a carbon emission tax translates to higher prices for concrete products which will pave the way for mass timber – just not for roads, because that would be weird.

See below for a commodities snapshot, or click here for the full report.