Everybody understands supply and demand and that pricing generally goes up with real demand. However, what the oriented strand board (OSB) associated mills have done to this fragile market is almost sinister.
Why can I say that there was no real demand? Because as soon as everyone quit buying the pricing started to drop and it fell like a rock. From May 14 through May 28, the 7/16 OSB market fell from $12.42 to $7.04. That's a 57% loss in three weeks! This same robbery has occurred in the 3/4-inch subfloor market, where similar pricing extremes have been seen and are still being perpetuated.
To an outsider, which I am, the perception is one: greed. The mills saw an opportunity to get back some of their losses from the last two-plus years and used the small bump in demand from spring building to take advantage of the market--a captive market that has no alternative to the OSB product.
Let me tell you how this affects a small lumberyard. Building material suppliers have to have 7/16 OSB to sell to customers, so many of them contract the product from mills. That means they are obligated to buy it regardless of current pricing. As they bought product at the higher prices, they were forced to raise their retail price to keep from losing money.
Once the mills started to drop their prices, lumberyards had to buy back in at the lower prices to help average their costs down and stay competitive--and again, reduce their retail price. But when the price drops 57% in three weeks, most small LBMs cannot afford to buy that much extra OSB to average their cost down because there is no real building demand to help get rid of the product.
With OSB pricing in the $7 to $8 range, and still dropping, many LBMs will be giving away their OSB just to get rid of it.
In 2006, when the market was hot and heavy and demand was crazy, you could give away a truck of OSB in a week and recover. But not today. That same truck could now take three weeks to get rid of and the result will be red tape on the calculator at a time when red tape for most small LBMs could be their demise.
The bottom line for me is that our industry cannot stand a round of stock market-like maneuvering by the mills. Being "capitalistic" does not have to involve greed. The mills need to remember that it was greed on all fronts that started sinking this economy three years ago.
My recommendation is that we take a measured approach to getting the economy back on track--one that is based on real need not real greed.
Wally Roderick is operations and purchasing manager of Appalachian Supply in Ellijay, Ga. E-mail him at [email protected].