Soaring timber prices put pressure on Bunnings, but thrill Reddit investors
An unexpected fourfold surge in the price of fresh lumber has put pressure on timber prices at hardware giant Bunnings and caught the attention of Reddit investors and internet jokesters.
Wesfarmers chief executive Rob Scott told investors and analysts at the Macquarie Australia Conference on Wednesday that the retail conglomerate was doing its best to stop the price hikes from being passed on to consumers.
“Lumber prices have gone up and there have been constraints there around supply, and we have seen pricing pressure,” Mr Scott said.
“The focus in our business is how we absorb these costs and drive greater efficiencies so we don’t have to pass those costs onto customers, and that’s certainly what Bunnings is trying to do with lumber.”
Lumber prices have more than quadrupled in the past 12 months, with lumber futures last trading at $US1481 ($1914) per 1000-board feet. Two years ago, the same amount of timber would have cost just $US326.
The boom has largely been driven by a surge in home renovations and new homes being built in the US during the pandemic, which has put the squeeze on an already weakened industry. Mills around the world have been shocked by the demand for wood, labelling it a once-in-a-lifetime event.
To add further fuel to the fire, the lumber shortage has been jumped on by Reddit investors, who were responsible for the meteoric rise of struggling video game retailer GameStop. Investors on Reddit’s WallStreetBets forum have been discussing investing in lumber over recent months, despite some labelling the investment as a “boomer stock”.
Memes about the price of timber have become popular online, drawing further attention to the boom.
Australia, which usually mills much of its timber from local plantations, has also had its production stunted by bushfires, meaning builders have had to rely on what limited imports they can get their hands on.
Mr Scott did not go into detail regarding the quantum of the price increases Bunnings was witnessing but noted the pain was being felt across the market. Wesfarmers is also seeing similar price hikes in international shipping costs and some other raw materials, such as cotton.
“What’s important to note across all these areas is that the whole market is facing these cost pressures,” he said. “But often because of the very significant scale we have in our businesses and the relationships we have with our suppliers, we have more capacity to mitigate and offset some of these costs than many others.”
The Wesfarmers chief also updated investors on the performance of the company’s other businesses, which include Kmart, Target and Officeworks. He confirmed the conversion of Target stores to Kmart stores, announced last year, was performing better than expected.
Demand for desks and office furniture at Officeworks has also persisted through the pandemic, Mr Scott said, even when stacked up against last year’s “extreme” demand.
“What we continue to see is still very healthy demand for office furniture and all the products that go to helping Australians work from home and study from home, and that is continuing,” he said.
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Dominic Powell writes about the retail industry for the Sydney Morning Herald and The Age.
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Source: Thanks smh.com