America is likely going to be spending enormous sums on infrastructure soon. Replacing thousands of lead pipes. Building rails and repairing roads.
Yet prices of lumber and steel are three times the normal price. Many think this is a bubble due to short supplies. Can someone smarter than me explain the current markets?
It’s a bubble due to short supply. Someone dumber than you could have told you that.
I’ve been told by friends who are respectively a buyer for a yard and a manager that the only way the mills can keep inventory is by increasing prices…
I was hoping for details.
The first article talks about the Asian steel industry but says little about North America. I was wondering how this ties in to a demand which will much rise shortly if infrastructure is prioritized.
Insults are not allowed outside of the pit. Knock it off.
Vox has an informative article:
Disclosure: One of my clients is a major U.S. manufacturer of residential construction/remodeling materials, and I did a fair amount of research on this topic a few months ago.
It’s not only short supply for construction materials, but high demand, as well. The home improvement category, and home sales, here in the U.S. took off massively during the pandemic.
Edit: I see that the Vox article to which @Shalmanese linked made some of the same points.
Too late to add: there are a couple of reasons for the strong housing market over the past year:
I’m sorry. That was really bad form, and just plain stupid.
That’s exactly the sort of thing I was looking for. Thanks for posting the article.
No worries. I’ve made my share of snappy comments.
Although there are likely a number of factors at play, surely one is that it illustrates the folly of the “just in time” philosophy of manufacturing. You order supplies only when you need them on the assumption that the supplier can always ramp up production instantaneously. So construction companies stop buying lumber since no one is building anything during the pandemic. The lumber mills stop buy logs and lay off their workers. The logging companies lay off their workers. In some cases, at least, those laid off workers find other jobs. Suddenly demand is back, but the mills are closed, the loggers may have gone out of business and the production cannot be ramped up immediately.
This sort of thing also explains why auto manufacturers and others cannot get back in production for want of microchips. Had one manufacturer had the sense to keep buying chips, knowing the lack of demand during the pandemic was only temporary, not only would the chip factories have been able to keep running to some extent, but that manufacturer would have made out like a bandit. Just in time is like driving without insurance and hoping for the best.
I was talking about this with my neighbor who does plumbing for commercial properties. All sorts of piping are in extreme short supply and the prices are fluctuating daily (mostly up). He can pre-order supplies, but can’t pre-pay for them or even contract for a particular price. Payment has to be cash on the day of pickup at that day’s spot price. It makes for a lot of hassle when he submits bids; he has to add in contingency clauses or otherwise pass the price on to the general contractor (who surely does the same to his customer).
His explanation is the manufacturers and wholesalers took huge hits when the pandemic started and everything stopped. So they’re being extremely cautious about increasing production or inventory. He expects the situation to continue into the fall. At some point a manufacturer will decide to increase their market share and increase production. And then others and wholesalers will follow. Prices will stabilize, but still be substantially higher than 2019 prices.
Chip manufacturers and the entire value chain supplying materials to the chip manufacturers have been running throughout the pandemic. In fact the ramp for semiconductors globally began in March 2020. Demand for chips for electronics throughout the pandemic drove a good portion of the demand. The continued roll out of 5G; better faster wifi in homes; increased server capacity at businesses with many more remote workers; better devices for entertainment in homes; etc.
When the auto manufacturers cancelled orders of chips when they shut down the auto manufacturing for two months in 2020, all of those chips were diverted to the booming electronics demand. And when auto decided to ramp back up, the chip capacity that they had foregone was gobbled up by other markets.
Agreed. My son has a concrete business and last year I thought he might not work very much with the Covid restrictions. Instead, it was just the opposite. Home construction was an allowed business (at least here in Ohio) and his business increased a huge amount over the previous year.
No other reason than because they can.
Even if what you is true (and I have read that it is hard to find computers for lack of chips) the fact is that “just in time” buying is very short-sighted. As Warren Buffet is reputed to have said (or was it Yogi Berra?) “When the tide goes out, you will see who is swimming nude.”
Agreed! In a nutshell, people are being ripped off. Same goes at the grocery store and other places. Note that many of these businesses are also posting record profits. Once things settle, try to recall who stole from you the least and divert your business to them where possible. It’s all about greed. What makes it even more reprehensible is that this is a time when many are suffering from lost income and jobs.
Don’t disagree with your point on the flaws in business planning…just that the semi market has been on fire due to downstream demand for a year and a half, and the overall market is expected to grow at a 10% CAGR for the next several years.
Yes, this is how it was explained to me. We had a wood fence replaced last fall, and the contractor explained why he could not take the job right away due the the shortage of materials, specifically lumber, for these exact reasons. We scheduled the job some weeks out when he was confident he would have everything needed.
Yeah, seems a lot of supply chains have been disrupted due to the pandemic. Try to get a bicycle or bicycle parts nowadays - bike stores were considered “essential” during the pandemic and were open the whole way thru, so like someone else said above, people had nothing better to do and no where to spend money so all kinds of sports equipment got cleaned-out.