With prices rising and inflation creeping in, we set out to get a reading on the various gyrations in the lumber and hardwood sectors, which have been responsible for a host of industry-related problems. That is when we turned to George Celtrick, the owner of Whitewood Products, a guy who has been in the business for 35 years. Below are excerpts of that conversation, however you can listen to this conversation in its entirety here.
TF: Talk about the situation in the hardwood flooring market. Just how much have prices been rising and what is your take as to what the future holds?
Celtrick: I have been doing this for 35 years and I thought I had seen most of the situations this industry could go through, but these past few months have been the craziest time I’ve ever seen. Prices have been going up and products are hard to get. The fact that the prices are just going up is a major understatement. They have been skyrocketing, demand has kept up right along with it, and mills have been struggling to feed the demand. It is the craziest thing I have ever seen. Prices have literally gone up over 200%, and mill lead times have gone from normal, which is four to six weeks, up to eight to 12 weeks, according to the lead time I got back on a job yesterday. Everything has literally doubled, but demand is still there.
The situation is complicated. I think what we are going to see going forward is an obligation stage of contracts. Prices will be negotiated at the onset, but at some point, there will be more discretionary purchasing for hardwood flooring. And I think that's when things will start to cool off a bit. Simply put, if there is an option for something other than hardwood, it is going to be considered strongly as soon as it becomes more of a viable option.
TF: There are many wood-like products out there and it would not take much prompting for a retail salesperson to switch a customer to one of those products.
Celtrick: That certainly holds true at the lower end of the market and that is definitely a reality at this point, where the gap between wood and LVT is such that it is now a more viable substitute with the preface that consumers know what is wood, and unless they are poorly informed, understand the difference between LVT and wood.
You are never going to see a real estate ad noting, “LVT throughout”, however you are always going to see, “wood and ceramic throughout”. You cannot change that. Consumer demand has not changed since I was young. Natural products are preferred, that being the base premise, then it gets into budgetary issues at the lower end. I think people are going to have to accept the fact that they cannot afford hardwood. And like I said, this current crazy market has to start slowing down.
I am starting to see news stories saying that lumber prices have probably peaked, but with the craziness of this market, nothing is for sure. Most likely we have seen a peak and have even seen signs of softening a bit, but I do not think we are going to see a decline for a while, at least through the end of the year. Perhaps prices will not be quite as high as they are now, but as I said, these obligations and contracts work themselves through the system. However, because of newer buyers and newer agreements, and the fact that new housing models are not going to be showing wood as much, I think the market will cool somewhat as a result. The fascinating thing is that this is really a supply and demand industry more than the other flooring products.
TF: How much longer do you expect to see wood that would normally go to flooring producers being drawn away for housing and other uses?
Celtrick: I'm hoping it has reached a pinnacle at this point. I feel this just cannot continue at this rate. I feel it has to ease off some because we will start getting into more discretionary obligations for homes, as opposed to pre-arranged or contractual obligations and as a result demand has to slow down. However, I do not see it coming down that much this year. I think it is going to stay this way through 2022 and maybe become more normalized in 2023.
Prices, however, are pretty much where they were 20 years ago. And I just do not think that is healthy for our industry. But at the same time, I am hoping it's going to help our industry longer-term, where hardwood flooring can distance itself from pine two-by-fours in value. But time will tell. The other interesting thing about all this, and something that complicates the whole picture, is that as the consumer demand shifted to preferring wider boards, an opportunity has been created for engineered flooring and as a result, it has become more in demand. That is because the structural stability of engineered floors is better than that of solid wood flooring and this becomes much more apparent in widths above five inches, including seven-inch, nine-inch, and much wider boards.
One of the constructions for this is to cheapen the product by thinning the top layer to keep the stability on an inexpensive platform. Many of the good producers have begun using Baltic Birch out of Eastern Europe as the plywood platform, because it is an exceptionally good construction for adding a strong top layer. This practice started in Europe, which enacted, I think, an 8% tariff on imports from Russia. As a result, Russian producers began shoveling plywood into Europe before the tariffs actually took effect, which I think was June 1. So, they either keep their European customers happy and hold back on U.S. shipments, or they could stand to lose an appreciable amount of European business if they don't get them into cheap plywood as soon as possible. This has had an impact as well. Right now, in the U.S., nobody has three-quarter-inch engineered, which is constructed on a 15-millimeter Baltic Birch platform. People are approaching me, asking me to quote on it. If it’s needed now, there are options, a good deal more expensive options. This, however, is meaningless because no one knows where lumber will be priced when the plywood finally starts arriving. As a result, companies that have been taking orders and have been holding places in line since March won't be able to fill these orders until August. Bottom line, it is the craziest situation I've ever seen. And you may have a price for March for what you are going to buy your three-quarter engineered for, but it's invalid because once August comes, you have to add whatever the Baltic Birch price is at that moment on top of whatever the hardwood market has changed since March, which is a great deal.