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Panelists Provide Welcome News on Materials Prices
 With many commodity prices rising sharply during the past two years and surging even more in the aftermath of Hurricanes Katrina and Rita, experts at NAHB’s Fall Construction Forecast Conference offered some welcome news to builders who are suffering sticker shock over the cost of building materials.
“The worst is over,” said Michele Halickman, an economist for Global Insight's Industry Practice.
The supply-side shock from Katrina is destined to be short-lived, Halickman noted, with higher prices stimulating added production of key construction materials.
“Residential construction will cool in 2006 and demand will move down, which will help alleviate upward pressure on prices,” she said.
On the steel front, with new mines expected to come online in Australia and Brazil next year and Chinese consumption beginning to ease, imports are expected to become more accessible in the coming year.
“Supply lines have adjusted to ensure more availability, which will allow prices to fall,” said Halickman, who predicted that builders will not have to “budget as much for steel buying in 2006 as in 2005.”
 Relief from soaring plywood and oriented strand board (OSB) prices, which spiked more than 50% in the weeks following Hurricane Katrina, may also be in the offing, according to Henry Spelter, an economist for the U.S. Forest Products Laboratory in Madison, Wis.
“There will be an additional billion square feet of OSB capacity in 2006 and another 2 billion in 2007,” said Spelter.
The capacity utilization rate for plywood and OSB is currently running above 90%, with the U.S. expected to consume 17 billion board feet of plywood this year and 26.2 billion square feet of OSB.
With production running at full tilt, panel prices could be buffeted by volatility through the early part of next year. But by the end of the decade, Spelter said that OSB production is expected to jump by an additional 10 billion board feet, while market demand minus import growth will amount to 4.2 billion board feet over the same time period.
“Expect lower prices over the next three to five years,” he said.
With cement shortages still being reported in parts of more than 30 states and as the Gulf Coast begins its post-Katrina rebuilding efforts in 2006, Halickman cautioned that prices for this key commodity will continue to rise next year, albeit at a slower pace than in 2005.
“Availability of imports will be key to supply,” she said, noting that imports grew from 17% of total market share in 2004 to more than 20% by mid-2005.
“With no new significant domestic capacity until 2007, imports will play a large role. Ocean-going freight rates are coming down and imports from China are up as growth slows there.”
The Commerce Department is currently considering lowering the anti-dumping rate on imports of Mexican cement from 54% to 40% beginning in December.
In light of tight supplies and strong demand well before Katrina devastated the Gulf Coast, NAHB continues to urge the Commerce Department to suspend the entire duty on Mexican imports.
An ample supply of softwood lumber could exert downward pressure on prices in the coming year. A mountain pine beetle epidemic in British Columbia that destroyed 283 million cubic meters of forestland in 2004 presents the opportunity to harvest a large volume of timber in the coming years. In addition, billions of board feet of timber blown down from Hurricane Katrina will also need to be salvaged in the coming months.
However, this could be offset somewhat by a strong Canadian dollar and duties of more than 20% that continue to be levied on Canadian softwood shipments. Although Canada has won numerous definitive decisions from several North American Free Trade Agreement panels calling for the rescission of the tariffs, the legal process could still easily drag out well into next year.
Photos by Morris Semiatin
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