This sort of info, from today's afr, may feed positive sentiment towards this stock....
Timber squeeze jams housing industry
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Builder Mark Little: "From the information I'm hearing it's going to get worse before it gets better." Jesse Marlow
The housing boom is being hit by a serious shortage of timber caused by the decline of the local timber industry and increased demand as the US economy recovers and house building ramps up.
Home builders in Australia are facing both rising costs and lengthy delays as the shortage starts to affect residential building.
In Victoria, where the squeeze is the tightest, the shortage means builders are telling their clients that their new homes may take several months longer to complete as they wait to get hold of increasingly scarce timber frames and roof trusses.
Mill closures and bushfires are part of the problem but the nation's pine plantations have been shrinking steadily since the global financial crisis and the collapse of managed investment schemes.
"It started happening six to eight weeks ago and it's really elevated in the last two weeks," said Mark Little of Little Constructions, who builds homes in Geelong and Melbourne's west.
"And from the information I'm hearing it's going to get worse before it gets better."
Although the housing boom has come off a record high of two years ago, the slowdown has been modest and starts in detached housing, which uses more timber, grew 3.3 per cent in the last quarter.
As the new housing fires up in all three east coast states, supply is struggling to keep up. Houses are getting bigger and there is more timber being used in their construction.
"Basically we haven't been planting pine trees so that's the problem we are trying to solve," said Ross Hampton, who heads industry group Australian Forest Products Association.
The last piece of the puzzle is the global timber market. Australia imported 787,000 cubic metres in sawn wood in 2016-17, around one-third of what it needs for the housing market. Well informed
But the global supply is getting squeezed as well, as the US economy continues to improve and housing demand there increases. Single family dwelling starts in the US are now at their highest level in a decade.
The American building spree is sucking timber out of the global supply chain which might otherwise have come to Australia.
Back on his construction site at Werribee in Melbourne's west, Mr Little has the frame and roof up and the windows in on his latest housing project.
He is well-informed on macro-issues in the local and global supply chain, the galloping demand for new housing, and he's doing his best to lock in supply with his Geelong-based frame maker.
But Mr Little has been told to expect price rises of 7 per cent next year, a significant increase on the $25,000 spent on average for house framing and trusses.
Of course that must be put in context of the rising cost of land itself, with median lot prices hitting $300,000 in October, a 25 per cent increase in the past year.
Compounding the problem, the dwindling supply of construction timber leads can cause delay, which carries another impost for builders such as Mr Little, who work on fixed-cost contracts. Returns stretched
As jobs extend over a longer period of time, returns are stretched.
"Now we are communicating with clients saying that because of the boom we were saying a seven-month build, now your contract will say nine or 10 months because we have an x-factor in there."
Australia's biggest home builder, Metricon, has been monitoring the timber shortage closely for the last 12 months, using its scale to mitigate rising costs and ensure certainty of supply.
"Fortunately being the largest builder it gives us a little bit of strength to work closely with our suppliers," said its Victorian general manager, Peter Langfelder. "We've got the buying power to negotiate really good prices."
Reports of the shortage are making their way to the Master Builders Association of Victoria, which is concerned at the potential impact on a state market that needs 54,000 starts annually.
"A shortage of timber is very concerning, and reductions in supply could have flow-on effects for housing affordability," said chief executive Radley de Silva.
All the way up the supply chain, players are adapting to the shortage as best they can.
At Universal Trusses in Canberra, Arthur Potter is substituting some forms of timber to make up trusses and frames as shortages hit.
Of course he's happy to be busy and hoping his loyalty to his own suppliers will ensure the company gets enough lumber in a tightening market. Even so, Mr Potter acknowledges prices will inevitably rise as much as 10 per cent.
"If you had come me to last year, I could fit your job in in two weeks. Today, I'm telling you six weeks is the earliest I can do," he said.
Chronic under-planting
One of the country's larger sawmill operators is Timberlink, which is the former Gunns business that was taken over by plantation owner New Forests.
Chief executive Ian Tyson agrees Australia is at the mercy of the global timber market as world demand for wooden products soars.
But it needn't be that way, if Australia could address a chronic under-planting of its national pine estate.
"If we don't do this, the industry will really suffer," he said.
"We are a growing market that wants to be self-sufficient. We have the perfect conditions to expand. We should not need to import timber."
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