Lumber Prices Slump | Hacker News Reader

Lumber Prices Slump

wsj.com

94 pointslxm134 comments

> Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March.

[...]

> Still, barring a recession, he doesn’t expect lumber prices to fall all the way back to prepandemic levels, which rarely exceeded $500 per thousand board feet. That is partly due to problems in Canada’s western forests, where mills have struggled with fire, flood, high-price and hard-to-get timber, shipping problems and duties at the U.S. border.

This one isn't at all surprising because it was clear from the outset that the "shortage" of lumber from the outset was artificial ie supply was being held back. You could maybe argue there were transport issues getting lumber from lumber yards but that's a stretch.

What I think a lot of people are learning is that a lot of these "shortages" and supply chain issues are entirely opportunistic and artificial. Prices are going up because prices are going up.

I don't live in USA, and we don't build our houses from lumber and cardboard... but(!), there were shotages of materials here too.

Why? Lockdowns! Suddenly people had a lot more time on their hands, a lot less places available to spend their money and everyone around me decided on some kind of a construction/renovation/... project. This made people buy more construction materials (cement, tiles, lumber too) and combined with some supply chain issues, prices skyrocketed. A friend of mine was building an "open garage" (slab of cement, four poles, roof, and an overhang to put a "picnic table" there too), and had to buy cement four times during a month-long diy project, and each time, the price was higher (all in the same month).

If you look at any specific shortage, you'll find different underlying reasons. You'll find different dependencies and vulnerabilities.

Here we're talking about lumber and the supply chain is fairly straihtforward.

Trees are felled somewhere. They could be planted for that purpose (fun fact: almost all paper comes from trees grown for that purpose, which complicates the story of recycling) or they could be in the wild. These places are typically remote.

Trucks then take these trees to sawmills to be processed. That could be nearby or it could be far.

The products from those sawmills then typically go to lumber yards. The sawmill itself might operate a lumber yard. Or you might have intermediate distributors. In the US a lot of lumber goes through Atlanta for various reasons.

It then gets shipped again to retailers (eg Home Depot) and to builders, pretty much all by truck.

So this supply chain is relatively simple. YOu need labour at several points (eg lumberjacks, sawmill operators, truck drivers), trucks to drive material around, gas for the trucks and land to store products.

So if a handful of players own the sawmills and/or lumberyards when demand upticks you can create a supply issue simply by withholding supply at one of these steps. Maybe you don't open a sawmill or two. Maybe you don't employ people to move lumber from the sawmill to lumberyards. You just stockpile it while the price goes up.

If you look into lumber specifically it's fairly clear that "hoarding" is what was happening. Other shortages may or may not be similar.

>Trees are felled somewhere. They could be planted for that purpose (fun fact: almost all paper comes from trees grown for that purpose, which complicates the story of recycling) or they could be in the wild. These places are typically remote.

Tangent: That just blows my mind how that can be a thing. The trees take like, 20 years to be harvestable? And lumber at the source isn't that expensive? So, how can it be profitable to buy land and guard/maintain the trees for 20 years before you get any profit?

In the case of Canada, most timber lots are owned by the government (Crown land), and the right to harvest* it is awarded by auction (I think). Harvesters must also plant new trees. How is it profitable? There is a lot of land. You can drive for many hours down well-maintained logging roads through the BC interior and never see a building anywhere, or even come across any other cars.

* This is a point of contention for the US government because they feel that the Canadian lumber industry is government-subsidized and unfairly competes with US lumber producers. As a result, the US applies import taxes on Canadian lumber.

> This is a point of contention for the US government because they feel that the Canadian lumber industry is government-subsidized and unfairly competes with US lumber producers. As a result, the US applies import taxes on Canadian lumber.

This has been going on for decades:

* https://en.wikipedia.org/wiki/Canada–United_States_softwood_...

You should check out exactly how much land is owned/used by some of the companies. Check out for example a satellite view of southern Oregon. You'll see a checkerboard pattern in the forests all over the place. Those are big patches of managed forest that are in various stages of growth.

It's like a pipeline -- yes it might take 20 years to grow a patch to harvest quality, but you have 100 of these patches and only harvest 5 a year. By the time you get around to needing to reharvest patch #1 it'll have been 20 years and it will have regrown.

Americans don't build their houses out of cardboard either. Usually it's concrete, wood, brick, vinyl (siding), and gypsum.

It's a kind of joke among Europeans. The American building material standards are pretty different.

It's not without a bit of truth. We do build homes much more cheaply and without the assumption that the home will last 200 years. It's a side effect of massive land resources and cheap material costs that Europe doesn't have. We're also a really new country in comparison, and much of our growth occurred during the rise of the automobile and massive roadworks construction, so building a cheap building fast out in the sticks is not only viable, it's attractive.

Long term this is folly, as it depends on cheap energy. But all that said, a properly constructed home from wood studs with plywood sheathing and gypboard internal walls isn't intrinsically shoddy. It's actually very strong and very light, and in large parts of the US, entirely appropriate. Modern engineered wood is amazing stuff.

Some of it also has to do with seismic activity.

Traditional masonry is a very poor choice if you're expecting earthquakes.

In Japan (another earthquake-prone area) the classic houses also tended to be lumber and even paper, not masonry, because lightweight materials are less likely to squash you like a bug when the next earthquake comes along.

Obviously the Japanese did use masonry for fortifications and suchlike, but not usually for a standard dwelling.

My understanding is masonry generally has less give and wood buildings can flex in the case of an earthquake. In fact it’s not to code in California to build with masonry without significant steel rebar reinforcement. It’s not necessarily due to the weight although I’m sure it plays a factor

This is correct. Wood frame buildings sway and flex during an earthquake. The weight is less important. The problem spots tend to be attachment to the foundation (the building disconnects from the moving ground and starts to skitter around), insufficient beam connections (beams slide off their supporting columns), or support wall collapse.

If you live in the Bay Area all of those things are fairly easy to fix - even as a DIY project. Install more concrete anchors in the sill plates, add earthquake rated connections to beams (which were often just toe-nailed), and put plywood on interior garage walls and half height supporting walls which makes those walls much stiffer (old building standards didn't require nearly as much blocking or cross-bracing between studs).

As long as a wood stick construction structure stays connected to its foundation and has the smallest bit of strength it can withstand even massive earthquakes without issue.

I think the parent comment meant drywall, which is made of gypsum and paper/cardboard among others.

Gypsum board does use paper backing, but that doesn't mean the house is made of cardboard. Gypsum board is not a bad thing or inferior product. In any case, gypsum board is largely standard around the world these days, even in places where plastering walls is common.

Just because it (drywall/gypsum board, in this case) is relatively standard, does not mean that it doesn't suck. Awful stuff that I'll work hard to avoid in any future building

Why do you think it's awful? It's far better than the alternative (lath).

The criticism really isn't about the gypsum board per se. It's the difference between using a hard veneer plaster over the whole wall, or only patching the seams and leaving most of the wall a soft thin sheet that dents/breaks easily and carries sound right through. You can of course get veneer plaster done in the US, you'll just be paying through the nose as it's not standard for residential. Similar to every other "builder quality" cheap out.

A 1/8" thick plaster layer will do very little to block sound. And drywall is 1/2" or 5/8" thick, not 3/8" as you said. Or even 1" thick (on each side) on common fire walls. Yes, drywall dents fairly easily before it's painted, but it's also extremely economical and quick to repair. Once it's primed and painted with a high-quality paint, it really does not dent that easily.

My parents' 50-year-old house has the original drywall and has probably been repainted only once, and it's in remarkably good shape. And that's saying something, given that my parents raised 9 children in that house, and who knows how many before us. The biggest problem is the metal nail-on corner beads in high-flow areas going into the kitchen where it gets lots of abuse and the mud has cracked in a few spots, but modern paper-faced plastic beads solve that problem.

I've got experience with plaster+lath, plasterboard+veneer, and drywall walls. Plaster walls are generally much more substantial, apart from when horsehair plaster starts crumbling and pulling out of the lath.

Sure you can use thicker stock than the bare minimum, or double it up for rated firewalls. I've seen such, and such walls do provide good sound isolation between apartments. Ultimately yes, a material is just a material. But it's like OSB versus plywood - you can build cheap or quality things with either, but there's certainly a correlation for what types of things get built with each one.

I'm sure there's some survivorship bias - the cheaper plaster jobs probably fell apart before I was born. But none of this really changes the overarching critique of being in a cheap ranch-box, and hearing everything else going on in the house.

(And for sound transmission I don't think it's the thickness itself, but rather the hardness creating more of an impedance mismatch with the air).

We use those in Poland, but over the brick/concrete walls, not instead of them.

We don't make the walls out of it either. It's not structural, and it's commonly laid onto wood framing in most houses.

Apparently in New Zealand it is structural. They have special structural-rated Gib (the local name for drywall) that is used for shear strength on exterior walls. They have a special screw schedule (every 5 cm) and it needs to be inspected before the tapers come in.

This is because they don't use exterior sheathing for some reason, just building paper.

Does anyone not use drywall? Complaining that it has a paper backing utterly misses the point that it is a fantastic firebreak. There basically isn’t any alternative that performs as well.

The common alternative is brick and concrete, the only way I had seen houses built before seeing USA houses.

I lived in a house with luan plywood walls. It was nice to have the wood grain instead of dry wall.

Tinder boxes. Be careful, this construction is a death trap in a fire.

Was it a modern house built to modern fire codes? If so, there's a good chance there was drywall behind the plywood on some walls. There's a reason even unfinished garages still get 5/8" drywall on walls shared with the house.

What do you build your houses from?

Probably brick and/or concrete. In the UK and much of Europe houses are mostly made from brick. I believe the same is true in large parts of South America, Asia, Africa.

There’s no drywall inside the house? That’s interesting. What’s on the inside of the brick?

There is. In the UK it's typically called plasterboard. I think the original commenter was trying to make the point that bricks are almost exclusively used for the outside, whereas in the US it seems to depend on the location. I've seen lots of brick houses on the East Coast but in the Midwest it seems a lot of houses are wooden on the outside.

Even brick houses in the US are decorative brick veneer - the actual frame is almost always wood or metal.

Outer walls generally consist of a layer of cheap bricks or concrete on the inside (made flat with stucco), nice looking bricks on the outside, with isolation foam in the middle.

Load bearing inner walls consist of cheap bricks or concrete. Other inner walls are usually gypsum.

Not only load bearing walls, but also walls between apartments.

Standard is plaster applied directly to bricks / blocks for external walls and then plasterboard used for internal walls. Increasingly plasterboard is used for all walls.

No drywall anywhere. I'd never seen drywall before being in the US.

The inside wall is concrete, same as outside.

So you'd be living in stoves if wildfires hit you like they're gonna hit here over the next fifty years

In Germany, it’s mostly stonework or concrete. Wooden houses are a thing, but still quite exotic.

Wood is used for the roof, though.

Bricks, concrete, depends on the era when the building was built (i'm talking about single houses).

For apartment buildings, most built during the socialist era, reinforced concrete was used everywhere, even for internal walls, so drilling between rooms to pull an ethernet cable through was a pain in the ass.

> This one isn't at all surprising because it was clear from the outset that the "shortage" of lumber from the outset was artificial ie supply was being held back.

Not really, or rather, the issues were/are region-specific. There were multiple problems, the chief one being that lumber yards have closed down. A sudden-ish shift towards construction usage of wood combined with an excess of raw wood from storm damages [1] then led to a crunch effect at the lumber yards, they were the bottleneck.

On top, there was a serious shortage of truck drivers across Europe caused by the pandemic and shit wages, which meant that even if yards had capacity there was no way to get trees into lumber yards and finished wood products out of them.

[1] https://www.weser-kurier.de/landkreis-osterholz/ueberangebot...

I'm not buying your argument, but perhaps I'm missing something. Is there not a free market for lumber? If the market is functioning properly then any company attempting to reduce supply to push up prices will find themselves losing customers to other companies entering the market who are willing to accept marginally lower profits to plug the supply gap. As long as there is enough competition, prices should stabilise back to their long term averages.

My take is that the supply chain for lumber, as with e.g. toilet paper, is optimised for a particular, and until 2020 relatively stable, level of output. The last two years have changed all that, and demand has outstripped supply, which has led to an increase in prices.

A free market never exists in a vacuum, which is something that anarchists and libertarians always fail to acknowledge.

Without government intervention any "free market" will quickly devolve into a monopoly or oligopoly. We end up with price cartels as is that we constantly need to regulate and break up.

You really don't have to look far to see what happens with weak or no government oversight in a "free market". Look at Chevron pollution in Ecuador. Look at the baby formula "shortage". Look at the ludicrous and unjustifiable price for insulin in the US. Look at the artifically high pricing on mined diamonds and the de Beers cartel. Look at the fact that most eyeglass frames are made by a single company.

Really? These are irrelevant, invalid, or great examples of misguided govt intervention

1) Ecuadorian govt lost in international courts and us courts. Overall this case is irrelevant to free markets either way, but it's quite believable that it's a post factum shakedown attempt by a corrupt govt.

2) baby formula is extremely regulated. The factory was shut down by the govt, market is hard to enter due to regulation, imports are very restricted by the govt, even e.g. from Europe.

3) Insulin is the same story - govt restricts imports AND production. Intellectual property regime (which I d argue is one of the few good things the govt does - but it has nothing to do with free markets) is also at fault, although as far as I understand less so for insulin, perhaps for newer products. Not even getting into overall healthcare incentives screwed up by govt action (employer based health insurance, etc.).

4) dunno much about diamond, but I'm going to assume the example is just as bogus as the others.

5) I got great frames online for like $35 (there were cheaper ones too, didn't look as nice); my prescription is very high so these were not Walmart checkout glasses, either. Free market in action! I sure hope govt doesn't regulate it and force me back to local price gouging optometrist again, "for my own safety"!

Zenni optical starts at $10 for frames, lenses aren't much more, unless you go fancy.

What if these are just a symptom of a despicable human behavior called "hoarding"?

You can argue some hoarding is motivated by fear, but a lot of it is motivated by greed. I know friends working in the construction business claiming some people just upfront bought whole stocks cement during the pandemic for example.

Probably a lot of these purchases are done with funny money because money was being thrown around for cheap. So I'd imagine people would ask a higher price because funny money allowed to pay those prices, all due to the greedy hoarding behavior - at the end of the funnel people were paying stupid prices for housing for example, so why not?

That same friend also said that they simply had to go and buy it from the secondary market for a premium.

How do you solve this problem in the future? Are quotas the solution?

>What if these are just a symptom of a despicable human behavior called "hoarding"?

It's only "despicable" if an individual does it. But "gains advantage" when you're a company.

See: https://www.nytimes.com/2007/11/28/business/worldbusiness/28...

i call it hedging, not hoarding :)

> How do you solve this problem in the future? Are quotas the solution?

No, doubling down on a centrally planned economy is not the solution.

The solution is to stop printing trillions of dollars and aimlessly injecting them into the financial industry. Make interest rates exist again (say 5%), so that investments have to make sense. And let the asset bubbles actually pop for once, so people stop trying to create their own DIY asset classes out of consumer goods.

> What if these are just a symptom of a despicable human behavior called "hoarding"?

It’s not despicable, it’s risk adjusting by carrying inventory. (If you inventory more than you can use, and it’s perishable, it’s a different problem.)

Well it's despicable because of the consequences.

In a localized market, people adjusted their risk by stocking up toilet paper, canned goods, etc. Those who couldn't afford it, or came too late, were left with nothing.

In a globalized market those who have access to free money can hoard as much of it as they want.

As a consequence it spreads like a disease.

You may say, in the case of the USA: "well, I guess that's the perks of being in control of the standard currency for global transactions, the rest just has to deal with it" -> this won't end up well for anyone.

> in a globalized market is despicable simply because those who have access to free money can hoard as much of it as they want

Billionaires hoarding toilet paper isn't a problem. It's everyday folk. Same for practically any other thing where hoarding is blamed. When we're calling the dispersed response of hundreds of millions of people despicable, it's the system--not people--that is broken.

Not toilet paper, but micro processors, production lines, raw materials, for example.

How do you tackle this? Like I said in my original comment - will we have to resort to quotas?

> Not toilet paper, but micro processors, production lines, raw materials, for example

Who is hoarding processors? The predominant driver of the current shortage is the auto industry pulling orders in the early pandemic and then raging back into gear. The only people stockpiling are groups like Huawei, and they aren't "hoarding" nearly enough to influence global prices.

Broadly speaking, when a politician blames hoarding, it's a dead giveaway for deflecting from a systemic issue. The culprit is usually price gouging laws, which discourage holding emergency reserves. In this case, it was just a global supply chain system stressed by demand dynamism and stimulus spending.

Hoarding assets is motivated by inflation much like hoarding currency is motivated by deflation. Both are bad because they prevent people from socializing.

It's sorta remarkable how well oil and gas hold their gains compared to other commodities. Oil still at 115+ 3 months after Russia invasion of Ukraine despite no further escalation of war. I wonder if someone could create a strategy of selling delta positive at-the-money strangles on oil and gasoline given the tendency of oil and gas to plateau for a long time but have high implied volatility in the interim, which means more theta capture...have to look into it. Bitcoin, gold, and others do not have this plateau pattern, which goes against the EMH.

According to Wendover on YouTube, producers have not been increasing production and rather aiming for higher profits.

https://www.youtube.com/watch?v=AQbmpecxS2w

That's monopolitic. If there were a producer that did not participate in the price-fix, and could scale his production up, he'd outcompete the price-fixers. I wonder what keeps this setup in place. Sounds like something you'd fight wars over.

I think you're being sarcastic, but this is basically what OPEC and others do.

OPEC only controls 40% of all supply and often accuses its members of breaking quotas.

Producers seek the profit maximizing price, not the highest price (those aren’t the same).

Would you rather sell 1,000,000 barrels at a profit of $10 per barrel ($10M profit) OR 1,200,000 barrels at a profit of $9 per barrel ($10.8M profit)?

I would rather sell 1,000,000 barrels at a profit of $10 per barrel:

- If I lowered prices to $9, my competitors would follow, and I'd likely sell only 1,000,000 barrels

- I have a finite supply of oil. If I sell 1,000,000 now, I'll have an extra 200,000 to sell at some point in the future. I'd like each barrel to cost as much as possible.

In other words, there are time dynamics. OPEC might only control 40%, but if everyone follows OPEC, everyone wins. If someone breaks from OPEC, other parties have an incentive to break as well.

There are many silent cabals, where parties don't conspire in any explicit way, except by signalling through market prices.

I would rather sell 1,000,000 barrels at a profit of $10 per barrel

Sure, and I'd love to have $1B, but that doesn't mean I'll get it..

Yes there are time dynamics - ramping up production, production delays due to maintenance, prices changes you can't predict. Nobody has a crystal ball.

And OPEC can't even control it's own members, so I'm highly skeptical anyone else follows them.

Humans are great at seeing patterns where there are none. Oil skyrocketed in 2008, everyone said it would never go down, then it crashed below $20. That doesn't seem like the kind of market where suppliers control the price.

> everyone said it would never go down

Citation needed.

The US Gov literally said the current (in 2008) high price are due to demand/supply mismatch and "most industry experts contend that oil resources are plentiful ... Drilling activity is at a high level" [1]. As in the price will go down.

OPEC only needs to control its members a tiny bit. Oil is sold on the margin and so a tiny demand/supply mismatch means a large price difference [2].

[1]: https://www.dallasfed.org/~/media/documents/research/eclett/... [2]: https://www.vox.com/2015/1/5/7493799/oil-prices-chart

Citation? Everyone I spoke with back in 2008? Sure anecdotal, but that's what my comment is basing it on.

Regardless, I think you just proved my point. Supply/demand determines prices not OPEC.

If OPEC controlled prices they wouldn’t have dropped 80% post-2008. Prices were so low that capacity was taken offline and some countries has serious financial difficulties.

That doesn't sounds like a monopolistic market.

I’d set my price to the point where it’s cheaper than the competition - I.e if a country shift more towards nuclear or wind then I’d tempt them back with lower prices.

The correct solution for the consumer is to massively reduce the reliance on oil, but that requires long term planning which democracies and corporations are awful at.

> Producers seek the profit maximizing price, not the highest price (those aren’t the same).

Is this true when you only have fixed amount of the commodity? Wouldn’t players try to optimize the total NPV of all resources sold into the future?

Oil is not a fixed commodity. New reserves are discovered or become economically viable all the time.

That's an interesting point.

Think of it not as production, think of it as extraction, a conversion of crude safely stored in underground vaults to dollars. Holding back has the double benefit of rising prices now and increasing the amount you can sell in the future. The price-fix is not just about keeping it up, it also has an element of not outdoing each other in the "oil futures" speculation that would be implicit in not extracting now. No oil country (well, no oil country except Norway I suppose) would be happy to enjoy a dominant market share now at the cost of having to leave the market earlier than their peers. One might expect that all the talk about CO2 would shift the balance between those two sides within OPEC (and those that tag along?), but habits change slowly.

> there were a producer that did not participate in the price-fix, and could scale his production up, he'd outcompete the price-fixers

New production is capital intensive. It’s currently difficult for oil producers to justify that to investors. The higher prices are only accelerating secular trends towards long-term lower oil demand.

Oil companies aren’t like software companies.

Every barrel they pump is a barrel they can’t pump later on. In fact, the cost of oil extraction generally trends upward over time as “easier” wells are exhausted and more expensive ones are tapped.

Sure, going full steam and selling every barrel available would make for a great 2022, but they may pay the price in the future if they suddenly are out of cheap oil

It differs wildly between producers. Saudi Arabia extracts oil for a few dollars per barrel, while it costs Russia 40-50$.

In the latest (few) Macrovoices podcast it's speculated that OPEC is actually out of capacity. It was mentioned that a Saudi minister also said something along those lines recently.

Well, would you expect him to say "oh we can do it, we just want to make big profits"?

Oil is not a free market commodity, production is tightly controlled by a cartel happy to maximize profits for a limited resource. Not until North American oil sands production ramps up again will prices fall, and producers are cagey because it’s quite expensive and when prices fall they lose a whole lot of money.

I think you mean shale, not oil sands?

In the US the discoveries are mostly oil shale, in Canada its oil sands. Its both.

I have found no rhyme or reason over the huge spike in gas prices other than greed.

Granted, our current president shouldn't have been so negative towards fossil fuels.

That said, he did nothing to create this particular upswing.

My local Chevron gas station 94960 has been fluctuating from $5.50 to 6.40 every other day since Ukraine was invaded.

These oils companies, along with so many other companies, raised prices because they thought they could get away with it. "Let's blame a war. Let's blame inflation.". Oil profits have never been higher. It just smells like cronyism.

I've always wondered why gas prices in the Bay Area are the highest in the nation. While we have huge refineries across the Richmond Bridge.

"Granted, our current president shouldn't have been so negative towards fossil fuels.

That said, he did nothing to create this particular upswing"

Why did you bring it up if it has nothing to do with the current situation?

>I've always wondered why gas prices in the Bay Area are the highest in the nation

Obviously because gas tax in California is the highest in the nation, by quite a margin. CA charges an extra 62.47 cents per gallon, whereas next door Arizona only charges an extra 19 cents per gallon.

https://taxfoundation.org/state-gas-tax-rates-2020/

It’s OPEC not your local gas station. To be fair everybody in the chain is making lots of money, but the high prices come from sanctioning Russia and OPEC not boosting production because they like money and have limited remaining oil.

Lumber can be moved around pretty efficiently and Canada hasn't gone down the "let's invade some neighbours" route.

Unfortunately, for gas, moving it through a pipeline beats LNG ships hands down in efficiency, so Europe cannot simply switch providers. At least not fully so.

Not to mention that Europe simply doesn't have the LNG terminals required to replace their pipeline capacity regardless of efficiency.

Some thoughts that might blow the mind:

A) price of oil/gas was going up well before Russia/Ukraine. Putin’s work is an aggravating factor, but hardly the whole reality of the market challenges.

B) fuel demand is pretty inelastic compared to lumber. The world is still moving into fossil fuels (increasing demand each year), not flatlining, let alone decreasing. When the supply shrinks, we’re all competing for the same limited supply of dino-juice with our fist-full of dollars. [yes, algae and plankton, I know].

B) Fuel demand had a slump due to external factors. And as supply was also somewhat inelastic the priced dropped. Now that we are returning to normal or even increased demand price is sensibly going up. Previous 2 years were anomaly, not the normal.

If you still think EMH is valid after this cycle, I have a monorail to sell you.

Would you like to make explicit to us how you define EMH and his you think that this cycle contradicts it?

It's pretty clear to me that when liquidity runs rampant, valuation doesn't matter, instead momentum and herding take over. How else do you justify a 400% increase in ARKK and a collapse that occurred inline with fiscal and monetary stimulus.

Switching oil providers is not as easy as most people think. Refining facilities are more or less matched to their feedstocks, retro-fitting to other crudes always takes some time and money.

Also, adjusting production and delivery is not an instantaneous process. Especially when you substitute a pipeline-based feedstock (as Europe is doing right now) in favor of tankers. You need tanker capacity, you need to have contracts for this, you need terminals, and you need pipelines from the port to the refining facility.

Things are simply not as easy and supply shocks take time and effort for resolution.

Storing barrels of oil, and selling during the next crisis seems like a sure fire way to make a lot of money.

yes, if only the storage was free, and the commodity easy to transport to areas where demand was.

> yes, if only the storage was free, and the commodity easy to transport to areas where demand was.

Trump tried to do exactly that in the original 2020 COVID stimulus bill: https://www.cnbc.com/amp/2020/03/26/us-suspends-plans-to-buy...

Original plan was to buy $3B worth of oil at about $24/barrel to fill the strategic petroleum reserves. But the Democrats blocked it in the Senate and demanded it’s removal from the bill.

125 million barrels that's like 6 days worth of US daily consumption. It's crazy how much oil the US consumes on a daily basis.

Hello, Strategic Petroleum Reserve !

I think oil and gas is staying high because the sanctions on Russia are staying in place and/or escalating. If the sanctions were removed (say because Putin was deposed) I imagine the prices would plummet

Alternatively, oil is high because there's a cartel interested in maximizing profits, and there's enough dust in the air from world events that they can claim plausible deniability.

It's purely free markets doing what they do - trying to optimize for the point where profits are highest by raising prices until demand drops sufficient to level off total profits. Externalities be damned (environmental, social, economic, etc.)

The cartel just reassessed their output as a result of the continuing war and decided to increase output.

And OPEC cares a lot about externalities. They know that pushing oil prices high enough will cause a recession which leads to less money for them. (They learned this in 1979). So they try to maintain a healthy but not runiously shortsighted profit.

The price of crude oil has been flying to the moon since December 2021. Just look at YTD chart for crude oil. Russian invasion of Ukraine might be one of contributing factors for elevated prices, but it can't be the main one.

Russian oil is still being sold to India, China, and in Europe...

They're price gouging. They learned their lesson from the shale boom and are colluding to keep prices high / aren't re-opening wells for fears of a sharp drop in prices. Remember when crude went negative?

The lesson from the shale boom is that the saudis have no problems with waging a price war to drive them out of business after they’ve made significant upfront investments.

Avoiding investments that you know will result in huge losses isn’t price gouging.

Why would they bother to open anything new. the Biden will require 3 years of environmental review and will not defend against any frivolous lawsuits for any new production or plants

First, they wouldn't need to open anything new. They could reopen existing wells.

Second, pumping oil out of new sites is myopic, at best.

And third, any administration's policies are hardly going to move the needle on the profits oil companies are going to make. They may tell you it's Biden, but that's just convenient cover so folks stop blaming them for problems they could eminently fix.

Even just "turning on" existing wells has large up front costs and takes time to have a positive ROI. Between the threat of OPEC turning on the tap and the threat of administration adopting some policy that dings a percent out of the existing margin the risk is too great for north American operators to pull out the stops and go all in.

It's basically one sector holding the entire rest of the economy hostage for more record breaking profit.

I'd argue for "use it or lose it" laws in basically every sector. Farmland, speculative RE investment, etc. Or a sort of delapidation tax

In b4 'but property rights' they're fundamentally a privelidge granted to you by the 'polis'and protected by the polis for it's own benefit.

It’s hardly myopic. We can’t get to a green future without a healthy energy mix today to get us there.

In that case, oil prices will stay high. Russia is winning the war and so the sanctions will remain in place.

It's messed up how the financial press uses negative words to describe good developments, presumably because some speculators may be losing money. Prices didn't "slump" - lumber became more affordable. The housing market isn't going to "shoulder the load" of lower monetary inflation - rather the housing market may regain some sanity as the Fed stops printing so much free money. I say this as someone who is long in real estate (> 1 piece), too. I consider that investment to be a hedge, and if the price of real estate ever were to actually "crash" (>70% drop) I would see it as a fantastic thing for our society to not be held moribund by extractive rents.

I built a deck last summer, during the heightened wood prices. We had planned it out prior to the prices going dramatically up and it was slightly painful to my wallet, but not nearly as bad as everyone seemed to be making it out to be.

Due to the unique design of my deck, we used 2x10x20' pressure treated southern yellow pine for all the joists. I paid $96 each for #1 kiln dried after treatment (KDAT) boards from a local lumber yard. At the time I bought these, Lowe's was selling wet (not KDAT) #2 2x10x20' for about $90 each. Today, Lowe's has those same boards priced at $80 each locally.

So if today is after the price slump compared to last year, the prices aren't actually THAT much lower for a rather specialty size of lumber. But it might be easier to get boards now and more common sizes definitely have come down in price. I had about a 3 week wait on some of my lumber and a 2+ month delay on my composite decking boards.

All in all, if I had waited to build my deck until this summer I might have saved 10-20% over what I paid last year for all my materials. But I had the time to do the work last year and I do not have the time to do the work this year. And lumber was only about 33% of the total cost of my deck build, the other 67% were non-wood items which have had pretty steady prices like composite decking, aluminum railings, connectors/bolts/screws, waterproofing materials (for under-deck storage), and concrete.

Sawn lumber is a very storable item. It can be stored in massive quantities very cheaply with very few losses or costs.

Therefore I'm surprised the market is so volatile - since almost anyone can turn that volatility into profit if they just warehouse a bunch of sawn wood.

And obviously the forests themselves have even more elastic supply - it's easy to cut trees a few years early or late to meet market demand.

Sawn wood is cheap to store but kiln dried and processed much less so. JIT also means you can't just build a lot of warehouses quickly to store them. And we're not even talking about the supply chain disruption, or the bottlenecks in processing green wood.

Even sand is in short supply right now. You can argue sand is even more storable.

Agree it's not as easy as simple as storing wood in warehouses, but the issues with sand have to do with a more permanent shortage in global supply and are not directly comparable to lumber markets.

https://www.cnbc.com/2021/03/05/sand-shortage-the-world-is-r...

The only issue might be that downstream impacts are a few months away yet - take for example a property development not too far away from me here. Four and five bedroom houses went on the market initially at $700k, then were all withdrawn, and put back up for $850k "because of the increase in general costs of construction materials".

This slump is going to have very expensive properties selling at way above their build price.

I'm still waiting here in the UK. I think the recent 2 years was half pandemic and half price fixing by the lumber Mafia.

Dont you import the vast majority from other countries?

We import all our timber. Mostly from Scandinavia and baltics. Some hardwoods from Brazil. But the whole timber global wholesale market is very centralised. Maybe not as bad as Intel/AMD/ARM but same order of magnitude.

Not all our timber. In fact Scotland is ~73% self-sufficient in timber production. https://scotland.forestry.gov.uk/images/corporate/pdf/Hbook0...

Well, send some down south then. Never seen any at any timber merchants. Maybe should've said England instead of UK.

Does that self sufficiency translate to lower prices?

Amusingly, my now passed ultra-SNP uncle spent a lot of his life bemoaning the replacement of the contemporary beautiful Scottish desert with huge tracts of monoculture pine trees, changing the expected beauty of Scottish landscapes with tens of thousands of dense rows of trees planted 'for the English', in turn making another form of desert. He was right in that it wasn't pretty and not much of an improvement on a [human-] degraded landscape, but I always thought he should've looked a little closer to home to see who was profiting from all that stock. It was likely his neighbours (perhaps English), not London per se.

Sadly, a lot of the plywood I use comes... came from Russia. Replacements from elsewhere seems to be slow to trickle-through. A shame, because the Russian stuff was surprisingly good quality, for my needs.

When can I see a slump in the UK when I go to Jewsons/Travis Perkins/B&Q?

I just checked the price of a sheet of OSB, or a piece of CLS and its still bloody high.

I paid £18 in 2018 for a 1.2 x 2.4 18mm OSB sheet, now its £35...

Not in a while. We don't manufacture sheet goods here, everything is imported. Loads from Europe, loads from China, loads from Russia, so I don't see how the supply can improve in the near future.

British Gypsum (owned by Saint-Gobain, also owner of Jewson) brought some plasterboard manufacturing back onshore, previously they were all imported from Germany, after Brexit. The UK made plasterboards are inferior, very crumbly , don't break cleanly, and they cost more. And that's for something we already have existing manufacturing capacity here. For something 100% imported like sheet goods there's even less chance prices will drop, barring a off-the cliff drop in demand. Importing more from NA won't help much given the weak pound.

Not long back trades ppl had been stockpiling and passed the increased cost onto customer, reaping the profit. When you see plumbers and sparks loading up their vans with plywood you know the market is broken.

I stopped tracking the increases in my plywood costs here in London once they'd breached 250% over a two year or so period, starting somewhere around the beginnings of Covid (so, not entirely wedded to lockdown issues, if memory serves).

I'll welcome price decreases, but it did make me seek out a new, better supplier so hopefully 'worth it' in the end (I pass on all material costs to clients, so as long as I explain the cost increases, it doesn't really affect me.. it is galling though).

My understanding is that it can take on the order of weeks to months for prices at the yard to be reflected at retail.

If nothing else, the time it takes to turn over some fraction of the inventory that was bought when wholesale prices were high.

I take it twitter will be full of pictures showing what deflation looks like, with "March" next to a small bit of wood and "Today" next to far more wood?

We have plans for an ADU build coming up with a contractor quote made around March. In such situation, does it makes sense to request a new quote?

I would (no pun intended). Why not?

At this point I’m excited about anything going down

So long as it's not the power grid, or the Internet

Or FAANG TC

Even your karma? :)

Lies, realtors told me the market was red hot "with no end in sight" and I'm sitting pretty on $1.2m new construction in Goodyear Arizona.

My realtor just sent out a newsletter today:

“Housing Sales Are Taking A Breath

If you've been anxious over being able to buy a home, you'll like the latest news from the National Association of REALTORS (NAR) and the Mortgage Bankers Association (MBA). In February 2022, existing home sales were down 2.4% from one year ago and down 7.2% from the month before. Supplies of unsold homes totaled 870,000 units, up 2.4% from January, but remain 15.5% lower than a year ago (1.03 million.) The supply is 1.7 months at the current sales pace, up from 1.6 months in January.

The median existing-home sales price rose to $357,300, up 15.0% from a year ago ($310,600), marking 120 consecutive months of year-over-year price increases. This is the longest-running streak on record, according to NAR.

Rising interest rates are conflating with rising home prices, impacting new home construction and sales. With mortgage interest rates a full point higher than they were a year ago, new home purchase applications were down for the third consecutive month. Sales were the lowest in seven months at 791,000 units. Mortgage applications for new home purchases decreased 3.9% year-over-year in February 2022.

The good news is you may be able to get a proverbial foot in the door soon.”

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