COVID’s 2021 Reverse Impact
Let’s see if we can get this one right. A member recently requested that I forecast when the misses were going to happen. Sounds difficult, but not impossible. COVID 2020 was a once in a lifetime paradigm shift in our learning curve. To date, I have found no one who predicted that a homebound lock down would ignite a DIY explosion and a suburban housing boom. In hindsight, it makes perfectly good sense. Folks were delightfully imprisoned, reluctantly believing the worse case scenario, behaving like they were getting a free extended vacation.
The lumber and housing industries both responded in kind on the initial news. Dump and run, expecting demand contraction.
COVID 2021 is the complete reverse. The lumber industry is ramping up inventory. We predicted several weeks of January Chaos as COVID exponentially accelerated and social unrest was politically sparked. The lumber market reacted to the uncertainty with producers slashing prices to protect 2-week order files for the two weeks of peak chaos. Buyers in turn followed with their typical response of liquidating inventory having no indication that demand was declining.
The political component was immediately diffused on inauguration day. My observation was that the lumber market was creating an under supplied condition and the January dip was an opportunity to shore up inventories through mid March.
We are currently transitioning from January Chaos to Fabulous February. Housing starts are 1.66 mm with framing lumber and panel supply only producing enough for 1.4 mm, tops. There WILL be a lumber and panel shortage in February and prices WILL make new all time highs.
30 days of lumber over reactive purchasing will create a double bought condition, evidenced by 6-week shipment or longer. Remember, shipment is not the same as order file. Shipment is what buyers must commit to for inventory protection. Order file is shorter underlying amount of mill orders.
March’s Meltdown could be brutal. Rampant COVID spread, infections, mutations, deaths and inefficient vaccine distribution through February will create the impact we expected in 2020...sharply decreased demand. DIY will decline despite spring weather, builders will receive record cancellations.
Good News, Bad News or Vice Versa
Wish I had a more uplifting lumber market forecast to start the week. Supply shortage in February, running prices to all time highs and March setting off a devastating price collapse. No doubt you agree with the upward February panic price projection, or at least the direction. The March Meltdown is where you may be leaving me out on the limb.
I have told you the what and when, now for the why. This is a COVID disrupted housing and lumber market. Without it we never would have seen $1000 lumber last year and the U.S. economy would be further into recovery rather than flirting with recession. That will make the first half of the year extremely volatile. $500 up and $500 down by summer is very likely.
2021 has a brand new set of circumstances, but I believe our LLG community is going to profit wildly by anticipating.
- COVID’s impact on activity has radically changed over the past two months. Some of that is winter and holidays, however the past 30 days have pulled the curtain back. Children are now more susceptible and once in a household the virus takes a month or longer to run its cycle through a family. More folks are sicker and dying now than last January. We know the danger from a year of experience and we are living in the worst of it.
- COVID’s economic impact has not yet trickled “up.” It has trickled down to lower income earners, however the loss of their spending has not been acknowledged in economic projections.
- The COVID vaccine is not a magic cure-all. The virus is already mutating faster than the vaccines can be administered. It’s like a wild fire out west, still out of control, uncontained and the wind is still gusting.
- This spring is not going to be fun DIY time like 2020. The vaccine only prevents you from getting sick, it does not prevent the spread to the unvaccinated.
At some point, we may get this pandemic under control, but first we must get in front of it, and now we are still chasing.
Lumber demand this spring and summer will fall far short of 2020. Therefore, covered through mid March is the play. When mill shipments are that far out, the end is nigh. But first, February Panic buying.
Looking Forward...ML
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info.