Notes from the Forest 3-20-20 Edition
Ladies and Gentlemen:
Lumber and panel traders faced a week of head spinning developments in the financial markets and on the rapid spread of the COVID-19 virus and its mounting death toll, not only in the U.S., but around the world. Buyers struggled to find a balance between current ongoing jobsite activity and the real possibility that those sites might be asked to close, with little to no warning. As a result, buyers have become risk averse and are purchasing only near-term needs, preferably in units from local 2-step distributors, or in highly mixed truckloads from a mill that is capable of shipping promptly. Mills with extended production schedules leaned heavily on those schedules and their prices at midweek were flat to lower. However, as the week progressed, mills became more flexible and larger discounts, on selected items, grew. Late in the week mills began exploring and at least one announced a temporary curtailment in order to get production and demand into better alignment. Transportation issues are also on the rise.
The U.S. Census Bureau has reported that privately‐owned housing starts in February were at a seasonally adjusted annual rate of 1,599,000. This is <-1.5%> below the revised January estimate of 1,624,000, but is 39.2% above the February 2019 rate of 1,149,000. Single‐family housing starts in February were at a rate of 1,072,000; this is 6.7% above the revised January figure of 1,005,000. Permits are the forward-looking part of the report and privately‐owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,464,000. This is <-5.5%> below the revised January rate of 1,550,000, but is 13.8% above the February 2019 rate of 1,287,000. Single‐family authorizations in February were at a rate of 1,004,000; this is 1.7% above the revised January figure of 987,000.
Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains subdued. Further deterioration in the CME Lumber Futures Market did little to inspire buyer’s confidence, or a desire to add to inventory. Concerns about the increasing spread of the COVID-19 virus, and how various cities and states are dealing with the outbreak, which includes sheltering in place and the cessation of non-essential business, which includes construction site activity, gave buyers reason to proceed with great caution. Mills are quoting production for the weeks of 3/23 – 3/30, unchanged from the previous 3-weeks. Mills started the week probing for trading levels and made it clear to buyers that they would entertain any ‘reasonable’ or even ‘not so reasonable’ counteroffer. By midweek prices were double-digits lower in both WSPF and ESPF and buyers were still not interested in purchasing volume. Office wholesalers with contract ownership and remaining open market purchases worked diligently to sell that ownership, often offering significant discounts to mill replacement levels and selling at loss. Demand for low-grade stock has also faltered and mills started the week quoting moderately below last Friday’s levels hoping to stir buyers’ interest. Stud trim sales have just about ground to halt. Mills started the week quoting 8’ trims $ 10 - $ 20 MBM and 9’ trims $ 18 - $ 22 MBM, below last Friday’s reported levels, but buyers remained disinterested and prices continued to decline through the remainder of the week.
CME Lumber Futures – The CME Lumber Futures contract for March 2020, expired on Friday, 13th March at 12:00 Noon CDT. At its close, Futures were up $19.90, to close at $ 350 MBM, but closed below the cash market $ 385 MBM by <-$ 35.00.>. The CME Lumber Contract for May will expire on Friday, 15th at 12:00 Noon CDT. For the past 5-days of trading (3/13 – 3/19), CME Futures were up 2-day and down 3-days. For the past 5-days CME Futures have lost <$-11.20> and are trading below the midweek cash market $365 MBM by $45.20, CME $ 319.80 MBM.
Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir lost additional momentum as the week progressed. Mills are quoting production for the weeks of 3/23 – 3/30, unchanged from last week. Mill pricing is all over the map. Depending on the specific production zone and species, prices are anywhere from flat to modestly lower. The weakest link remains 2x12, where double-digit discounts were available at both Coastal and Inland mills. Buyers covered pressing needs and were willing to purchase from either mill, or secondary depending on delivery time and price. The varying approaches being taken by cities and states to help flatten the curve on the COVID-19 virus, played heavily on buyers’ minds. Overall, demand for low-grade stock continues to hold steady and with it pricing. On the other hand, demand for stud trims have dramatically slowed, which in turn, has resulted in the further erosion of production schedules. Mills started the week quoting 8’ stud trims $ 7 - $ 10 MBM and 9’ stud trims $ 10 - $ 15 MBM, below last Friday’s reported levels and prices trend lower through the remainder of the week.
Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., has slowed to a crawl. Producers have been unable to build their production schedules beyond the weeks of 3/23 – 3/30. A shelter in place order for the Bay Area and a halt to construction in the City of Boston, with the hope that it will help to slow the number of newly identified cases and rising death toll from the COVID-19 virus, has taken 2- large Green Doug Fir consuming areas temporarily out of the markets. Producers started the week quoting the more popular 2x4s, at a modest discount to last Friday’s levels, while offering double-digits on 2x6 through 2x12. Even with those discounts and mills expressing willingness to listen carefully to further counter offers, there was limited interest from buyers. Demand for low-grade was in closer proximity with production and prices were being quoted at, or modestly below last Friday’s reported levels. Stud trim sales have fallen on hard times and prices were double-digits lower at midweek and that pricing trend continued 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 gained additional momentum, as spring weather makes its way across North America. Significant logging issues continue to hamper production on several key items. Resulting, in another week, where prices on wide width boards and dimensional lumber, small squares and timbers, fence pickets and 5/4 x 6 Radius Edge Decking all moved modestly higher. Pricing on the remaining products continue to hold firm at previously established levels. Transportation issues continue to ebb and flow and inexplicably vary greatly from one producer to the next.
Shake & Shingles -: The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) market were able to build on last week’s accelerated pace. Buyers are under pressure to find not only materials needed for pending jobsite activity, but to also find additional inventory to cover anticipated 2nd quarter sales. Problem is, it’s hard to find what’s not there. Several producers have still not returned from their Christmas holiday shutdowns. Mills that are open are operating severely curtailed production schedules, trying to make the limited number of logs they have, somehow last longer. Logs remain scarce, pricey, of poor quality and regrettably there is little relief in sight. Producers selectively raised prices higher again this week. Any seller that had anything available for prompt to 10-days shipment easily sold at a premium to reported levels.
Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber was almost at a standstill by the end of the week. Buyers are back purchasing only their most pressing needs as they continue to assess the continuing fallout from the increasing number of newly identified COVID-19 cases and its resulting death toll. With several city mayors and state governors calling for all non-essential business to cease for the next 14-days, or longer, which included construction, the amount of additional inventory that would be needed to continue operations, should they be able to continue, quickly came into question. Producers started the week quoting production anywhere from prompt to the week of 3/30. Producers started the week quoting narrow widths (2x4 – 2x6 – 2x8) modestly below last Friday’s levels and that trend continued through the remainder of the week. Wider width (2x10 – 2x12) pricing was more stable, but small cracks did start to appear as the week progressed. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, are also showing signs of fatigue, as modular home and truss manufacturers noted a sudden and significant drop in their sales and that is limiting their need for replenishment. The sale of No.3 & No.4 low-grade stock has also succumbed to the market’s slow down. Producers are quoting production for the weeks of 3/23 – 3/30 and mills started the week quoting modestly below last Friday’s levels and that trend continue through the remainder of the week. Stud trim sales remain steady. Mills are quoting production scheduled for the weeks of 3/23 – 3/30. Mills started the week quoting studs at last Friday’s level and prices held close to those levels throughout the week. The inquiry and sales pace of small squares and timber continued to modestly slow over the course of the week. In the Westside zone, sales of 4x4s and 6x6s continues to outpace those of 4x6s. Resulting in the prices of 4x4 and 6x6 being quoted at, or modestly above last Friday’s levels. While modest discounting continues on 4x6s, as mills search for a trading level. In the Eastside zone, demand for 4x4s continues to hold steady. Sales of 4x6 and 6x6 have slowed. Prices are being quoted at, or on a narrow line on either side of last Friday’s reported levels. The inquiry and sales pace of 5/4 x 6 Radius Edge Decking gained additional momentum over the course of the week. Mills are quoting production scheduled for the weeks of 3/23 – 3/30, or beyond. Westside Zone producers are reporting steady to strong demand for both Standard and Premium grade. Resulting in prices being quoted modestly \ moderately above last Friday’s levels. Eastside Zone producers continue to report steady demand for Standard Decking and prices, again this week, were flat, to modestly higher. Demand for Premium, especially the home centre lengths of 8’ – 12’ continues to outpace production and price moved double-digits higher.
Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories remains steady. Warm and dry weather is finally allowing building activity to resume. Buyers are anticipating that as the weather continues to improve, jobsite activity and pent up demand will be set free. However, a slowing and modest \ moderate price correction in the brite feedstock markets, along with concerns about the COVID-19 virus and its potential restrictions on construction is causing most buyers to limit their purchases to a 7 – 10-day window. While pro dealers continue to experience steady sales, the large box retailers have noticed that their sales and foot traffic have slowed. As DIY’ers continue to absorb information about the virus and its transmission, as well as deal with the ongoing turmoil in the financial markets. Depending on the source, export treated sales were either steady and typical for this time of year, or slowing.
OSB & Veneer Panels Overview –: The inquiry and sales pace of OSB and plywood showed further signs of fatigue as the week progressed. The surge in newly reported COVID-19 cases and a rising death toll, along with the financial markets’ wild swings, made it difficult for buyers to remain focused. The announcement by several city mayors and state governors that all non-essential business could \ would cease for the next 14-days, or longer, which included construction site activity, only further pushed buyers into their shell. Despite all of this commotion, overall, the panel markets were flat to modestly \ moderately lower, as production schedules continue to support current price levels. However, towards the end of the week, discounting across the complex began to accelerate. Also, late in the week several producers began to plan curtailments, hoping to get supply and demand back into alignment. Secondaries also faced challenges in selling their ownership and resorted to selling below mill replacement values.
OSB -: The inquiry and sales pace of OSB remains in a state of flux. Mills are continuing to quote production scheduled for the week of 3/23, to as far out as the week of 4/6. Uncertainty about the mounting number of new cases and deaths related to COVID-19 virus and how it will impact construction site activity had buyers limiting purchases to immediate needs from either mill or secondary sources. Producers in the North Central and Western Canadian zones, who had established longer production schedules, started the week quoting from last Friday’s reported levels, but towards the end of the week, they too became more flexible. Mills in Eastern Canada, Southeast, Southwest and Mid-Atlantic started the week offering discounts in the $ 5 - $ 10 MSF range, and negotiated privately with buyers on a case by case basis. Secondaries continue to struggle with their contract ownership, as well as some remaining open market panels. They continue to offer those panels below mill replacement levels.
Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing slowed a notch or two over the course of the week. Mills are quoting production for the weeks of 3/23 – 3/30. For the first time in several weeks a handful of trucks became available for prompt shipment at the end of the week. Producers started the week quoting at last Friday’s reported levels, but when sales failed to materialize at those levels, many decided not to let $ 5 to as much as $ 10 - $ 15 MSF get in the way of a sale. An ever-increasing number of newly identified cases and a rising death toll due to the COVID-19 virus had buyers rethinking their purchasing strategy, with many deciding to error on the side of caution, buying units from local distribution. Mill Certified sales remained steady, despite all of the outside market commotion. Secondaries continue to take delivery of their contracts but have no interest in additional contract, or open market panels. The sale of underlayment, siding, concrete form, and other specialty panels remained on the quiet side. Producers are quoting specialty production scheduled for the week 3/23 - 3/30 and prices are trading at, or on a narrow line on either side of last Friday’s levels.
Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing continues to be on the quiet side. Mills are quoting production for the weeks of 3/23 – 3/30, with a couple of orders written for production scheduled for the week of 4/6, later in the week. Buyers started the week checking with mills and secondaries on their current price levels and about previously placed orders, which are scheduled to ship over the next 2-weeks. Buyers have become averse to risk and are purchasing only their most pressing needs and from local distribution in units, if at all possible. Producers started the week quoting from last Friday’s levels and based on production schedules either held prices at those levels, or listened to and carefully considered modest counter offers on a case by case basis. Office wholesalers continue to sell their contract ownership but are showing no interest in additional contract, or open market panels. The sales of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panel sales remains slow but steady and prices continue to trade at, or on a thin line on either side of last Friday’s levels, with production scheduled for 3/23 – 3/30.
Food for Thought: As all of the E-Mails I am receiving from various retailers, credit card and service provider companies keep pointing out, ‘we are in unprecedented times.’ Each note wants to assure me that their company is doing everything it can to make these difficult times less painful for their employees and me, their customer. The fact is, the unknown can be unsettling. The new normal might not be anything close to what we are used to. It is unprecedented times like these that will either bring out the best in people, or sadly, the worst. Needless to say, I want to encourage you do the best for your family, friends and for the people who right now could use, if nothing else a kind word, or at least a smile.
Turmoil in the financial markets, over the past several weeks have taken many peoples investments and quickly reduced their values. Yes, in many ways this does look and feel very much like 2008. However, while it will take time to rebuild those retirement investment accounts, I would be remiss if I didn’t mention that up to last week, we were in the 11th year of a bull market. Yes, I know past performances do not foretell future results. However, as I read through my Notes from the Forest from 2008, I am seeing lots of similarities and one difference. This is not a financial crisis, at least not like the housing bubble bursting, or the 2000 - 2001 dot.com implosion. It’s a nasty virus that scientist don’t know much about. We’ve found a vaccine for polio, measles, mumps and rubella, shingles, whooping cough, phenomena, the flu, etc., and I am confident we will find a vaccine for the COVID-19 virus as well. It will just take time.
In the meantime, please wash your hands frequently, sneeze or cough into your elbow, and if you’re not able to work from home, when you do get home try to stay there and away from crowds and get some rest. Buy what you need, but not more. And by all means … be kind and good to one another.