Commodities

Google Ad

The destruction wrought by Hurricane Harvey, Irma and Maria has seen a slew of commodities prices go skyward. The most noted are lumber and gasoline. Perhaps the most poignant as we watch recocery as the mountains of sheetrock we see on curbs. The key commodity here is gypsum with its a price determined by a handful of players. Gypsum is the main compnent of drywall, most commonly known by the brand name 'sheetrock' in the U.S. It also known as gyprock in many places.

Most homes and offices in the U.S. use a form of wall board in their construction, in the Gulf States and Soth Eastern U.S. it is used it would seem universally. Puerto Rico also adds another domicile wrecked by hurricanes that adds to demand to the material.

Building prices have been rising since the GFC bottom, we have seen the tarriff effect in the U.S. see lumber and plywood (a gypsum competitor) rise all year. Likewise wallboard prices were going up in tandem. At the start of the year, large producers such as United States Gypsum $USG and National Gypsum raised prices from 5% to 20% for 2017.

Where Does Gypsum Come From?

Interesting enough the world's largest producer of gypsum is China with 45 million metric tonnes, the next is Iran with 13 million metric tonnes and the U.S. is fourth with 9.40 million metric tonnes using 2012 figures. Who would have thought China and Iran would be the two, unexpected consequences indeed.

Gypsum Producers 

Wallboard Price Pressures

IHS Markit reported that in the first quarter of 2017, prices rose approximately 6% compared to the last quarter of 2016. In the second quarter of 2017, prices increased another percentage point, quarter on quarter (q/q). They expect prices to increase close to 3% (q/q) in the third quarter.

The increases in the first and third quarters will result in an annual inflation of 10% for 2017. 

What we know is almost 40% of all gypsum sales are in states that have been affected by Hurricanes Harvey and Irma. This means the reconstruction in recovery is largely a captive market fwith insurance and familiarity factors. This will put a bid and added ressure on prices.

Where Does Our Wallboard Come From?

Deni Koenhemsi, Senior Economist at IHS Markit profiled the industry after the hurricanes:

Six major companies : USG, National, Georgia Pacific, CertainTeed, Eagle Materials, Continental and PABCO dominate the wallboard industry.

1. United States Gypsum Corporation $USG

The largest producer of wallboard in the United States is publicly traded $USG that has a quarter of the market share. USG is also the largest manufacturer in Mexico and provides approximately 42% of the gypsum shipments in Canada.

The company produces wallboard in 21 plants in North America and mines gypsum in 12 locations. Their capacity utilization for wallboard was 61% in 2016, lower than the estimated industry average of 75%.

$USG shares have risen sharply since Harvey

USG D 9 29 17

2. National Gypsum (private)

The second largest producer is National Gypsum, a privately held company with 17 wallboard plant locations in United States and Canada. Their market share closely follows USG at 23%.

3. Georgia Pacific (private)

Georgia Pacific (subsidiary of privately-held Koch industries) is the third largest produce,

4CertainTeed (Compagnie de Saint-Gobain SA Paris France: SGO)

CertainTeed (Saint Gobain) is number 4 with 13%.

Parent Company SGO on the French exchange has also risen shrply since Harvey.

SGO P D 9 29 17

Koenhemsi in her report noted that "High concentration of producers has proved it difficult for customer negotiations in recent years. Typically, producers announce an annual increase in December. While they have been successful with these large increases in several years (2012Q1- 9.6% q/q, 2013Q1- 13.4 q/q and 2014Q1 10.9% q/q), in others such as 2015 and 2016 price increases in the first quarter were lower and typically reversed in the following quarters."

Read her Report Price alert: Wallboard prices will rise with post-hurricane construction

Source: IHS, TradersCommunity

From The TradersCommunity Research Desk

Log in to comment
Discuss this article in the forums (3 replies).