The price of framing lumber on CME is barely over $300 per 1,000 board feet, down more than 20% since the beginning of April. The last time prices were this low was October of last year. Meanwhile, the price of copper is currently fighting back from its own 20% correction from February through April.
Copper and lumber have one thing in common: they're both used to build. If the economy is supposed to be in recovery and housing is picking up, someone forgot to tell the commodity markets. The question for traders is whether the copper and lumber price declines have a great meaning or are just another piece of ambiguous data in a recovery defined by such things.
Jeff Saut of Raymond James Financial says there's ample evidence to support the idea that weak lumber prices and a housing recovery aren't mutually exclusive. "We think the price of lumber is going to be volatile until you get a sustainable pick-up in volume in housing," Saut says in the attached clip. Housing prices, according to Saut, are strong at least in part as a function of the scarcity of new homes. "We think when the volumes pick up at the spring of next year we'll go back up on the price of lumber."
The same holds true for copper. The price declines are volatile but are a function of a bundle of exogenous factors. Not least among these is the fact that copper is more influenced by the international economy relative to lumber. In the longer term, prices have been rising for copper and lumber, as Saut notes. Seen from that perspective, almost all commodities are well above 2009 lows and have yet to show signs of a substantial breakdown of historical importance.
It's easy to come to sweeping conclusions based on commodity pricing, particularly when it comes to "Dr. Copper" and its ability to forecast economic downturns. The bigger picture data is strong enough to make the argument that drops in lumber and copper aren't indicating anything economically.
That said, some suspicion regarding the economic recovery is justified. Keep copper and lumber on your radar. If housing is really improving, lumber should be able to hold a bid near $300. If that doesn't happen, it's going to be time to consider the idea that the entire recovery could be headed up in smoke.