The bridge to recovery: a local and global wrap
When Dr Philip Lowe, the RBA Governor, announced a $105 billion liquidity package for the banks on 19 March, 2020 he commented that “…to get to the other side we need a bridge…. building that bridge requires a concerted team effort, with us all pulling together in the country's interest.”
A lot has happened since then including the massive Federal Government $130 billion JobKeeper package.
Against this background we are keen to provide Statistics Count readers with feedback from around the industry as we journey across the Bridge and in time try and understand what the other side looks like.
Dr Alastair Woodard, Manager - National Residential Construction & Fit-out, FWPA has provided an update on recent conversations across the builder network which are summarised as follows:
Residential Building Sector – Corona Virus Impact Update Week 30th March - 3rd April 2020
Contacts have been made this week with a range of building and construction sector reps (HIA, MBAV, merchants, importers/wholesalers, builders) in Vic, Qld and NSW, to get a feel for the residential construction market in these very unusual times. The following provides a summary as at 3 April, 2020.
In general, the feedback from Vic, Qld and NSW, is that residential sector work has actually increased over the last couple of months, in fact March has been one of the best months for many of the major builders, merchants and importer/wholesalers.
End of last week, as the Federal and State Govts were all discussing different stages of social distancing and industry restrictions, things were somewhat unsettled, but once it was clearer that the building sector would (at present) be seen as an ‘essential service’, general concerns eased.
HIA reps have advised that their biggest focus over the last 10 days has been working with Govt Federally and at State level having building sector seen as an ‘essential service’ and remaining open. HIA seem to have satisfied Govts at present as they have developed up social distancing guidelines and compliance measure which State Building Authorities are now referencing.
- Though building companies are all taking different strategies to CoVid-19, many builders are looking to pull forward work just in case a lockdown was actually applied. Builders can claim a significant progress payment at Lock-Up stage which gives the strong incentive to progress this work
- As pretty much all of the onsite residential building employees are contractors, they are all still keen to work as they want to keep up the income and employment
- Most building company head offices are now shut or using a skeleton staff – office staff are generally working from home. But most building sites are still operating at present. Some using a rotational basis of staff (so if people get infected things can continue)
- A number of builders advised that productivity had actually increased on sites as people keen to just get in and get the job done; also putting in longer working hours now whilst things still open.
- NSW Govt Planning yesterday announced extended hours that jobs can be open for - longer work hours means that they can spread workers out work periods out more – particularly important on commercial or high-rise projects with more workers on site mor info. see - https://theurbandeveloper.com/articles/construction-hours-coronavirus (Limited extended hours have also been announced in Vic)
- Some residential builders are also now restricting number of contractors to site – this has improved social distancing measures though slowed up the overall job progress. Many builders are also now working Saturday and Sunday’s.
- Though there has definitely been a pulling forward of new jobs (increase over Feb-March) – the big unknown is how many consumers are buying at the moment and what hole that might make later.
- Many builders still have display homes open, but attendance only by appointment (serious customers still seem to be looking, it is felt that this process has reduced the number of tyre-kickers)
- It has been commented that for builders who rely on ‘mums & dads building single homes on own site’ – current environment could be a problem. For bigger builders working with developers doing blocks and estates, it appears less of an issue as they have many presold projects on books which can be started and completed quicker. A possible concern for block/estate developers going ahead with new starts is the capacity for the customer to ultimately pay at the end – all unknowns
- All big builders are regularly checking on supply. Timber seems OK at present but other things such as high-end appliances out of Europe or steel from Asia more of an unknown
Other issues mentioned by HIA which they are focussing on include:
- Trying to work out implications of Job-keeper allowance if a shutdown was to occur (30% reduction in income - can this be recognised as occurring later?)
- Current issue around ‘supplier insurance’ that needs to be sorted – insurance companies saying they may no longer cover suppliers if their customers can’t pay debts – Graeme Wolfe (HIA CEO) is discussing this with the Federal Treasurer.
Frame & Truss observations/feedback
- F&T companies also seem to be flat out at present in Vic, Qld and NSW with a high demand from builders for jobs
- There are some concerns that new job quotes might possibly start to dry up, so unsure if there will be a hole ahead and how deep and when (May is a big unknown)
- Interestingly however one major F&T supplier advised that they have actually had an influx in job quote requests the last week – they are not sure why, perhaps building companies starting to get a bit of catch up time or becoming more efficient as staff work from home
- Merchants and importers/wholesalers are all reporting very good sales over March – though they are unsure what the next few months might hold.
- Most organisations report that they have office staff working from home as much as possible, just keeping an office skeleton staff, but supplier store outlets fully staffed with social distancing measures in place.
- With many builders now working weekends as well, suppliers are advising that they have started doing Sunday deliveries which they haven’t done in the past.
- Increases have been reported in outdoor DIY type product sales – decking, facias, treated pine, etc. Looks like people stuck at home trying to do some of those jobs they hadn’t had time for before.
- Feedback is that there seems still to be plenty of timber supply available – both Australian produced timber (some working more shifts due to bushfire salvage) and stocks of imported timber (confirmed by a number of companies). It was reported that they are not seeing current supply issues out of Europe or North America, only NZ with its current shutdown.
- Many also are feeling more confident with manufacturing again underway in China.
- One interesting comment relates to pre-primed mouldings, which use NZ timber then sent to China for processing and pre-priming before being exported to Aust. This has been difficult to source so finding more local suppliers now looking to supply.
- Other China import concerns to hardware stores are more around supply of: glass, screws, bolts, door hardware, windows
- Biggest issue mentioned was overseas $-value changes affecting margin opportunities – some positive business to business discussions on this to try and make sure everyone still makes some margin during these current times
In conclusion interestingly there was some consistent views from those spoken with on the current situation.
- Clearly in some sectors there are terrible cutbacks and lots of uncertainty and factors pulling in different directions which are very bad for some.
- It was also noted though that the current environment is actually less negative for essential services sectors (health, emergency, food supply, food suppliers, building workers, etc) of which there are millions of workers who are all very active and busy at present (whilst healthy). The building factors are positive at present – low interest rates, land supply OK, and builders are keen to work as much as possible.
- The Key at present then is - No Shutdown to the Building Sector (or supply sector) and keeping the overall confidence up.
- Who knows what the immediate future holds? But a concluding, positive thought for the week: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill
Moving overseas, FWPA has received a variety of insights from industry colleagues in email exchanges seeking information on:
1) How they are coping
2) What is happening in their industry
3) What might the other side look like
Joe Elling, Director, Market Research, APA (American Plywood Association) based in Tacoma, WA, USA
Joe is a very seasoned tennis player and firstly commented that “the public tennis courts are closed and the club we belong to has been closed for three weeks. I have been relegated to watching replays of prior tournaments on Tennis Channel. On Saturday I watched the replay of the 2017 AO final between Federer and Nadal.
Locally, WA state has been in stay at home mode for a week. Only essential business is taking place. I have been working at home for almost three weeks. My kids have been working at home for longer and they are doing fine. Some construction within the state is viewed as essential, such as infrastructure or public construction. Residential construction may be moved back on the essential list shortly. The stay at home decree is through April 30. The mandates across the nation vary. Residential construction is allowed in some and in others not. There are a number of factors at work that are halting construction outside of mandates. Lack of social infrastructure, if you will. Inspectors, securing timely permits, completion of mortgage applications and more. Imported building materials are mixed in their availability.
Regarding the industry. First, the wood products is deemed an essential industry because of the agriculture tie in. In the last week though, many companies are announcing roll backs in production, partially for the sake of employees, but also because home building and other forms of construction are going to crater in the second quarter. Each month the media reports the headline starts number. However, what gets virtually no notice is the number of units under construction. At the end of February there were 1.2 million units still under construction, roughly 550,000 single-family and 650,000 multifamily. Of course, there is some distribution within that where some are in for one-month or another where it is 6 months and regarding multifamily, perhaps 14 months. Also look for home sales to crater in the second quarter because people are going to stay put and others are not going to have their home on the market for several reasons. Contractor remodeling is also going to crater in the second quarter.”
Email Exchange Jim Houghton, Joe Elling 31 March, 2020
Russ Taylor, Managing Director, FEA-Canada (WOOD MARKETS) based in Vancouver, BC, Canada
“For me, I was supposed to speak at a conference in Germany on March 12 – it was cancelled on Feb 24 (due to government pressure) and I had to decide to continue on my trip or not. I was closely monitoring events and on Feb 28 (a low incident day), I decided to go on my trip departing on March 3 and returning on March 15. Looking at the graph, I made my decision just past the low point, and things then accelerated quickly during my March 3-15 trip. It was only on March 12 that I got to an English speaking TV channel to find out it was exploding all around me in Germany. I have just finished my 14-day “self-isolation”.
In BC, we seem to be “flattening the curve” as the number of new cases has remained flat at about 75 cases per day over the last 10 days.
What is happening locally?
In BC, restaurants (take out only), bars, non-essential shops, ski resorts all shut down; no gathering in groups of more than 2 people – this is now being policed; so all of the usual self-distancing protocols.
What impact is the virus having on the Forest and Wood Products industry?
Is considered an essential service, so like Australia but not NZ. However, sawnwood and panel prices have plunged in the US and with BC having the highest production costs in North America (a separate gory story tied to government stumpage charges), curtailments are occurring across the province. Already, almost 20% of the North America lumber capacity have announced 2-4 week curtailments, so that is severe and quick!
What are your expectations when we get to the other side of this?
The FEA outlook suggests a housing recovery starting in July and then moving steadily higher. Again, I think that this is optimistic and I really hope they are right”
Email Exchange Jim Houghton, Russ Taylor 31 March, 2020
Kurt Schrammel, Director, Vida Canfor, based in Australia and Europe
“I just made it out of Australia the day before Austria went into a lock down completely. Australia is not quite there yet what we experience here – and hopefully never will.
Basically we are not allowed to leave our house, only the supermarkets and pharmacies are still open – rest is closed. And you need a permit – either issued by the government or by your employers – do drive your car on the road – and the police has strict controls.
We as Vida Canfor have announced last Friday some significant product curtailments in response to the COVID 19 crises – the UK is also in a total lock down and this has hit us hard. But also the US in experiencing a significant drop in demand. However Sweden, as perhaps the only country in Europe, is still open and we ship good volumes to the Chinese and Japanese markets where demand has clearly improved.
It is far too early to say what impact it will have on the forest product industry – Central European producers, even if the Asian markets go strong, can’t keep their product in full swing due to all the logistical restrictions”
Email Exchange Jim Houghton, Kurt Schrammel 31 March, 2020