Notes from the Forest 4-2-20 Edition

Ladies and Gentlemen:

Buyers and sellers are continuing to adjust to the ever-changing reality of the COVID-19 pandemic lumber and panel markets. Again, this week, in areas where construction is being permitted, pro dealers are reporting a steady flow of materials to jobsites. It’s a fine line buyers are being asked to walk, as they attempt to keep just enough inventory on the ground to meet jobsite demand; while limiting their exposure to falling prices and yet being agile enough to react to any sudden change in field activity. Producers made new and additional curtailment announcements over the course of the week as they work quickly to bring supply and demand into alignment and solidify their cash flow position. Trucking continues to tighten, adding yet another dimension to an already complicated situation.   

The National Association of Realtors? (NAR) has reported Pending Homes Sales Index (PHSI) rose 2.4% to 111.5 in February. Year-over-Year contract signings increased 9.4%. The PHSI is a leading indicator of housing activity and is based on signed real estate contracts, not actual closings, for existing single-family homes, condos, and co-ops. In prepared remarks Lawrence Yun, NAR’s chief economist said, “February’s pending sales figures show the housing market had been very healthy prior to the coronavirus-induced shutdown”. He noted that the data does not capture the significant fallout from the pandemic, or the measures taken to control the outbreak. “Numbers in the coming weeks” Yun said, “will show just how hard the housing market was hit, but I am optimistic that the upcoming stimulus package will lessen the economic damage and we may get a V-shaped robust recovery later in the year.”

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., continues in the grip of marketplace uncertainty and prices continue to decline. Buyers have become extremely conservative in their purchasing and the ever-changing markets in which they are working is making them even more cautious. This in spite the number of mill curtailment announcements that have been made over the course of this week and last. Producers started the week quoting double-digits below last Friday’s levels and then listened intently to what the few buyers in the marketplace said they would be willing to pay for volume as small as a truckload. This week, a sincere counter offer, even if it was deep, was something that many mills would consider; as they need to move inventory and increase cash flow. Office wholesalers are continuing to struggle with their contract ownership. Demand for low-grade stock remains slow, and again this week, mills started the week quoting moderately below last Friday’s levels. Stud trim sales remain challenging. Producers started the week quoting both 8’ and 9’ trims double-digits below last Friday’s levels and prices moved lower over the course of the week.

CME Lumber Futures – The CME Lumber Contract for May will expire on Friday, May 15th at 12:00 Noon CDT. For the past 5-days of trading (3/27 – 4/2), CME Futures were up 1-day and down 4-days. For the past 5-days CME Lumber Futures have lost <$-56.70>, and are trading below the midweek cash market $ 303 MBM by $ 38.90, CME $ 264.10 MBM.

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir remain lackluster. Buyers are back purchasing their most pressing needs and absolutely nothing beyond. Producers are quoting production for the week of 4/6 – 4/13. However, there are plenty of prompt shipping products available. Especially, if the buyer can be flexible with the tally and the mill or secondary flexible on the price.  Producers started the week quoting prices, depending on the exact species and width, anywhere from $ 5 - $ 25 MBN below last Friday’s levels and then dealt with buyer counter offers, many double-digits below their original quote, on a sale by sale basis. Prices declined further over the remainder of the week. Demand for low-grade stock continues to hold up better than the construction grades. Mills started the week quoting at, or modestly below established levels. Stud trim sales remain mired in the marketplace’s uncertainty. Hoping to stir up sales, mills started the week quoting 8’ trims modestly lower, while immediately offering deeper discounts on the even slower moving 9’ trims. Mills continue to discuss curtailment measures they are, or are about to be taking as the markets stall.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., started and ended the week on the quiet side. Buyers continue to grapple with the ever-changing market conditions in the areas they service. As a result, buyers have decided to take a conservative approach. Knowing, at least for now, what they need can be sourced relatively quickly from either a mill or local 2-step distributor. The wild card will be delivery in a timely fashion. Producers started the week quoting $15 - $ 25 MBM below last Friday’s levels and asked buyer for feedback and counter offers. Again, this week, lower price did nothing to incentivize buyers to come back into the marketplace. Demand for low-grade continues to be slow but steady and prices are trading at, or a few dollars below established levels. Stud trim sales remain subdued and producers started the week quoting double-digits below last Friday’s levels and listened intently to what the few buyers in the market said they would be willing to pay for volume as small as truckload. Mill curtailments are being discussed and buyers anticipate announcements in the near-term.

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock have fallen into the uncertainty of the COVID-19 pandemic. As a result, sales have started to slow. Continuing tight log availability and extended production schedules, especially for wide width boards and dimension lumber, small squares and timbers, 5/4 x 6 Radius Edge Decking and fence pickets, allowed mills to hold prices at, or modestly above last Friday’s reported levels throughout the complex. Traders’ concerns about whether jobsites could /would remain open, had their questions partially answered when a number of Pacific Northwest pro lumber and building material dealers asked that previously placed orders be held at the mill until jobsite activity and their facility could reopen and work resume. Box stores continue to report steady sales of decking and fencing materials as DIY’ers start on their outdoor projects. 

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) took a turn for the slow this week. Nevertheless, prices continue to be quoted at, or modestly above last Friday’s levels. Several mills still remain shuttered from their Christmas \ New Year’s holiday shutdowns. Those in operation are running significantly curtailed production schedules. Logs remain in tight supply and several producers thought, that the recently announced curtailment at Western Forest Products, only made them more difficult to source and expensive. With slower sales, traders had the opportunity to further discuss the possibilities of a reduction, or perhaps total elimination on duties into the U.S., which they have been paying since March of 2018. This hopefully is scheduled for August. However, for now they are in full effect.

Southern Pine Lumber -: With supply overwhelming demand, the inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber declined further. Buyers covered their limited near-term needs with either a highly mixed truckload from a mill, or units out of a local 2-step distributor. Speculative purchasing, even at prices typically described as at ‘investment’ levels are now out of the question. Several mills are currently running curtailed production schedules and additional announcements are anticipated in the days to come. Mills started the week quoting below last Friday’s levels anywhere from as little as $ 3 to as much as $ 13 MBM, depending on the specific width and prices grinded lower through the remainder of the week. Mill pricing provided a clearer picture of where mills have an excess and where their production is more manageable. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains subdued. Modular home and truss manufacturers are reporting that their sales have significantly slowed and with it their need to replenish. The sale of No.3 & No.4 low-grade stock continues to be slow but steady. Mills are quoting production for the week of 4/6 and again, this week, mills started the week quoting at, or modestly below last Friday’s levels. Stud trim sales have fallen victim to the market’s uncertainty. After moving higher in late February and early March and holding steady through March, prices moved double-digits lower at midweek and that pricing trend held through the remainder of the week. The inquiry and sales pace of small squares and timbers slowed further as the week progressed. As buyers reduce their inventory levels in response to slower sales. In the Westside zone, prices declined throughout the entire complex. Producers started the week quoting a few dollars below last Friday’s already reduced levels and asked buyers for their feedback. In the Eastside zone, demand slowed but sales of 4x4 were better than those of 4x6 and 6x6. Overall, prices continue to trade at, or modestly below last Friday’s reported levels. The inquiry and sales pace of 5/4 x 6 Radius Edge Decking also showed some signs of slowing over the course of the week. Mills are quoting production scheduled for the weeks of 4/6 – 4/13.  Westside Zone producers continue to report that their sales of both Standard and Premium grade are decent. Resulting in prices, again this week, being quoted at, or modestly above last Friday’s levels. Eastside Zone producers continue to report steady demand for Standard Decking and prices, again this week, were being quoted flat, to modestly higher. Demand for Premium, including those red-hot home centre lengths of 8’ – 12’ remains strong and price continued to move higher again this week.    

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories continues to be active, despite declining brite feedstock pricing and the ever-growing number of new COVID-19 cases. In locations where jobsite activity has not been limited by shelter in place orders, pro dealers are reporting sales at, or above typical early April levels. This in turn has pro dealers replenishing, cautiously, once or twice a week, as they attempt to keep inventory in balance with sales and yet prepared for any sudden change in field activity. Large box stores, even in shelter in place locations, continue to report decent foot traffic and sales. With DIY’ers stocking up on fencing, landscaping materials, and live plants for their spring projects. Treaters without dedicated fleet service are reporting that trucking remains tight to certain locations. Export treaters are reporting that their sales remain at seasonal levels.   

OSB & Veneer Panels Overview –:  The inquiry and sales pace of OSB and plywood spent another week dealing with uncertainty of the pandemic and its impact on the panel markets. While only a limited number of states have actually instituted a halt on building, other cities, counties within other states have put limitation on the number of people at a specific location and emphasized social distancing, which is difficult to accomplish on a jobsite. Mills are quoting production scheduled for next week, with prompt shipments available from a plethora of mill, as well as secondary sources. There were also several curtailment announcements made this week by panel manufacturers, in the hope they will slow the price depreciation and help bring supply and demand into better alignment. Nevertheless, prices moved lower, albeit unevenly over the course of the week. Again, this week, office wholesalers are reporting that they are struggling with the sale of their contract ownership.

OSB -: The inquiry and sales pace of OSB remains in the doldrums. Mills started the week quoting production for the week of 4/6, with a few sales being transacted late in the week for 4/13. There have been several curtailment announcements made over the past 2-weeks. And while buyers continue to limit their purchases to near-term needs, they couldn’t help but wonder if these notifications might help to stabilize pricing and tighten supply over the next several weeks. Pricing varied from production zone to production zone. Eastern Canada and North Central started the week quoting single-digits below last Friday’s levels. The remaining zones and delivered areas started the week double-digits below last Friday’s levels. And all zones experienced additional price depreciation over the remainder of the week. Secondaries are continuing to struggle with their contract ownership.

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing had just about ground to a halt by the end of the week. Buyers limited their purchases to immediate needs, showing no interest in purchasing any speculative volume at this time. Mills started the week quoting production for the week of 4/6. In the hopes of expanding their production schedules, producers started the week quoting $ 15 - $ 20 MSF below last Friday’s reported levels and asking buyers for their feedback and counter offers. Regrettably, buyers, for the most part, remained silent and prices continued to decline through the remainder of the week. Traders noted that they weren’t hearing much curtailment news from the mills, but towards the end of the week that was in the process of changing; as news from public and privately held companies began to surface. Office wholesalers continue to take their contract ownership but are reporting that sales are challenging and can only be accomplished by dipping below mill replacement levels + accepting a counter offer. The sale of underlayment, siding, concrete form, and other specialty panels have also slowed. Producers are quoting specialty production scheduled for the week 4/6, and depending on the specific item prices are trading at, to modestly \ moderately below last Friday’s levels.

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains muted. Mills are quoting production for the week of 4/6, but there are plenty of prompt panels available at the mill and secondary level. West Coast truckload buyers purchased near-term needs and if possible, from local 2-step distributors, as they try to limit their exposure to markets that continues to decline. Carload volume buyers remained out of the market and told stories about cars now arriving that have lost $ 5K - $ 12.5K in value during transit. With curtailments in full swing, producers started the week quoting $ 5 - $ 10 MSF below last Friday’s levels and the downward trend continued through the remainder of the week. Late in the week mills started telling buyers that they would rather stack the panels in their warehouse than sell at a loss. The sales of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panel sales continue to slow. Producers are quoting production for next week and while underlayment prices drifted modestly lower, the remaining items in the complex were being quoted and sold at last Friday’s levels.

Food for Thought-:  If you had any doubts, this week certainly confirmed that these are indeed extraordinary times, filled with uncertainty and the unknown. It is very difficult to write a meaningful food for thought, especially when deciding on whether to go to the grocery store, pharmacy, or work, has the actual potential of becoming a life or death decision. I completely understand and like you, my family is living with the same challenges, fears and concerns. However, lumber, panels and building materials are being bought and sold daily throughout North America and trading will continue for the next several weeks \ month in uncertainty. To that I write . . .

The price corrections of the past several weeks, while steep, have really not been as steep as many had predicted. Yes, losses of $ 25 - $ 40 MSF/MBM a week are nothing to sneeze at. However, if you lived through the previous down turns, you know that we have seen significant double-digit to even triple-digit losses in a single week. So far, we haven’t (thank you Lord) seen that and based on what I am hearing from the experts we probably won’t. 

Your question …. Why? First there are still plenty of active jobsites. Yes, some jobsites have been closed. However, a majority remain open and while social distancing is difficult to achieve on a jobsite, unless there is a major outbreak at a particular site, I am assuming activity will continue. Another reason and probably more important is that many producers have implemented additional curtailments and shutdowns, on top of previously announced production control efforts. Public companies have to make such announcements to their stakeholders. However, privately held companies like GP and MARTCO, for example, are privately held and are not so obliged. There is already less production than many buyers maybe assuming. Finally, there are freight issues. Drivers and railroad personnel are just as worried about the COVID-19 virus as we are. The number of truckloads being rejected by carriers due to destination is growing.

I can’t say this enough . . . Please be well and stay safe. We will get through this together.