Producer Prices in November – Energy Declines, OSB Firms, Lumber Gets Free Trade

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for November. Inflation in prices received by producers (prior to sales to consumers) increased 0.3% in November based on rising prices for services only partially offset by declining energy prices. Producer prices declined in the prior three months, mainly reflecting energy price declines.

Among wood products, softwood lumber prices moved up in October and November after declines in the preceding two months. Prices have trended down since mid-2014, coinciding with a strengthening US dollar and slowing global demand, despite a strengthening US housing market. The expiration of the US-Canadian Softwood Lumber Agreement (SLA) in October and the mandated twelve month “dispute-free” window of free trade can be expected to keep supply in line with increasing demand from the ongoing housing recovery. Weekly price movements captured in the Random Lengths Framing Lumber Composite (RLFLCP) have been up and down but mostly sideways in the weeks since the expiration of the SLA. With steady supply and increasing demand, we expect no sharp movement in prices but a continuation of the modest downward trend in the coming year.

OSB prices jumped 11% in November after firming in recent months, reflecting reduced production since the summer. A spike in prices in late 2012 and early 2013 motivated the return of productive capacity, lowering prices sharply in 2013 and then steadily until recently. A firming of prices in the current range is more likely than another price spike.

Gypsum prices gave back October’s gain in November. After increases early in the year, prices have settled back to roughly 2014 levels, raising questions about previously announced price increases over the coming year from major gypsum producers (gypsum). The forecast for gypsum prices in the near to medium term is uncertain.

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