Monday, April 12, 2010

Lumber Prices Reaching Four-Year Highs

Dennis Gartman points out that lumber prices are rising in his newsletter today. The chart above (NAHB data here) shows that lumber prices are indeed rising, and are approaching four-year highs. CME lumber futures prices have doubled since early 2009, and random length lumber prices have increased by 80%. Here's one explanation from Reuters:

"Industry analysts have said that while the higher prices are encouraging, they likely reflect reduced production capacity rather than significant increased demand for the wood used largely in housing construction. Sawmills across Canada and the United States have cut production or shutdown completely over the past three years because of the U.S. housing market collapse."


Update: Another factor in rising lumber prices might be increased demand from China: "British Columbia's lumber exports to China increased by 70% in 2009 (source)." Thanks to rjs.

17 Comments:

At 4/12/2010 11:17 AM, Anonymous Anonymous said...

...that's called inflation.

 
At 4/12/2010 11:20 AM, Blogger rjs said...

same reason as for oil, Chinese demand:

British Columbia's lumber exports to China increased by 70% in 2009

http://wood.lesprom.com/news/43448/

 
At 4/12/2010 12:56 PM, Blogger David said...

Nice blog. I added yours to my favorites at http://economylessons.blogspot.com/

 
At 4/12/2010 1:44 PM, Anonymous Benny The Man said...

Big query for monetarists: China now a bigger player than US on world economic scene, a reality that will only grow.

But we have free trade,a nd free capital flows: Money from China can come here and vice-versa. Indeed, one can open up a bank account in China, and take out deposits from the US branch (East-West Bank, among many others).

I won't even mentioned currency traders or the internationalization of credit default swaps, stock markets etc.

So, should we start watching the Chinese money supply as closely as the US money supply? Seems so to me.

 
At 4/12/2010 4:33 PM, Blogger Craig said...

China now a bigger player than US on world economic scene, a reality that will only grow.

How can it possibly be said that China is a bigger player than the US? Its GDP is about 1/3 of ours.

 
At 4/12/2010 4:56 PM, Blogger rjs said...

@craig: because of distortions caused by currency exchange rates, today’s typically used nominal GDP comparisons between countries are relatively meaningless; for a better measure, purchasing power parity is used; & according to the latest CIA figures the US is at $14.25 trillion and the chinese is at $8.77 trillion…but even by that comparison, the official chinese GDP doesnt include barter elements of their rural economy below the radar of the statisticians, while our GDP is inflated by parasitic activities with no socially redeeming value, such as the casino on wall street, zero-sum financial sector manipulation, zero-sum litigation, tax avoidance schemes & related accounting, etc; …so its hard to determine what percentage of our GDP is really “productive”, and what part of just represents legalized manipulation or theft…

linked article: the coming chinese hegemony

 
At 4/12/2010 5:22 PM, Blogger Benjamin said...

Chinese auto sales top the US now. But they waste little money on a military.

The are the biggest player in the commodities patch--well, they have 1.5 billion Chinese, and we have 300 million Americans.

And they have a smaller, parasitic "Mandarin class," though that may change over time.
I wonder how much of our economy is made up of lawyers?

Chinese monetary policy probably more important in commodities than US monetary policy.

 
At 4/12/2010 10:56 PM, Anonymous Anonymous said...

...So we're selling a commodity that, over the last 100 years has reduced its own labor-force-needs by 95%...Congratulations, you've managed to bring to the forefront the fact that we've created no jobs, increased commodity costs (inflation) and have ended up back at a below-average manufacturing-output... You're as liberal as the media you serve, Mark....

 
At 4/12/2010 11:17 PM, Blogger T said...

...So we're selling a commodity that, over the last 100 years has reduced its own labor-force-needs by 95%...Congratulations, you've managed to bring to the forefront the fact that we've created no jobs, increased commodity costs (inflation) and have ended up back at a below-average manufacturing-output... You're as liberal as the media you serve, Mark....

 
At 4/13/2010 2:08 AM, Blogger OA said...

If British Columbian exports to China are expected to more than double by the end of 2011, what will lumber prices be in 2011? Those exports will be over half what was exported to the US in 2009.

What if the Yuan were appreciated by then and they'd have an effective discount?

Of course Oregon, Washington, and the Southern states that are lumber sources will benefit. But with commodity prices coming right back to higher levels, aren't we staring at inflation showing up in prices?

I found this website with many commodity indexes, and what's surprising is how many of them had a similar spike like oil did.

http://www.indexmundi.com/commodities/?commodity=rice&months=120

Also surprising is how many of them are higher than pre-2006 or 2007 levels. Wood is actually not so bad relative to history.

But check the 20 year history on the cereals, food oils, and things like fish meal, copper, nickel, zinc, etc. We're at high levels on many things. It puts the Fed's fixation on inflation in 2006/2007 in perspective.

 
At 4/13/2010 3:02 AM, Blogger PeakTrader said...

RJS, world prices reflect living standards better than purchasing power parity. For example, few in China can afford a Toyota. In 2007, U.S. per capita GDP was $45,000 and China per capita GDP was $2,200, using a hard currency. China has a long way to go, particularly given its poor economic policies. A Wall Street in China would help, but it doesn't have that ability.

The article helps explain why gold prices are higher.

 
At 4/13/2010 4:19 AM, Blogger rjs said...

@ peaktrader: you are laboring under perceptions of china a quarter century ago; GM has been selling more buicks there than in the US for 3 years; they have been buying more new cars total than us for 1 1/2 years:

http://www.businessinsider.com/in-case-you-had-any-confusion-about-why-oil-is-surging-this-chart-of-chinese-car-sales-should-clear-that-up-2010-4

virtually every city dweller has air conditioning (its a status symbol) and the same appliances you have...china also has more internet users, twice as many cell phone users, produces almost ten times as much steel, and its educational system generates more college graduates with science and engineering degrees than ours;

and soon their transport will be second to none: 350 KPH hi-speed rail crisscrosses the country, which they have plans to extend to london, through indo-china and india; here's the photo gallery:

http://www.skyscrapercity.com/showthread.php?t=1014837

 
At 4/13/2010 4:20 PM, Blogger PeakTrader said...

RJS, not many Chinese are going to buy $20,000 autos on $2,200 a year:

Cracking China's car market
17 May 2007

GM has come to Liuzhou to produce a tiny minivan, the Wuling Sunshine, which is a best-seller in China, selling more than 460,000 vehicles a year.

The van costs $3,700 (£1,872), has a 0.8 litre engine, have a top speed of 60 mph, and weighs less than 1000kg - yet cheap labour costs mean that GM makes a substantial profit on each vehicle it sells.

Rather than use automation, the Wuling Sunshine is made on an old-fashioned assembly line, which would not look out of date in 1940s Detroit.

But with labour costs of just $4 per hour - half the rate in Shanghai - GM Asia Pacific boss Nick Reilly says that the company is only spending $100 per vehicle on labour - and the factory is working around the clock on a three-shift system.

 
At 4/13/2010 4:36 PM, Blogger rjs said...

PT, the CIA gives china average GDP per capita @ $6600..

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

but you go ahead & believe whatever you need to...

 
At 4/13/2010 4:49 PM, Blogger PeakTrader said...

RJS, that means China's GDP is over $8.5 trillion or equal to the GDPs of Japan and Germany combined.

 
At 4/14/2010 3:54 AM, Blogger rjs said...

PT: "that means China's GDP is over $8.5 trillion or equal to the GDPs of Japan and Germany combined"

exactly, thats what the CIA says:

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html

just check the links ive posted here...

 
At 4/14/2010 8:30 AM, Blogger juandos said...

From the Heritage Foundation's Index of Economic Freedom site there was this that I found interesting: 'China has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 45 percent, and the top corporate tax rate is 25 percent. The government encourages new-technology businesses with a reduced corporate rate of 15 percent. Other taxes include a value-added tax (VAT) and a real estate tax. As of October 2008, individual income tax is no longer paid on interest on bank deposits. In the most recent year, overall tax revenue as a percentage of GDP was 18.3 percent.'...

 

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