What inflation? - U.S. Building Boom Sending Lumber and Steel Prices Through the Roof

hank

“Lumber prices are up more than 35% this year, at $1,180.70 per 1,000 board feet as of April 13, after more than doubling in price in 2020. Also this year, steel futures have jumped 40% and iron ore trades nearly 7% higher. Copper has climbed 15%”

Barron’s April 15, 2021

LINK Link may not work. One trick I’ve learned is to do a web search for the exact words (cut and pasted) from a quoted article.

BTW - Columnist Jack Hough has a fascinating take on this in the same issue of Barron’s, asking “How about a wood-based cryptocurrency?” Suggested name ... Barkcoin

catch22

For anyone who had exposure to or grew up on a farm with cattle and understands about "cow pies" (manure) in the pasture after having sun dried for about one week; knows this is a semi-durable organic product. So, I will suggest; Cowpiecoin. High pressure molding and shaped properly would insure long term use.

Dried cow pies are quasi "frisbie" for throwing and a replacement "fire wood"; but only outdoors and that the user monitor wind directions carefully.

hank

catch22 said:

I will suggest; Cowpiecoin. High pressure molding and shaped properly would insure long term use.

@Catch22. I get the scent in the wind - so to speak. Many in northern Michigan have been grumbling lately about what they perceive as 50% jumps in prices of small “starter homes” (from around $200,000 to $300,000 or more) over the past year or so. Quite a bit of press coverage as well. But are you really suggesting something like this as a solution to skyrocketing materials prices?

Sven

We resurfaced our deck several years ago with plastic lumber. Given the wet climate in Pacific Northwest wood products do not last. Last time I checked wood decking lumber was more than 40-50% higher than that of a year ago. The pandemic does not help.

Other than T. Rowe Price New Era, PRNEX, I have not invested in other commodity funds/ETFs. PRNEX provides broad exposures to natural resources.
https://troweprice.com/personal-investing/tools/fund-research/PRNEX#content-portfolio

Other investment opportunities??

hank

@Sven said, “Other investment opportunities??”

Materials and energy are extremely volatile places to play. Very sensitive to the economy. As far as PRNEX goes, I’ve avoided it in recent years as just too erratic. It had a better manager many years ago than now I think. PRAFX is a cut above it and a bit less susceptible to the fortunes of the energy and equity markets. Folks shouldn’t overlook real estate in this area either. PRAFX typically allocates a substantial portion (30% or more) to real estate.

Currently I have only 7-8% allocated to my “real assets” sleeve. Down from 10% at the end of 2020. The three I hold in that sleeve: PRAFX, BRCAX, OPGSX. Suggest the last one only for those who enjoy walking over mine-fields.

(Earlier answer edited for brevity.)

Sven

@hank, thanks for the suggestion. I need to do more homework on this topic. Yes, PRNEX has been a sleeper for awhile since the old manager left.

Interesting that you mentioned real estate as it is a backdoor play on commodity. My REIT investment over the last several years has many ups and down (especially last year). Now it is racing ahead as it is expecting to return to pre-COVID period late this year.

Derf

As long as interest rates stay low, home building will continue, at least in my neck of the woods. It seems that apartment dwellers are buying homes. Young couple I know ask to be left out of their lease 2 or 3 months early as they're making house payments at this time. They were told that to many units were empty & cash flow was needed, otherwise something could have been worked out. On the other hand , another town 30 minutes away keeps building apartment. Go figure !

Just my $.02, Derf

hank

Sven said:

We resurfaced our deck several years ago with plastic lumber. Given the wet climate in Pacific Northwest wood products do not last. Last time I checked wood decking lumber was more than 40-50% higher than that of a year ago.

Built a new side deck with lumber last summer. I’m thinking if it keeps going up in value I may be able to tear it out and sell the lumber this summer for 50% more than I paid back than.

Certainly some “inflation psychology” evident with building products - despite the Fed’s admonition that it’s only “transitory”. What are they smokin?

Sven

The old deck lumber we removed aged considerably and they hold little value. The climate here is tough on lumber products - hot in summer and wet in winter. The combined swelling and drying out processes require annual coating. Even at best effort the walking surfaces would last the most 5 years. Plastic lumber survives better and there are newer PVC-coated aluminum panels out now.

Mark

It is getting a little nuts out there. Yesterday I was at the lumber yard and saw a 2x4x8' wall stud for roughly $9. A preservative treated piece of the same dimensions was $12 and change. Good thing I have a good supply of both in my garage.

Derf

@Mark : I had to check that price out . $10.23 with 11% off, that comes to over $11/2X4 stud - Not treated !
I wonder what steel studs are going for ?
Derf

catch22

The Cass Freight Index is an automated word search feed that I receive. This feed link is from this morning. The P&G announcement is from this morning as well.
Those of us who are the retail shoppers have witness to increasing prices. The price bumps from the beginning of the Covid period for particular products was never expected to pull back after shortages recovered. We old timers/watchers know that prices seldom retreat for common grocery items.....gas, yes; other stuff, not so much. Lumber? I suspect a long run in upward pricing; unless some other major event softens prices. As @Mark noted; we too have both plywood and 2 x 4's parked from a not needed project several years ago. I'm fully tempted to place them for "garage sale" items. They would sell immediate, I suspect. Home Depot has current pricing for 23/32" (almost 3/4"), 4 x 8 sheet of CDX plywood at $69 + tax.
One can imagine the "material cost clause" written into a price estimate for a new home or re-model construction.

Cass Freight Index

P & G to raise prices in September, commodity prices pressures