Beyond the Build

Commodities Pricing

Futures for Steel and Lumber

This week was my first trip on a commercial flight in 15 months, and it sure did feel good. I traveled to Denver to meet up with my FMI peer group, which consists of construction leaders from around the country in non-competing markets. We meet twice a year to discuss what we are seeing and share best practices. It’s not surprising that much of the conversation at this meeting centered on commodity pricing, specifically steel and lumber, especially in light of the numbers that came out this week.

Steel pricing has been fueled by low inventory at service centers, tight mill order books and a lack of imports since the fourth quarter of 2020. Reports are saying that steel prices will stay elevated into the summer. This is because mills are prioritizing value over volume, while maintenance outages and truck shortages continue to be an issue. O’Neal is conservatively forecasting that prices will start to drop in the 3rd and 4th quarters.

Lumber pricing is a similar situation. Demand has gone up at the same time that the supply chain suffered a number of disruptions, many fueled by Covid. This article explains the history very well and includes a staggering fact: The price of lumber has climbed 280% since the onset of the pandemic. Unfortunately, it looks like this is where we’ll be at least through the end of the year. There is plenty of raw timber supply, but sawmills are the chokehold because many ceased operations after the financial crises of ’07 and ’08. This also seems to be fueled by what feels like an insatiable appetite for housing.

While some of my peers think these trend will continue into ’22, I’m convinced the acceleration will slow down later this year and start to trend in the opposite direction. These pressures always create opportunities for others to enter these markets.

To this end, I remember a quote from Ben Stein’s father in what has become known as Stein’s law in the economic world. “If something cannot go on forever, it will stop.”

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Merrill Stewart Jr.

Merrill Stewart is Founder and CEO of The Stewart/Perry Company, a commercial building contractor based in Birmingham.