With the housing recession now in its second year, gypsum wallboard prices have sunk to historic lows as demand in the oversold market continues to evaporate. Producers of gypsum wallboard, which is particularly tied to home building, are especially hurt as capacity invested during recent boom times now sits idle. Prices for gypsum wallboard in July were 20% lower than 2006, according to the Bureau of Labor Statistics. It is a trend economists agree will continue into next year.
“Gypsum wallboard producers will look back on 2007 as a horrible year,” says John Mothersole, senior economist at Washington, D.C.-based Global Insight. “The magnitude of the downturn has swamped everything and it will continue into 2009 as we expect housing starts to continue to drop in 2008.”
Heading into fall with prices depressed, wallboard producers are doing what they can to stop the bleeding. Last month, Chicago-based USG Corp., the largest manufacturer of gypsum wallboard in the country, announced closures at some of its 24 wallboard plants, says USG CEO William Foote. USG’s price per thousand sq ft of drywall dropped to $95 this summer, down from $188 in third quarter last year, says Foote.
Other wallboard producers are reporting similar price drops and reactions to the downturn. In August, Paris-based LaFarge, one of the world’s largest producers of gypsum wallboard, reported to shareholders a second-quarter reduction in gypsum wallboard profits due to “the residential market slowdown in North America.” LaFarge shuttered a wallboard plant in Nova Scotia in July due to the downturn.
Drywall shipments in the U.S. declined by 17%, to 15.7 billion sq ft from January to June, according to Washington, D.C.-based Gypsum Association. That decline is projected to continue. Total production this year is expected to be about 33.5 billion sq ft, a 4.5% decrease from 2006.
Midwestern states are seeing the steepest, double-digit percentage decreases, according to th Gypsum Association. Florida, which represents about 9% of U.S. wallboard demand, also is seeing demand falling by twice as much as other regions, it says.
Foote says there will be “continued pressure on volumes and prices of building materials until the excess inventory is absorbed.” While economists say that the correction will be taking place over the next 12 to 24 months, some say price corrections are just around the corner.
“I think gypsum wallboard prices have pretty much hit their low points and will hold from here on out,” says Bernard Markstein, senior economist with Washington, D.C.-based National Association of Home Builders. “We look for housing to bottom out in 2008 and then begin a slow recovery.”
In Nevada, where Sparks-based Q&D Construction Inc. does most of its general contracting work, the downturn has caused “little to no change in material costs, but it is bringing residential contractors into the commercial market.” says Joseph A. Flemming, Q&D preconstruction director. The residential downturn is correcting materials price spikes that brought prices to record levels in recent years, he says. Price volatility is always a threat. “Staying on top of pricing is a challenge now,” says Flemming. And with prices for housing-centric materials such as wallboard down, “owners and developers can’t understand that prices overall are still increasing. They are expecting substantial price cuts on delayed projects,” he says.
Still, there are new wallboard plant projects that were planned or started before the price collapse, such as USG's $130-million plant in Norfolk, Va., scheduled to begin production later this year; and a $180-million USG plant in Washingtonville, Pa.
Economists say it is remains to be seen whether the new plants are a sign of optimism about future of the drywall market, or an additional burden in a market where more capacity and supply could prolong wallboard’s price recession. “Only time will tell,” Mothersole adds.