Panels are the quandary, rather resins and glue. Widespread announcements of further supply disruptions and declarations of Force Majeure are crippling OSB flooring, siding, and roofing panels. I must step in right here to call B.S.
Force majeure is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as war, strike, riot, crime, epidemic, sudden legal changes, or an event described by the legal term “act of God,” prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure.
I fail to see the reason for invoking force majeure. Supply shortage of a manufactured material at a time when demand is superficially and artificially high, and consumers are hoarding the product, does not, in Layman’s terms, qualify as an act of God or any of the other causes for relief from obligations. Rather, it appears to be a manipulative strategy by one industry, plastics, to disrupt housing, a critical element of the global economy. Force majeure does not nullify previous agreements, it just suspends obligation to perform for a short period of time.
Even if the force majeure stands up legally, the implications are only short term and will be remedied by price gouging.
In the case of OSB, the manufactured resin shortage is driving that product’s price to unmarketable prices, but more importantly for the larger lumber industry, it will, and is already, creating a bottle neck in the flow of lumber from dealers to jobsites. It is counter productive to the overall housing industry.
Therein lies the problem. Lumber producers are just now exiting winter shipment congestion. Rail cars and trucks that have been running 2–3 weeks late are now on time and recipients are in no hurry to get those shipments because current inventories are not moving out as expected. We have heard it for weeks now, “If I don’t have the floors and walls and roof panels, I don’t want the lumber sitting around to get nasty and/or stolen.” So what we have is a strong housing backlog that is stuck.
By stuck I mean jobsites cannot move forward while the panel industry is being mugged by resin and glue producers.
This presents us with another first-ever scenario to consider and evaluate. Let’s assume a best case scenario. The OSB problem gets resolved by the end of April. By resolved I mean production and shipments are back to normal. EWP is more readily available, jobsites are accepting lumber deliveries, and disruptions are remedied.
Between now and then, mills sales are dead for 3–4 weeks. Buyers will not add to stagnant, expanding inventories. Panel inventories must catch up with lumber inventories. Contracts keep coming, swelling the supply “pipeline.” Mills keep producing and building inventory. Prices are stabs in the dark that yield insignificant results. Dealers who committed not to run out of lumber for builders are holding fat, expensive positions. Prices begin to fall and suddenly, builders are more concerned about price than supply.
Who is left holding the bag? Suppliers who feared losing those big accounts and built excessive inventory to assure supply continuity who are the same contract holders who grabbed up extra loads when offered. They have a bunch on hand and with big sticker prices. Those who are now making 3-month commitments to $1000 7/16 OSB are bought and cannot add further support. Mills refusing to quote are bleeding off order files and will have prompt wood sooner than later with their best customers loaded to the brim.
The masses are playing this market to remain in a quandary, under supplied and over bought all because new home builders are over sold. The math is simple. 1.3mm completions is housing production capacity. 1.8mm permits is the lumber buying pace. At some point all these numbers will square up, and that can only happen with buyers selling down inventory and buying to match what is going out the door. Either scenario puts lumber in a vacuum, best case scenario for one month, then comes back to life under the new reality of no disruptions, a dead DIY market, and lumber yards loaded with previously bought, yet-to-be delivered sticks.
Looking Forward...ML
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