Did Hurricane Sandy significantly impact the lumber market?

on December 18, 2012

Will Hurricane Sandy cause a big spike in lumber demand?   If you listen to some traders; the answer is yes.  But if you look at history and logic; no.    We are seeing some increases in lumber prices, some still based on the momentum of the housing market demand.  There is probably a temporary price spike caused by future speculation as people are imagining trainloads of lumber pouring into the region to feed a flurry of recovery activity.    We don’t expect this price spike to last very long.

The key word here is “imagining”, as in reality storm recoveries do not happen that quickly.   It can take months for areas to be cleared and have repairs and rebuilds lined up.   So the construction starts will be spread over several months.    Even though the devastation was incredible for that region, the expected overall lumber demand is a small percentage of total use.  Without diving too deep into statistics, the national housing starts for October 2012 was almost 900,000.  This does not include other construction such as commercial or multi-unit facilities.   According to NJ.com, there were around 500 homes totally destroyed n New Jersey.  That would add about 5% to the national housing starts if they were started in one month.   Additionally NJ.com reports that there were 72,000 battered homes and businesses in New Jersey.   Difficult to determine what the lumber needs for that are, but  in most cases  battered means replacing roofing, siding and windows,  but usually not lumber.    There is also devastation in other areas to consider, but it is hard to imagine that over a 4-8 month period that this storm would put a major dent in lumber demand.

If we look back to hurricane Katrina in 2005, we did see an increase in pricing immediately after the storm, some of it due to speculation, most of it because prices were rising before the storm and the pattern continued.   However two months after Katrina, lumber demand dropped and so did price.  This was even after several southern pine mills were shut down for several weeks.

Make no mistake; lumber prices have increased again, some of it due to speculation, but most due to the current trends in the housing market.  We are not expecting a “Katrina lumber market” after the first of the year.