A Forgotten Trade Spat With Canada Is Costing U.S. Homebuilders
As a wave of pent-up homebuying emerges across the U.S., a pesky and oft-forgotten trade dispute with Canada is boosting building costs.
A long-simmering spat between the U.S. and Canada over softwood lumber is adding to the expenses homebuilders face in the fallout from disruptions related to the coronavirus pandemic, said David Logan, director of tax and trade policy analysis for the Washington-based National Association of Home Builders. Lumber mills in the Pacific Northwest cut production amid lockdowns, and builders are buying more wood from Canada, he said.
Canadian producers are paying average tariffs of more than 20% on timber shipments to the U.S., and that translates into an average price increase of about 8% in the U.S., Logan said. Construction is topping forecasts, and builders will be forced to absorb the additional expenses, he said. Framing lumber accounts for as much as a fifth of the material costs of erecting a home.
“The majority of homebuilders in America are truly small businesses, building fewer than 10 homes a year,” Logan said in a telephone interview. “So the effects that the pandemic has had on the economy make it a lot more difficult for builders to absorb those costs.”
Lumber futures have soared more 70% from a four-year low on April 1. Supplies tightened at a time when people stuck at home spent more time on repairs and improvements....MORE
And Forbes on natural gas:
Buffett’s Return To Deal Making May Signal Natural Gas Price Bottom
Berkshire Hathaway Energy’s $10 billion acquisition of Dominion Energy’s natural gas transmission and storage assets may do more than just herald Warren Buffett’s return to the marketplace; it could also be signaling a long term bottom in natural gas prices.....MUCH MORE
As the chart above shows, natural gas spot futures prices rarely stay below two dollars for very long. In fact, natural gas futures prices are currently below the two dollar threshold for only the third time in the past 10 years. The first time there was a breach of the two dollar price level was in 2012, when the spot futures price stayed under two dollars for all of two weeks. In the winter of 2015/16, when counted as a single wintertime event, prices stayed below two dollars for a total of 12 weeks, two weeks were in late 2015 and, after a short lived rally above two dollars in the very beginning of 2016, prices stayed below two dollars for another 10 weeks. The current price plunge below two dollars began in January 2020 due to unusually mild winter temperatures in the eastern United States. Prices currently remain subdued and below two dollars, primarily from the combined effects of plentiful natural gas supplies in storage and because of reduced demand due to the effects of the Covid-19 crisis....
Although we agree with the writer that the Berkshire move focused some attention on the area:
July 5
Berkshire Hathaway's $9.7 Billion Purchase of Dominion Energy's Natural Gas Assets (D; BRK)
These are not the choicest assets—unless Warren is planning to take what started as the Enron stub* nationwide—in which case he'll be spending another couple hundred billion dollars.If I were to ascribe the second leg of the upmove to anything it would be to the first extensive warm spell of the summer. With the first leg beginning with the gap-up the Sunday Chesapeake filed for bankruptcy court protection:
What it means though is that someone familiar with the business is seeing some value....
See Tuesday June 30's "Natural Gas: Projects Will Be Deferred At Current Prices, Some Production May Be Shut In":
...And via the CME the response of the futures to Chesapeake's bankruptcy announcement on Sunday the 28th:
And ""Chesapeake asks to cancel pipeline contracts, sets drilling cuts" (CHK)"
Along with Monday June 29's ""Chesapeake Energy's bankruptcy delivers hit to reeling pipeline, service firms" (CHK)":
Natural gas futures are up 6.2% to $1.64, these super-indebted companies have been producing as much gas as they can to make interest payments.
Additionally, the huge move up in WTI from the lows means the oil producers are bringing up more "associated" gas as they try to grab some cash flow while they can.
Oil prices up means gas prices down, or vice versa, if you prefer your vice versa....
And Sunday the 28th:
U.S. Natural Gas Major Chesapeake Files For Bankruptcy Protection (CHK)
Not as major as it once was but still big enough that taking some of their production out of the mix is a positive for prices....
Front futures up another 0.0760 (4.15%) at 1.9060.
