October - December 2012
November 2012 Housing Commentary
By Dalton Alderman and Urs Buehlmann
Forecast for the Wood Products Industry, 2013
By Bill Conerly, Forbes
2013 should offer good demand for wood products, with improvement from domestic usage though exports will remain soft. As usual, risks bear considering, including a possible recession in the United States, continued slowing in China, and a significant upside risk-that housing recovers even faster than we're currently expecting.
Housing starts are on pace for 750,000 units in 2012 (the December figures have not been released yet). That will be a gain of more than 20 percent from 2011. More growth is almost certainly on the way. Apartment vacancy is tight and rents are rising. That triggers more multi-family starts and leads renter to consider buying. Indeed, buying looks good with mortgage rates as low as they have ever been in America's entire history. Housing prices are starting to edge up, but have not risen enough to limit affordability, just enough to calm fears about buying a depreciating asset. Limitations on housing construction are weak job growth, tight credit standards for home buyers, and developer financing challenges. Nonetheless, 900,000 units should be easy in 2013, and we may even cross over the one million unit benchmark.
Other uses of wood will grow at a much slower pace. Residential repairs and remodeling have been stagnant but are likely to improve just a little. Non-residential construction will continue to be moribund. Industrial usage (for goods manufacturing out of wood as well as pallets and crating) has been weak in the past few months but is likely to show a mild rebound in 2013. Rolling the sectors together, this year should be good for wood demand in the United States.
Overseas markets are a different story. The chart shows pretty clearly that China is now key to foreign demand for American logs. China's log demand has dropped significantly. The Chinese economy has decelerated over the past two years. The country's leaders are making serious move to stimulate the economy, which is a good sign. However, I have doubts that they can fine-tune their economy any better than we can fine-tune ours. (Ask Ben Bernanke how that's going.) Further, the Chinese rulers would prefer to stimulate domestic consumption rather than construction. That implies that Chinese log demand is unlikely to rebound sharply.
If I were a betting man, I'd rather be long on wood than short, but there remain risks. The greatest risk facing the United States economy is a recession triggered by the European financial crisis. As I've written elsewhere, a recession in 2013 would have mild effects on the housing market. China may continue to decelerate, so instead of her demand for our logs stabilizing, it may well continue to shrink. That should concern upstream producers, though it would be favorable for the operating costs of U.S. sawmills.
Business leaders in the industry should be prepared for another risk: stronger-than-expected demand. It sounds good, but unplanned growth presents challenges. Suppliers may not be ready to deliver raw materials, cash holdings may be stretched be the need to pay bills before revenue is received, and skilled workers may not be readily available. It's certainly worth some economic contingency planning. (see my video series on Business Planning in an Uncertain Economy, especially the last video about upside risks).