Understanding Price Volatility in Construction Materials: Wood, Steel, Aggregate

Blake Hoskisson , President , Sunsteel

Dall in Brooks, Execut ive D irector, Western Wood

Preservers Inst i tute

??? Aggregate Guy ???

Can’t We All Just Get Along?

Wood

Steel

Concrete

Plastic

Maybe We Can

Wood Guy

Steel Guy

Why Do You Care?

Who are You?

Do you really care about daily price Fluctuations?

Do you have any Choice?

The Whole Picture

The Global Economy

Global Manufacturing

Insurance

Industry Manufacturing Process

◦ Steel

◦ Aggregate

◦ Wood

Labor

Environmental Impact

Global Supply Chains are Reacting to China-US Trade Dispute

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US Imports of Goods from China US Imports of Goods from Vietnam

Year-over-year percent change

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Global Manufacturing Sector Has BeenDeclining Since Late 2017

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Global PMI ex.USA

Breakeven

Markit Purchasing Managers' Index Excluding US

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Purchasing Managers’ Indices Show Manufacturing Sector is Slowing

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Total Index

New Orders

Breakeven

Purchasing Managers’ Indices, Breakeven Level = 50

Source: Institute of Supply Management

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The 2018 Level of Housing Completions Was Typical of a Recessionary Low in Previous Economic Cycles

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Annual Level of Housing Completions, Millions

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Oil, Gas and Energy

Insurance Rates Based on Material

Material Ins. Rate Premium % Bldg. Cost Ins. Cost/yr Ins 50 yrs Total Cost

Wood $ 0.24 $ 2,000,000 $ 4,800 $ 240,000 $ 2,240,000

Concrete $ 0.16 4% $ 2,074,074 $ 3,319 $ 165,926 $ 2,240,000

Steel $ 0.11 6% $ 2,123,223 $ 2,336 $ 116,777 $ 2,240,000

Steel, ENR 20 City Average

46.50

47.00

47.50

48.00

48.50

49.00

49.50

Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Dec-19 Jun-20

Rolled Steel, $/cwt

Fabricated Steel: Consider the “All In Price”

Installed Steel:

$1.50 to $2.00/cwt

Airline Comparison

https://skyrefund.com/en/blog/airline-industry-price-wars

Aggregate, 20 City Average

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Base Course Aggregate $/ton

Wood Products are SustainableInputs

Seed

Soil

Water

Sun

CO2

Outputs

Oxygen

Habitat

Stored Carbon

Mature Forest

Wood Products

Page 16

30-80 years of

forest management

Preserved wood products are more sustainable

30-80 years of

forest management

A replacement has grown in the 30-80 years of

expected product life span

WWW.PRESERVEDWOOD.ORG 360-693-9958

Lumber Prices to Trend Upward

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2&Btr 2x4, Western SPF $US/MBF

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Wood Prices Last Two Years by Month

d

Mills Were Losing Money On Cash Costs

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Cash Cost Profit Average Sales Price*

$/MBF

*After deducting duties for Canadian Mills

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The Last Time Prices Were This Low, We Saw Significant Curtailments And It Has Begun Again

US West

6/6/2019 Manke 1 Mill

5/31/2019 F.H. Stoltze 1 Mill

5/1/2019 Saratoga FM 1 Mill

2/26/2019 Swanson 1 Mill

12/11/2018 Rosboro 2 Mills

12/11/2018 Saratoga FM 1 Mill

12/6/2018 Schmidbauer 1 Mill

11/28/2018 Swanson 1 Mill

11/14/2018 Rosboro 1 Mill

11/13/2018 Swanson 1 Mill

11/8/2018 Seneca 2 Mills

Canada

6/5/2019 Tolko 2 Mills

6/3/2019 West Fraser 5 Mills

6/3/2019 Conifex 2 Mills

6/4/2019 Canfor* Vavenby

5/31/2019 Aspen Planers Remove 1 shift

5/25/2019 Interfor All BC mills

5/23/2019 Tolko 2 Mills

5/16/2019 West Fraser 2 Mills

5/10/2019 Western 1 Mill

5/1/2019 Conifex 2 Mills

4/25/2019 Interfor All BC mills

4/24/2019 Canfor All BC Dimension mills

*Permanent

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The South’s Softwood Sawtimber Inventory Will Continue Expanding in the Near Term

Growth & Drain, BBF Int’l ¼” Inventory, BBF Int’l ¼”

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Growth

Drain

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Sawtimber Inventory

Growth

Drain

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Growth In Chinese Demand Is SlowingNorth American Overseas Wood Exports

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China Other

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China Imposed Tariffs on US Softwood Log and Lumber

SYP log: 25% tariff

Hemlock log, 15cm+: 5% tariff

Douglas fir log, 15cm+: 5% tariff

Hemlock log, <15cm: 20% tariff

Douglas fir log, <15cm:20% tariff

Spruce log:20% tariff

Douglas fir lumber, SYP lumber, Hemlock lumber: 20% tariff

Is Mass Timber the Wave of the Future?

What are the different types of mass timber panels?

CLT - Cross Laminated Timber NLT - Nail Laminated Timber DLT - Dowel Laminated Timber

MPP – Mass Plywood Panel TCC – Timber-Concrete Composite Timber

The dominant mass timber panel product is CLT

Illustrations courtesy of Structurecraft

Steel, Wood and Concrete: the devil is in the details

STAGE 1 - STEEL FRAMING STAGE 2 - CLT FLOOR PLANKS STAGE 3 - CONCRETE TOPPING

STEELCOLUMN

END PLATECONNECTION

BUILT-UPSTEEL BEAM

CROSS-LAMINATEDFLOOR PLANKS

CONCRETETOPPING SLAB

SLABREINFORCING

COMPOSITEFLOOR SCREW

Why has offsite construction been gaining ground globally?

• Construction-labor productivity is very poor.

• Severe shortages of skilled onsite construction labor.

Circa 1940s Circa 2016

Agriculture

Manufacturing

Retail

Construction

Land assembly and automation for scale

Advanced bioengineering

to increase yields

Entirely new concepts of flow

Modularized and standardized designs

Aggressively automated to increase

production

Utilized scale advantages and cutting

edge logistics to provide affordable goods

to the masses

Limited improvements in technological

capabilities, production methods, and

scale

Key advances

1 Cumulative real growth in the United States, %, 1947-2010

Productivity Growth1

1,512

760

699

6

The Construction Industry Has A Terrible Productivity Record

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Employment in Residential Construction Has Stalled Even as the Unemployment Rate for Construction Workers Has Plunged

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Employment in Residential Construction

Thousands, SAUnemployment Rate in

Construction Sector, SA

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Labor

"greatest innovation in residential construction is the invention of the nail gun“

Labor shortage isn’t just about contractors it is about their suppliers too.

North American is Only Major Economy With Growing Working-Age Population

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Population Aged 15-64, 2015=100

Japan

China

Source: UN Population Division, Estimates and Medium Variant Forecast

North America

Europe

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Wood, Steel and Concrete Hybrid Construction

The Right Material for the Right Applications

We Expect CLT Consumption Growth to Average 29%/year through 2023

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North American CLT Consumption ForecastConstruction Only

Base Case 000 m³ Upside 000 m³ Downside 000 m³

000 Cubic Meters Million Board Feet

Source: FEA

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Mass Timber Panel Projects Built &/or Started Since 2010

Source: WoodWorks, FEA

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Mass Timber Panel Projects Built &/or Started Since 2010

Business45%

Student Housing21%

Assembly11%

Educational7%

Hotel/Motel6%

Multi-family5%

Other5%

US Mass Timber Panel Consumption by Building Occupancy, 3-Year Average

2016-2018

Source: WoodWorks

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Wood- Natures Steel and Concrete

Made up of Tiny Straws.

◦ Pound for pound stronger than steel

Wood

First Board Installed On Every House

◦ Preserved wood Sill Plate

◦ Chemical protect the rest of the wood.

Mistakes Can be Made

39

Industries

• After the Berkley deck collapse, rather than requiring preserved wood, construction industry advocated and passed requirements for a drain under “impervious barrier” over wood

Economic Cycle Forecast

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Sources: US Bureau of Economic Analysis, FEA

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Housing Start Profile

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Sources: US Bureau of Economic Analysis, FEA

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Did We Get Along?

Wood Guy

Steel Guy

Concrete and Plastic

Life Cycle of Steel

• Enough steel is created each day to build 548 Eiffel Towers

• 217 kg of steel, on average, is used in new products per person

globally

• 8 million people work in the steel industry

You have a choiceWood Guy Says Steel Guy Says

Embodied Energy (per the “Wood Guys”):

• Concrete: 12.5 MJ/kg

• Steel: 10.5 MJ/kg

• Wood: 2.0 MJ/kg

• Steel/Wood Factor 10/2 = 5

Case Study- 16” deep member w/ 40’ span

Glulam- (2) 8 ¾” x 16 ½” at 70 lb/ft

Steel- (1) W16x45 at 45 lb/ft

Steel/Wood Wt Ratio: 45/70 = 64%

Adjusted Factor 5 x 64% = 3.2

For wood add: fire-retardant, paint, pesticide, etc.

For steel add: recycled content, paint, fire-proof

Thank You For Your Time

Dallin Brooks

Executive Director

Western Wood Preservers Institute

12503 SE Mill Plain Blvd. #205

Vancouver, WA 98684

(360)693-9958

www.PreservedWood.org

Blake Hoskisson

President

SunSteel LLC

312 SE Stonemill Drive, Suite 147

Vancouver, WA 98684

(360 )329-7048 |

www.SunSteelllc.com