Tim Clemons here...Chandler Clemons' father. Last week I called my long time college friend (living in Oregon) who has worked in the lumber industry all of his professional career (operated a lumber mill). I asked him what is going on up there, and his reply was that the lumber mills cannot get workers to come in because they (and family members) would rather stay home and collect stimulus checks and unemployment money. Mills have plenty of timber, but no workers., and as simple as that, there is a finished lumber shortage.
Supply and demand, supply and demand: knowing that demand is waaaaay up due to low interest rates, is supply being artificially limited due to collusion or are we facing timber shortages? I think the answer is that there is no artificial limit (anti-trust issues) but rather that the lumber companies are motivated to avoid a swine-cycle where strong capex ends up generating excess capacity that bites them when this one-off stimulus and artificially low interest rate environment stops generating the demand (or do the powers-that-be actually think that people will build a second, third and fourth home just to keep the economy going? OK, that might be a rhetorical question).
After all, construction material companies are well known as low-margin, cyclical businesses with inventory & price issues for volatile commodities. Give them the opportunity to make decent margins, anyone recommending capex to add capacity isn't thinking things through. Hence the bottlenecks will continue as no real incentives to capex your way out of a bottleneck exists, if anything there's a strong incentive not to capex but finally turn your EBITDA margins into double-digit returns instead of the usual single-digit realm (not HD or LOW, that's retail, I'm talking about their suppliers).
Have always found the manufactured home business interesting. And now they make ADUs (Additional Dwelling Units)--we used to call them back yard sheds--so people can make a little rental income. they drop them in fully assembled using cranes. Next will be drones.
Agreed…they’re just coming up the quality curve in recent years. There is a house in Manhattan Beach, two doors down from my brother-in-law (CMC ‘88), that was built in 6 months. This compares to nearly two years of construction of the house next to him. This arena may finally be ready for explosive growth. I guess Warren Buffett agrees too as of yesterday? 😂😂😂
John,
Tim Clemons here...Chandler Clemons' father. Last week I called my long time college friend (living in Oregon) who has worked in the lumber industry all of his professional career (operated a lumber mill). I asked him what is going on up there, and his reply was that the lumber mills cannot get workers to come in because they (and family members) would rather stay home and collect stimulus checks and unemployment money. Mills have plenty of timber, but no workers., and as simple as that, there is a finished lumber shortage.
Supply and demand, supply and demand: knowing that demand is waaaaay up due to low interest rates, is supply being artificially limited due to collusion or are we facing timber shortages? I think the answer is that there is no artificial limit (anti-trust issues) but rather that the lumber companies are motivated to avoid a swine-cycle where strong capex ends up generating excess capacity that bites them when this one-off stimulus and artificially low interest rate environment stops generating the demand (or do the powers-that-be actually think that people will build a second, third and fourth home just to keep the economy going? OK, that might be a rhetorical question).
After all, construction material companies are well known as low-margin, cyclical businesses with inventory & price issues for volatile commodities. Give them the opportunity to make decent margins, anyone recommending capex to add capacity isn't thinking things through. Hence the bottlenecks will continue as no real incentives to capex your way out of a bottleneck exists, if anything there's a strong incentive not to capex but finally turn your EBITDA margins into double-digit returns instead of the usual single-digit realm (not HD or LOW, that's retail, I'm talking about their suppliers).
So timber prices will remain flat?
Possibly, but with variance around USD 1200-1600, similar volatility to the USD 200-600 region of the past... YMMV
I guess it's time for modular and 3-D printed homes to shine?
Have always found the manufactured home business interesting. And now they make ADUs (Additional Dwelling Units)--we used to call them back yard sheds--so people can make a little rental income. they drop them in fully assembled using cranes. Next will be drones.
Agreed…they’re just coming up the quality curve in recent years. There is a house in Manhattan Beach, two doors down from my brother-in-law (CMC ‘88), that was built in 6 months. This compares to nearly two years of construction of the house next to him. This arena may finally be ready for explosive growth. I guess Warren Buffett agrees too as of yesterday? 😂😂😂