Boise Cascade, a prominent manufacturer and distributor of wood products for both residential and commercial construction, acknowledges the potential volatility in future commodity product pricing and input costs. This volatility is attributed to various factors such as economic uncertainties, industry operating rates, and seasonal demand patterns.
Relationship between Demand and Construction Activity
The demand for Boise Cascade’s manufactured products, as well as the products they procure and distribute, is closely tied to the levels of new residential construction, residential repair-and-remodeling activity, and light commercial construction. According to the U.S. Census Bureau, housing starts in June 2023 reached approximately 1.4 million on a seasonally adjusted annual rate basis. However, despite this positive trend, home affordability remains a significant challenge for consumers.
Influence of Economic Factors on Demand
Boise Cascade recognizes that the Federal Reserve’s ongoing response to inflationary data, specifically its actions and their impact on future mortgage rates and the broader economy, will inevitably shape the near-term demand environment. These factors will determine whether the demand for construction-related products experiences growth or faces potential limitations.
Boise Cascade’s Outlook for the Current Year
Housing Market and Home Improvement Spending
Company Risks and Challenges Ahead
Manufacturer’s Exposure to Commodity Product Prices
Introduction
As a professional manufacturer of various commodity products, we understand the challenges posed by fluctuations in commodity prices and input costs. Our distribution business is responsible for procuring and reselling a diverse range of commodity products, which grants us the opportunity to capitalize on periods of price increases, leading to higher sales and improved margins. However, it is important to note that declining price environments can have an adverse impact on our sales and profitability.
Factors Affecting Commodity Product Pricing
The volatility of commodity product pricing and input costs in the future can be attributed to several key factors:
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Economic Uncertainties: Changes in market dynamics can greatly influence the pricing of commodities.
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Industry Operating Rates: Fluctuations in industry operating rates can potentially impact commodity prices.
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Transportation Constraints or Disruptions: Issues related to transportation can have a direct bearing on commodity prices.
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Net Import and Export Activity: Global trade patterns, including net import and export activity, can contribute to changes in commodity pricing.
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Inventory Levels in Distribution Channels: The amount of inventory held within various distribution channels plays a crucial role in determining commodity prices.
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Seasonal Demand Patterns: The demand for certain commodities tends to follow seasonal patterns, causing price variations.
Impact on Engineered Wood Products (EWP) Volumes
The demand for engineered wood products (EWP) will continue to be influenced by the growth of the new residential construction sector, especially single-family housing starts. However, we anticipate a slight erosion in EWP prices during the third quarter.
Long-Term Outlook
Despite ongoing economic uncertainties, we are pleased to observe the resilience of market demand as we approach the end of the first half of 2023. Furthermore, our confidence in the robustness of the residential construction industry fuels our long-term perspective. We remain optimistic about the future and the opportunities it holds for our business.