Notes from the Forest 4-24-20 Edition

Ladies and Gentlemen:

The best word to describe the lumber and panel markets this week would be inconsistent. The market leaders of the past weeks showed signs of flattening and moving into a digestive phase. Some slower moving items of the past weeks showed signs of gaining buyer interest and prices were flat to modestly higher. And other products, well they just continued looking for a bottom. The inconsistency of the lumber and panel markets on top of gyration in the stock market, as well as the commodity markets and downward reports on housing starts and permits, along with existing and new homes sales only served to give buyers another case of the jitters. As the week progressed the markets went from slightly up tempo, to closer to being back on their heels. From the mill production side, curtailments and temporary mill shutdowns remain in place and that has helped to rein in supply and bring it closer in alignment with reduced demand. Producers continue to say that they are ready to respond immediately with additional production cuts if sales were to slow. Large box store sales remain a brite spot.

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development are reporting that the sales of new single‐family houses in March 2020 were at a seasonally adjusted annual rate of 627,000. This is <-15.4%> below the revised February rate of 741,000 and is <-9.5%> below the March 2019 estimate of 693,000. The seasonally‐adjusted estimate of new houses for sale at the end of March was 333,000.  This represents a supply of 6.4 months at the current sales rate. Earlier, the National Association of Realtors? (NAR) reported that total existing-home sales, which include single-family homes, townhomes, condominiums and co-ops declined <-8.5%> from February, the largest monthly decline since 2015, to a seasonally-adjusted annual rate of 5.27 million in March. However, year-over-year, new home sales increased 0.8%, marking the 9th straight month of increased sales in a row.

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., experienced limited follow through from the past 2+-weeks uptick in activity. Buyers who had been active in the marketplace have quickly moved into digestive mode. With many saying that they intend to wait and see how quickly they sell through what they just bought, before considering additional purchases. Mills took the slower activity level in stride. Mills are quoting production scheduled for the week of 5/4, which has given them some breathing room. Producers are continuing to run curtailed production levels, with many indicating that they are currently contemplating extending, or adding additional production reductions, if sales remain quiet. Mills started the week quoting 2x4 – 2x10 at, or a dollar or two above last Friday’s levels. 2x12 pricing was flat to a few dollars lower. Trading continued in a similar pattern for the remainder of the week. Low grade and stud trim sales remain steady to sneaky strong and mills are quoting production for the week of 5/4, and with that prices were being quoted at, or modestly \ moderately above last Friday’s levels. Office wholesalers are reporting that the sale of their contract ownership was not quite as fluid as they were last week.

CME Lumber Futures – The CME Lumber Contract for May will expire on Friday, May 15th at 12:00 Noon CDT. Many traders have or are in the process of rolling their May contracts into July. For the past 5-days of trading (4/17 – 4/23) CME Futures were up 2-days and down 3-days. For the past 5-days CME Lumber Futures have lost <- $7.40> and are trading below the midweek cash market $ 330.00 MBM by $ 4.80, CME $ 325.20 MBM.

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir are once again on the quiet side. Last week’s ripple in activity had little, to no follow through this week. Buyers who purchased near-term needs last week have put their purchase order books away and are waiting to see how quickly they sell through what they just purchased. With the spread between Canadian and Inland species continuing to strongly favor Canadian production, many buyers are making the switch. Mills started the week with production available for shipment anywhere from prompt to next week. Producers started the week quoting in varying degrees below last Friday’s levels, with each mill’s pricing clearly identifying where excess inventory was a problem. Low-grade stock sales remain steady and prices are being quoted flat, to on a fine line on either side of last Friday’s levels. Stud trim sales remain steady to strong, but the price appreciation of last week has given way to flat to modestly higher prices depending on the specific width and trim.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., are once again lackluster. Sales along the West Coast are particularly quiet and carload activity into the Northeast, Texas and Oklahoma remains muted. Despite recent mill curtailment and temporary closures, production is once again overtaking demand and prompt shipments on many key items are once again available. Mills started the week quoting prices throughout the complex $ 8 - $ 10 MBM lower and asking buyers for counter offers. Prices continued to grind lower through the remainder of the week. Demand for low-grade remains a bright spot, prices continue to trade at, or on a thin line on either side of last Friday’s levels. Stud trim sales remain slow but steady and prices are being quoted flat, to modestly lower.

Cedar Lumber -:  The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remain solid. Large box store retailers continue to experience strong demand for fencing, as well as decking products. Pro dealers are also starting to look at their needs for late 2nd and early 3rd Qtr., as they anticipate construction starting back up and builders trying to make up for the lost weeks due to the virus pandemic. Several mills are reporting that the virus continues to sideline several of their employees and this coupled with a lack of large diameter logs continues to slow production, especially of wide width boards and dimension lumber, small squares and timbers, 5/4 x 6 Radius Edge Decking and fence pickets. Production on many of these items is now being quoted for mid to late June. Traders are starting to wonder when Sugi fence pickets imported from China will be arriving and available in the states. Overall producers continue to hold prices steady, with the exception again this week being anything 12” wide and Radius Edge Decking. On Monday (4/20) the U.S. Court of International Trade affirmed that U.S. Lumber Duties DO NOT apply to Canadian Cedar Products. Exactly when the duties will be removed and if and how repayment to Canadian producers will be made is still in the planning stage.

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) remains on the quiet side. Slower sales remain in close proximity of limited production and what very little, if anything, there is on ground inventory at the producers that remain open. Logs remain in tight supply and difficult to source and unfortunately both the near and mid-term forecast is for the issue to continue.  Prices continue to be quoted at previously established levels as producers do not want to send their limited customer base back looking for an alternative source of supply. On Monday (4/20) the U.S. Court of International Trade affirmed that U.S. Lumber Duties DO NOT apply to Canadian Cedar Products. Exactly when the duties will be removed and if and how repayment to Canadian producers will be made is still in the planning stage.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber picked up additional synergy over the course of the week. As recently announced curtailments have helped to balance supply with demand. While far from a runaway market, buyers seemed to be more at ease in buying not only near-term needs, but also investing in some key items for anticipated sales in mid to late May. Pressure treaters were by far the most active players this week. Buyers seemed to be particularly focused on the narrow widths 2x4 – 2x6 – 2x8. Mills started the week quoting those items $8 to as much as $15 MBM above last Friday levels and inched prices higher through the remainder of the week. The wider widths didn’t sell quite as well. Prices on 2x10 were modestly higher, while 2x12 was flat, to modestly lower. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, also experienced a modest increase in sales, similar to increases seen in the construction grades. As modular home and truss manufacturers are expecting an uptick in their sales, as states start to relax construction site limitations. The sale of No.3 & No.4 low-grade stock also showed signs of new life. Mills are quoting production for the week of 4/27 and started the week quoting at, or on a thin line on either side of last Friday’s levels. Stud trim sales remain so-so. Recent production curtailments have helped to bring supply and demand into better alignment and mills started the week quoting at last Friday’s levels and sales continued on a fine line on either side of last Friday’s levels. The inquiry and sales pace of small squares and timbers showed modest signs of improvement over the course of the week. In both the Westside and Eastside zones, 4x4 and 6x6 pricing was flat to modestly higher. The sale of 4x6 continues to lag and mills offered small discounts again this week in the hopes of persuading buyers to return to the markets. The inquiry and sales pace of 5/4 x 6 Radius Edge Decking remains steady. Mills are quoting production scheduled for the weeks of 4/27 – 5/4. In the Westside Zone, pricing on both Standard and Premium grades continue to trade at, or modestly above last Friday’s levels. In the Eastside Zone producers continue to report steady demand for Standard Decking and prices are being quoted flat, to modestly higher. Demand for Premium continues to feature double-digit price increases on the 8’ – 12’.     

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories continues at, or above seasonal norms. Sales at the large box stores remain active. As DIY’ers, in areas under stay at home orders, have decided to use their time away from work to get a head start on outdoor projects. Pro dealers also noted a modest uptick in sales, as jobsites outside of major metropolitan areas, that are not on stay at home orders, have started to return to life. Overall, treated buyers continue to have a conservative approach to the markets. However, a firming trend in the Southern Pine lumber market, has treated buyers quickly reassessing their inventory and potential seasonal needs. This as talk about reopening the economy has stirred greater interest from builders and remodelers who are hoping that they will soon be able to resume construction projects for their clients. Exporters reported a modest uptick in sales over the course of the week.

OSB & Veneer Panels Overview –:  The inquiry and sales pace of OSB, in select zones and Southern Pine plywood were able to build on last week’s uptick in activity. As recent curtailments and a handful of complete mill shutdowns helped to bring limited production into close proximity with slightly improving sales volumes. Prices started the week flat to modestly higher. In the remaining OSB zones and Western Fir Plywood curtailed production was still over powering lite field demand and producers started the week offering modest \ moderate discounts hoping to reenergize buyers’ interest in the marketplace.  

OSB -: The inquiry and sales pace of OSB varied greatly from zone to zone. Recent production curtailments and mill schedules that have reached into the week of 5/4, helped producers in the Mid-Atlantic, Southeast and Southwest build on last week’s uptick in activity and prices were up modestly \ moderately at midweek and continued to edge higher through the remainder of the week. Sales in the North Central, Eastern and Western Canada remained on the quiet side and mills started the week offering modest discounts in the hopes of getting buyers to reengage with the marketplace. Office wholesalers’ sales were heavily depending on the location of the mill they have their contracts with and the specific zones’ sales activities.

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing experienced modest follow through from last week’s uptick in activity. Curtailed production is quickly closing the gap with slightly improved field demand. Mills have been able to not only sell through their on-ground inventory, but they have been able to develop a production schedule that currently stretches into the week of 5/4. Buyers continue to purchase conservatively, but many had let their inventory levels drop to unmanageable levels; resulting in their need to replenish several key items. Mills started the week quoting at last Friday’s levels and turned away counter offers. As the week progressed mills tried to inch prices higher, but were mindful of buyers’ concerns and didn’t want to frighten them out of the markets. The sale of value-added panels, underlayment, sanded, siding, concrete form and other specialty items remains slow but steady. Mills are quoting production for the week of 4/27 – 5/4 and prices were being quoted close to last Friday’s reported levels. 

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing has once again grown abnormally quiet. Supply is once again overwhelming lite sales volumes. This in spite of curtailed production and a handful of producers being completely shut down. Mills are quoting production anywhere from prompt, to next week. Producers started the week quoting $ 10 MSF below last Friday’s reported levels and asked buyers to make counter offers. Prices deteriorated further through the remainder of the week. Buyers are back to purchasing near-term fill in needs and weren’t particularly fussy if they purchased it directly from a mill, or local 2-step distributor. All that mattered was that it was at the right price and it could deliver within 1 – 3 days. Again, this week, carload volume buyers in the Midwest and Northeast were noticeably absent from the marketplace. The sales of specialty panels remain lackluster and producers with excess underlayment panels on the ground started the week offering underlayment $10 MSF below last Friday’s levels. The sales of sanded, siding and other specialty panels reman in close proximity with production and prices traded at previously reported levels for production scheduled for the week of 4/27.

Food for Thought-: Ongoing discussions about the reopening the economy sooner, rather than later, is being well received by every size business. At the top of most wish lists is the resumption of ongoing building projects and the start of new home construction, both of which could help to ease the lack of affordable housing across the U.S. How soon building will be allowed to resume, rests in the hands of the governor of each state. Each governor will have to face the challenge of balancing the daily increase or decrease in the number of newly identified COVID-19 cases and deaths, in their particular state, against the need to get the economy moving again. The task contractors and trades people will be facing is how to continue to help the state they are operating within continue to flatten the curve, while implementing and enforcing the need for proper PPE usage and somehow do all of this with proper social distancing.

But here’s a thought. What if instead of stick building almost every individual residence, as we currently do; we started using a method that is popular in Europe and frequently used in North America for multifamily construction, such as hotels, health care facilities and college dormitories? What if we could build without dealing with constantly changing weather, which we know can and will delay construction efforts. Or having to wait on deliveries and deal with mis-shipments? Why don’t we start considering modular home building? I know you immediately are thinking about a single or double wide trailer but that is not what modular home construction really is, at least not the homes that are currently being built and placed on foundations in places like California, Florida, Oregon and Washington State and elsewhere. They allow for flexibility in design, which means they can be customized as needed. It will also cut the time to build a new home from several months to 6 – 8 weeks and that includes permitting and inspection. Better yet, in a factory setting social distancing and proper PPE can easily be choreographed and enforced.

Think of it this way . . . Can you imagine every car being made in North America requiring assembly in the new owner’s garage or driveway? Of course not. Henry Ford changed how cars are produced over a century ago, in 1913.

Modular building = Safer . . . Faster . . . Better Controlled Costs . . . Less Waste . . . On time Performance. Why shouldn’t this be something we consider especially in a time where we need more affordable housing?