Notes from the Forest 4-21-17 Edition
Ladies and Gentlemen:
The lumber and panel markets were not able to sustain the torrid pace of the past several weeks. Buyers have covered their end of April through mid-May needs and decided to step out and wait for things to cool off. A disappointing March housing starts report, was offset by favorable permits reports; which is the bellwether for future housing starts and building materials sales. Rising prices made buyers weary of the markets. Increasing job site activity, and transportation issues negatively impacting both rail and truck service and made late shipments all too commonplace.
The U.S. Census Bureau reported U.S. home building fell more than expected in March, as the construction of single-family homes in the Midwest recorded its biggest decline in three years. However, an increase in building permits, the predictor of future construction efforts suggested the housing market recovery remained intact. Housing starts decreased <-6.8%> to a seasonally adjusted annual rate of 1.22 million units. February's starts were revised upwards to a 1.30 million-unit pace from the previously reported 1.29 million rate. Earlier in the week the National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) reported that builder confidence in the market for newly-built single-family homes remained solid in April, but slipped three points to a level of 68 after an unusually high March reading. In prepared remarks NAHB Chairman Granger MacDonald said that “Even with this month’s modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers.”
Spruce & Stud Markets-: The inquiry and sales pace of Eastern & Western Canadian SPF Std., & Btr., and No. 2 Btr., has suddenly become quiet. Pricing overall was little changed from last week’s double digit spike across the complex. Traders continue to await the preliminary determination in the Countervailing Duty case against Canadian lumber imports, which is scheduled to be announced on Tuesday 25th April. Producers have very little, if any, lower priced production left to sell in April. Producers, anticipating the countervailing duty determination was going to be announced on 4/25 and go into effect in May, continue to quote May pricing at significantly . . . significantly higher prices to cover those potential duties. This in turn has buyers taking a wait and see approach to the current markets. Most traders agree that once the announcement is made that the chaotic pace will resume but no one is sure in which direction. Sales of low grade remain in lockstep with production and last week’s double digit increases held through this week. The same scenario has played out in the stud trim markets as well.
Hem \ White Fir -: The inquiry and sales of Coastal and Inland White and Hem \ Fir, remains strong, but perhaps, not quite as strong as last week. Last week’s price increases have caused buyers to pause and reconsider their immediate needs, versus their potential wants. Prices remain in an upward tilt, but last week’s double digit increases have been replaced with more modest \ moderate increases. Mills continue to quote shipment for the weeks of 5/1 – 5/8, with some key items being quoted for beyond, later in the week. As in the previous weeks, demand for low grade remains in step with production and prices are being quoted at previously established levels. Stud trims sales remain strong and mill order files of 2 weeks or beyond were common. As a result, prices were flat to modestly higher again this week. Transportation issues were hit or miss and very mill specific.
Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains stout; thanks to buyers in California, and later in the week the Northeast, buying additional significant volume. Buyers expressed their desire to slow down their purchasing, but lite field inventories, and consistently late shipments due to a lack of both rail cars and trucks forced them back into the market. 2x8 are in extremely tight supply and led the overall markets pricing higher. Demand for low grade remains on the sluggish side and mills continue to modestly adjust prices in the hopes of getting low grade buyers to re-engage with the markets. Sales of stud trims are robust and prices continue to move higher as order files remain in the 2 – 3-week range.
Cedar Lumber -: There aren’t enough words to describe the inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock. Depending on the specific item mills’ order files range from 3 weeks +, to as far out as 2-3 months. A shortage of raw materials is starting to negatively impact production schedules. When combined with a lack of truck and railcar services is quickly turning into a retail \ local 2-step niche distributors buyer’s nightmare. Demand for most items was strong, but requests for large squares and timbers were outstanding. Prices continue to climb higher, but most orders are being taken Price Time of Shipment. The Countervailing Duty announcement is still scheduled for Tuesday April 25th , and did nothing to make producers want to start to take firm shipping prices any time soon.
Shake & Shingles -: The pace of inquiry of Western Red Cedar (WRC) Shakes and Shingles was noticeably better this week, with several large projects, scheduled to start in late May \ early June, being circulated for bid. Converting those inquiries into sales has proven to be challenging thus far. Demand for Shakes outpaced those for Shingles, which is a reversal from the past several weeks. Prices continue to hold steady at previously established levels. Mills continue to report difficulty in sourcing raw materials and the availability forecast doesn’t provide much hope for change in the near term. As a result, producers are advising buyers of potential delays in production, as well as reminding them that truck and rail service is sporadic as well.
Southern Pine Lumber -: The inquiry, sales and prices in No. 1 & No.2-dimensional lumber, was not quite as strong this week as the past several weeks. Last week’s double digit price spike, on most items, gave buyers reason to hesitate, at least early on in the week. However, by midweek solid field sales and shrinking on ground inventories gave buyers few choices, but to step back into the market and at minimum cover their most pressing needs. Depending on the specific item, mills are quoting shipment for the weeks of 5/1- 5/8 or later. The Texas market was particularly active, with buyers purchasing large volumes again this week. Again, this week, 2x6 was the most sought after item. Demand for high grade stock – D.S.S., S.S., and MSR remains solid, and prices continue their trek higher, as order files move out in the 2 – 3-week range. The inquiry and sales pace for low grade has finally caught up with the construction grade market, and prices moved modestly higher, thanks to strong demand. The inquiry and sales pace of small squares and timbers are in lockstep with production. As a result, prices remain very firm but overall pricing held close to last Friday’s reported levels. Sales of 5/4 x 6 Radius Edge Decking remain tilted strongly in favor of Premium Grade. As a result, Premium grade pricing was flat to modestly higher. Unfortunately, Standard Decking remains over produced and as a result prices are vulnerable and mills offered additional double digit discounts to keep production from becoming an inventory burden.
Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories accelerated from the early minutes of Monday morning. This week the large box stores took the lead, as the DIY’ers took advantage of warm spring temperatures, and sales on gardening supplies, which included special offers on landscape timbers and fencing items. Pro dealers were not far behind as jobsite activity kicked into high gear and on ground inventories were quickly sold through. With the exception of treaters in the Northeast, all other regions reported that their April sales are in step with April of 2016. Rising prices on brite stock, are being reflected in higher prices for pressure treated products. This is giving some buyers reason to limit their purchasing to fill-ins, rather than trying to add extra inventory at this time. Pressure treaters who rely on common carriers for delivery of their finished product reported shipment delays.
OSB & Veneer Panels Overview -: The inquiry and sales pace of OSB and plywood, lost a bit of its energy and urgency over the course of the week. Buyers who had purchased heavily over the past 2 weeks moved to the sidelines to digest those recent purchases. Buyers who had remained on the sidelines hoping for another chance to buy in at better levels, opted for units from warehouse; and continue to hope for a price correction. Office wholesalers who were major participants in the markets’ recent push upwards, were in the market this week as sellers. Transportation issues are hit or miss, but congestion is being reported at several of the rail heads.
OSB -: OSB producers reported that the week started off significantly slower when compared to last week’s chaotic pace. Buyers purchased significant volume last week and many have moved into a digestive mode. Mill order files run the gamut from as early as the week of 5/1 to as far out as 5/22 - 6/5. Mills in several zones started the week quoting prices double digits above last Friday’s reported levels; as producers tried to catch their pricing up to their order files and the market. Activity in the Eastern Canada, the South as well as delivery into the West was particularly strong from the start of the week. Transportation issues remain regional. However, where they are good they are very good and where they are bad …. they’re awful.
Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remains steady and order files have moved into the weeks of 5/1 – 5/8. Last week’s torrid tempo and double digit price increases have given way to a more pedestrian pace. Depending on the zone and thickness pricing was flat to modestly \ moderately higher. This gave buyers the confidence they needed to continue to engage in the marketplace. Office wholesalers bought early last week and that helped to move the market higher. This week office wholesalers are taking their long position to retail and local 2-step distribution buyers, offering somewhat faster shipment and prices at or perhaps (depending on volume) a dollar or two below mill replacement levels. It was another week where Eastside zone domestic producers enjoyed limited competition from imported panels from Brazil and Chile, but rumor has it that large volumes are on the way. The sales pace of underlayment, sanded, siding, concrete form and other specialty panels remains stout. As a result, pricing was flat but firm, and shipment was being offered for 2-weeks or sooner. Transportation issues, both rail and truck continue to add to traders’ anxiety levels.
Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing, started the week off at a noticeably slower pace, and that pace continued through most of the remainder of the week. Overall panels traded within a few dollars of last Friday’s established price levels. Last week’s double digit prices increase had buyers suffering from severe sticker shock. Last week’s mills response, “were off market’, was this week’s we have panels available for the weeks of 5/1 – 5/7. This furthered buyers’ cautious approach to the market; with many opting to fill in units from local 2-step distribution until the markets overall direction could be determined. Office wholesalers who purchased volume early last week, were back in the market this week as sellers. Offering shipment a few days earlier and for a few bucks less than mill replacement levels. The inquiry and sales pace of underlayment, sanded, siding, concrete form and other specialty panels remains solid. As a result, pricing was flat but firm and shipment was being offered for 2-weeks or sooner. Transportation issues varied greatly from one to mill to the next.
Food for Thought -: It’s time to get on with it . . . I have always been the person who didn’t mind going first. First appointment in the morning at the doctor or dentist is just fine with me. All through high school, and college in either debate, extemporaneous speaking or even the 10-minute memorized oratory I was always happy to say I’ll go first. It meant that I didn’t have to sit and wait my turn, all the time being all antsy and fidgety.
From the conversations, I have been hearing over the course of the week, many traders are of the same mind set when it comes to the soon to be announced Countervailing Duty. We’ve heard about for more than a year and anticipated a decision since last Octobre. Whether you’re in favor of the CVD or think it is wrong, at this point makes no difference. The markets have reacted to the rumor and many buyers have had to buy the rumor instead of the fact, and that applies to domestic wood as well as Canadian. Even the panel markets have been impacted by this waiting game.
Next week, we should, maybe we will, know what the CVD is going to be and exactly how retroactive it’s going to be. We will also learn about the limitations of Canadian wood that will be allowed into the U.S. If the CVD comes in below 30% don’t expect to see the mills immediately peel prices back. If it comes in over 30% do expect to see the mills raise prices to the new level at once.
Any way you look at it the next couple of weeks are going to be tumultuous at best. Sit down – strap in and getting ready for the ride.