Notes from the Forest-02-15-19 Edition

Ladies and Gentlemen:

Trading in the lumber and panel markets slowed a notch over the course of the week. Buyers are in the process of digesting recent purchases. Several fast moving ‘clipper systems’ moved across North America this week bringing a variety of inclement weather that continued to delay outdoor construction efforts. Many traders believe that it is only the weather that is holding the markets back. Producers are quoting production scheduled for the weeks of 2/18 – 3/4. Pricing remains in an upward trajectory. 

We are still a week away, if the U.S. government remains open, of getting housing industry stats from the Department of Commerce, hopefully for Decembre and January. In the meantime, I came across these interesting tidbits. According to the APA – The Engineered Wood Association, North American structural panel production declined <-5.8%> in the 4th Qtr., of 2018, when compared to the 3rd Qtr., of 2018. The negative output has affected plywood, OSB, I-joist and LVL production. According to Western Wood Products Association’s Lumber Track Publication, North American lumber production through Octobre totaled 53.298 billion board feet, which is up 1.6% from the same period a year ago. While production in the U.S. South and West were both up, Canadian production was actually down <1.8%>, with B.C. production down <3.5%>.

Spruce & Stud Market -: The inquiry and sales pace of Eastern and Western Canadian SPF Std., & Btr., and No. 2 & Btr., started to slow modestly at the end of last week, and that slower pace has carried over, to some degree, into this week. Prices remain in an upward tilt, but the double-digit price increases of the past several weeks, has given way to a flat to modestly higher, (single-digit) price appreciation. Mills are quoting production scheduled for the weeks of 3/4 – 3/11. Secondaries who have been a mainstay for the markets, have ‘canned’ tallies, which can ship – depending on transportation availability; anywhere from 7 – 10 days sooner. Buyers looking for prompter shipments, frequently turned to the secondary market and often found pricing to be a bit more to their liking. Mills in Canada continue to report limited service from their rail carriers. Leaving them with loaded cars that need to be pulled and material staged and ready for empty cars to arrive. A steady decline in CME Lumber Futures (see info below) early in the week, put a damper on the markets. However, a late week rally seemed to relieve many of those fears and put buyers in a better frame of mind. Demand for low-grade stock and stud trims remains on the uptick. Producers continue to report that they have developed short production schedules on low-grade and stud trims, and with that, prices are being quoted flat to modestly higher.  

CME Lumber Futures – The CME Lumber Futures March, 2019 contract will expire on Friday 3/15/2019 at Noon CST.  For the last 5-days (2/8 – 2/14) CME Futures were Up 2 days, and Down 3-Days. CME Futures lost <-$ 1.20> this week and are trading above the Midweek cash market ($418 MBM) report, by $ 5.30.

Hem\ White Fir -:  The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, took the “Pause to Refresh? late last week and the slower pace has lingered into this week. Another round of inclement weather throughout North America has definitely slowed buyers’ need to replenish. Mills are quoting production for the weeks of 2/25 – 3/4. Overall, prices remain in an upward tilt, but the double-digit increase of the past few weeks have been replaced with more modest price appreciation. Buyers have moved into a digestive mode; waiting for recent volume purchases to arrive. Buyers also need some of that inventory to move out to jobsites, before they can reengage with the markets. There are of course always exceptions, and Inland Hem\Fir and Fir\Larch clearly are this week’s exceptions. Prices on these items were up double-digits at midweek across the entire complex and continued to climb higher through the remainder of the week. Sales of low-grade stock remain in close proximity with production. Resulting in prices that are flat and firm on low-grade. Again, the exceptions are Inland Hem\Fir and Fir\Larch, where sales of low-grade are well ahead of scheduled production. Stud trim sales have modestly slowed, and production schedules shortened this week. Resulting in prices that are flat to modestly \ moderately higher depending on the specific species and producer.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., lost some of its momentum over the course of the week. Pricing remains in an upward tilt, but the double-digit increases of the past weeks have been replaced with more modest growth. With KD Doug Fir selling at a significant premium to Green, several mills have elected to push more of their production through their drier / kiln, rather than leaving it Green. This was the catalyst for the tightening of Green Doug Fir availability and the previous 2-week spike in Green sales and pricing. Over the past 2-weeks buyers purchased significant volumes and are waiting for that material to arrive and to makes it way to jobsite. Sales of low-grade remain slightly ahead of production; resulting in another week of modest price appreciation. Demand for stud trims remains solid. Producers are quoting production for the weeks of 2/25 - 3/4. Prices were modestly higher at midweek and continued to move higher through the remainder of the week.

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remains lackluster. Buyers in the northern tier of States and Canada are dealing with a persistent winter weather pattern, which continues to hold jobsite activity in check. Warmer weather in Texas and parts of the South did promote additional outdoor activity. However, with the warmer weather came additional showers and downpours, which tended to interrupt the tempo of jobsite activity. Buyers continue to wait for the arrival of previous purchases. With mills noting that winter weather is having a negative impact on shipments. Some of which are now 2 – 3 weeks late. Little has changed in the overall pricing structure of the WRC markets. Wide width KDAT boards, dimensional lumber, timbers and now some fencing items, remains in tight supply and prices continuing to hold at previous levels, or edge higher. A continued overabundance of narrow width KDAT boards, 5/4 x 6 decking and narrow width dimension lumber, has pricing on these items remaining vulnerable.

Shake & Shingles -: The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), remains on the quiet side. As in the past several weeks, buyers circulated a few new inquiries, checked on pricing and availability on previous quotes. A small number of the previous quotes actually became bonafide orders late in the week. When placing those orders buyers did ask mills for price assistance. Whether that request was honored depended greatly on what the mill has on the ground and what the costs were to produce that product. Several Canadian producers attempted to resume production this week, following their extended holiday shutdown. However, an extraordinary outbreak of bitter cold temperatures in B.C. made that resumption of production impractical; as frozen blocks are almost impossible to manufacture with. Domestic producers in Washington state are dealing with unusually large amounts of snow, which not only slowed production, but limited log deliveries.  The same cold and snow slowed the limited number of shipments as well.  

Southern Pine Lumber -: Again, this week, the inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber continued to exhibit high levels of energy and urgency. Again, this week pressure treaters were very active in the marketplace. Mills are quoting production scheduled for the weeks of 2/18, to as far out as the week of 3/4, on key items. Buyers returned to the market this week focusing on 2x4 and 2x12, both of which were up double-digits at midweek and continued to climb higher from there. Other widths were also in demand and prices also moved higher over the course of the week, but without as much velocity. Producers continue to report that large diameter logs remain in tight supply. This is directly impacting the production of 2x12, again this week. Westside mills aggressively priced their production this week, but the other zones were not that far behind. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains robust, as demand from both truss and modular home manufacturers continues to expand. Double-digit price increases were common in high grade again this week. Low-grade sales slowed modestly, with production schedules remaining in the weeks of 2/18 – 2/25. Resulting in low-grade prices trading within a few dollars of last Friday’s reported levels. Stud trim sales are robust, with demand well ahead of scheduled production. Mill pricing was up double-digits at midweek and prices continued to gain from there. Demand for small squares and timbers continues to outpace mills production capabilities. Tight supplies of large diameter logs are definitely impacting small square and timber production. Mill production schedules have pushed into mid-March. Prices are up again this week by double-digits on 4x4 – 4x6 – 6x6. The inquiry and sales pace of 5/4 x 6 Radius Edge Decking continues to slowly improve. Standard Decking prices remain unchanged in both the Eastside and Westside zones. However, while Westside zone producers held the price of Premium Decking flat, Eastside producers inched Premium prices higher on 8’ – 10’ – 16’ lengths, as demand for those lengths suddenly spiked.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories continued to gain momentum throughout the week. Higher prices for brite feedstock are translating into higher prices for treated products. In areas where winter was taking another swing at record cold temperatures and piling up additional snow fall, buyers still stepped back into the markets, to place additional orders before prices moved any higher. In areas where whether remains conducive to outdoor activity, treaters are reporting strong sales and the development of a modest order file on selected key items. Many pro dealers are reporting that their inventories are not quite able to keep up with current demand.  Late shipments, both rail and truck, are causing some concerns for treaters and buyers waiting for much need inventory.

OSB & Veneer Panels Overview –: The inquiry and sales pace in the OSB and plywood are definitely being impacted this week by the weather throughout North America. OSB sales in the South, along with Southern Pine plywood sales, remain steady to strong, and even a wet start to the week could not slow buyers need to replenish. Elsewhere, rain, freezing rain, snow and cold temperature kept both Western Fir Rated Sheathing and the remaining OSB production zone sales in check.  Mills are quoting production scheduled anywhere from next week to as far out as the weeks of 3/4 – 3/11. Overall pricing remains in an upward trajectory with prices flat to modestly higher at midweek and trending higher from there.

OSB -:  The inquiry and sales pace of OSB was a bit quieter this week. Another round of inclement weather trekked across the U.S. and Canada, slowing jobsite activity and the need for pro dealers to replenish. Depending on the specific producers, production schedules are as close in as next week (2/18), to as far out as the weeks of 3/4 – 3/11. Pricing remains in an upward trajectory, with flat to small gains being reported at midweek and prices holding steady or moving higher from there. Southern producers reported the most activity again this week. British Columbia producers are reporting an all too familiar problem with getting loaded railcars pulled from their facility and empty railcars to load brought in. Delays of 1 – 2 weeks are common and unfortunately appear to be growing. Office wholesalers with contract ownership reported that selling their contract ownership was a bit more difficult this week than last. 

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remain steady to strong. Office wholesalers, again this week, were the dominate participants in the marketplace. Producers are quoting production scheduled for the weeks of 2/25 – 3/4. Concerned about extended production schedules and the potential for downside risk, pro dealer buyers have returned to purchasing their near-term needs and avoiding purchasing additional \ speculative volumes at this time. From the producer point of view, most believe that field inventories remain unusually lite for this time of year and that buyers not purchasing additional volume now, will benefit them in the future when demand spikes and with it pricing. Again, this week, prices were flat at midweek, and by Friday several prices had adjusted modestly higher. Sales of underlayment, sanded, siding, concrete form and other specialty panels remain slow but steady. Producers are reporting that they have production scheduled into the weeks of 2/18 – 2/25. Resulting in firm pricing.

Western Fir Panels -:  The inquiry and sales pace of Western Fir Rated Sheathing remains slow but steady. With an emphasis on “slow”. Unlike the past several weeks, buyers purchased only their most pressing near-term needs, but little, to no additional volume. Another round of inclement weather through the 2 major consumption areas, slowed jobsite activity and pro dealers need to replenish. Many traders felt the weather was the only thing holding the Western Fir Rated Sheathing market back. Canadian buyers continue to prowl about the market looking for CCX panels, which domestically continue to sell well below Canadian mill offerings. Even with a 10% duty and additional trucking or rail freight being added on. Mills continue to quote production for the weeks of 2/18 – 2/25, and late in the week a handful of truckloads for prompt did appear. Overall, prices are trading within a few dollars of last Friday’s reported levels. Sales of value-added panels – underlayment, sanded, siding, concrete form and other specialty panels also remain slow but steady. Mills continue to quote at, or a few dollars above, last Friday’s reported levels. 

Food for Thought -: There is something magical about the month of February, especially in the minds of lumber, panel and building materials traders. January is oft times considered depressing and March can be fickle and unpredictable – either coming in like a lamb or a lion and leaving completely the opposite from where it started. But February is as magical as a unicorn, fairy princesses and a rodent who can predict the weather. February has several holidays to celebrate including Ground Hog’s Day, Presidents Day (in my youth we celebrated Lincoln and Washington’s birthdays as separate holidays and got 2 days off of school) and of course Valentine’s Day. The entire month of February is Black History month.

I often hear that February is a short month. I don’t know, I’ve rechecked the calendar several times over the past week and it still only 2 days shorter than April, June, and Novembre and only 3 days shorter than all of the rest of the months. But I concede . . . it is shorter.

In February the days are getting longer and usually there is a moderation in the weather that gives everyone the hope that springtime is just around the corner. Then of course, immediately following the moderation, comes another round of inclement weather, which snaps us back into reality. It seems that in February the ‘bosses’ take their foot off of the purchasing brake. As a buyer, you know you can’t go crazy, but at least you have some leeway, which allows you to take advantage of some of the buying opportunities. More importantly, you are able to get some much-needed replenishment on the way. The brake is usually reapplied towards the end of the 3rd week of February, for whatever reason.

With the price of lumber and panels moving higher, many of those ‘buying opportunity’ windows seem to be closing. However, depending on whether March comes in like a lamb or a lion, there is usually \ traditionally a natural buying pause sometime in March. Will that pause happen again this year? You’ll need to stay tuned.