Friday, May 15, 2009

Lumber and the Economy

The Maestro writes:

The recent enthusiasm in the market may follow the direction of lumber prices. Allow me to explain my rationale: lumber is bulky and therefore requires a huge amount of warehouse space.

Unlike steel and copper, lumber has a shelf-life. It is perishable, even if it is stored in excellent conditions.

Thus, vendors manage their inventories very carefully to avoid spoilage. This three-year chart shows that lumber participated in the rally at first, and then was dragged down by the market.

Because lumber dealers must respond to market demand quickly and then readjust their inventory levels, the price drop should have indicated a lower demand for lumber.

Because of this, I'm a little concerned with the underlying housing and building market.

The Maestro is a sharp character.

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