By Richard Wall
Builders trying to comprehend the impact of Hurricane Katrina on materials would do well to consider one projection: The greatest volume of structural work replacing or repairing the 600,000-odd homes destroyed and damaged won’t occur until 2008 and 2009.
"A lot of people don’t understand that hurricanes don’t have a great impact on commodity products, because it takes months and months for the rebuilding to begin," says Robin Green, vice president of purchasing for Stock Building Supply. "A point of reference is that last year's hurricanes in Florida are having more of an impact on materials today than they did last year."
While much attention has been focused on price spikes of plywood, lumber and OSB, Robin says that was mostly due to expected panic buying in the storm-ravaged areas, not to any ongoing consumption of those products. Katrina’s ripple effect on building materials lessens every day. "But I expect that the larger impact will come in about six months," says Robin.
Woe to Wallboard
He’s most concerned about products dependent on natural gas, because about 60% of the country’s natural gas refining capacity was damaged by Hurricanes Katrina and Rita. For that reason, wallboard may well be the building material most affected by the storm. Wallboard manufacturers generally operate 24/7, directing a lot of natural-gas energy to drying the manufactured wallboard. Now, many manufacturers are operating far below capacity, due to scarcity of natural gas. Winter heating needs will suck up more natural gas, making matters worse for wallboard. Supplies will continue to tighten, and with wallboard a major material in both hurricane repair and the national housing market in general, the outlook isn’t good.
"We do see [the shortage] lasting for a while, with sustainable price increases that are considerably higher than we anticipated last year," says Robin. "Drywall supply is going to be a real issue for us in North America."
PVC pipe and other materials dependent on natural gas will see a sustained price increase, too. PVC could possibly double in price again, says Ken Simonson, chief economist for the Associated General Contractors of America. "Anything that uses petroleum as a feed stock is going up," says Ken. "Asphalt shingles, roofing materials, insulation—all those will increasingly be affected as winter comes along." Roofing materials will also see price pressures from Gulf Coast demand, as repairs to damaged roofs are tackled first.
Wood Looks Good
Wood products may be the bright spot. Ken says those prices have spiked and will come back down. Timber blown down by Katrina could help take pressure off wood prices. Though some of the downed pine in Mississippi, Louisiana and Alabama, which together supply 22% of the nation’s wood panels, may not be salvageable due to the onset of blue-stain fungus, yellow pine may carry the day.
"Downed yellow pine will be more difficult than usual to log, because it’s like playing pick-up sticks," says Robin. "But sawmills have a year to get it out and turn it into lumber. That could have a reverse effect on prices." Georgia Pacific will add a boost to supplies when it reopens an idled sawmill and a plywood plant in Mississippi later this year.
Cement Looks Bad
However, looming problems with cement supplies can be blamed on Katrina, China, and the U.S. government. About 12% of the nation’s cement imports came through New Orleans, a port that is still not back up to speed after Katrina, which also damaged two cement plants in the area. That has put additional pressures on a commodity already in short supply. China’s construction boom eats up a lot of the world’s cement. And cheap cement from Mexico currently gets hit with a 55% anti-dumping duty, which appeals to domestic cement producers but not to most cement users.
"Cement will likely get worse in the fall building season, both in terms of shortages and prices," says Ken. "This is a national phenomenon, and many small projects have been delayed due to concrete supply. The Associated General Contractors has been seeking suspension of this duty for over a year, but the Commerce Department has only shown interest since the president committed to rebuilding the hurricane-stricken areas."
Ken says that suspending the duty would result in more cement for builders across the country and stabilize prices. President Bush recently said he would consider lifting the duty on Mexican cement, though contractors won’t be pouring much cement for a while in the Gulf Coast.
Analysts say steel prices also may rise. Katrina damaged scrap-iron yards along the Gulf Coast as well as a plant that processes liquid hydrogen, which is used to make steel. Some experts think that global issues put much more pressure on steel prices, with China’s appetite for that material being a primary cause.
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