Notes from the Forest 5-6-22 Edition

Ladies and Gentlemen:?

The lumber and panel markets’ inquiry and sales pace became more pedestrian like as the week progressed. With their near-term needs covered, buyers’ approach to the markets this week were noticeably more conservative, cautious, and reserved. Higher prices, extended production schedules, late shipments, inflation, the war in Ukraine, other socio-economic issues, coupled with a negative Q1 GDP report, all suddenly are being viewed as significant headwinds by buyers. As a result, buyers’ concern about the potential for downside risk have quickly crept back into the marketplace. While some trucking lanes are experiencing a modest improvement in service, the same cannot be said for rail service in Canada, and many parts of the U.S. Mill production schedules run anywhere from the week of 5/16, to as far away as the week of 6/6. ?

On Monday (5-2-22) The U.S. Census Bureau reported that total construction spending during March 2022 was estimated at a seasonally adjusted annual rate (SAAR) of $1,730.5 billion, 0.1% above the revised February estimate of $1,728.6 billion. The March figure is 11.7% above the March 2021 estimate of $1,548.6 billion. During the first three months of this year, construction spending amounted to $376.6 billion, 12.0% above the $336.3 billion for the same period in 2021. Private construction spending was at a SAAR of $1,379.7 billion, 0.2% above the revised February estimate of $1,376.9 billion. Residential construction was at a SAAR of $882.0 billion in March 1.0% above the revised February estimate of $873.2 billion. Nonresidential construction was at a SAAR of $497.6 billion in March, -1.2% below the revised February estimate of $503.6 billion. In March, the estimated SAAR of public construction spending was $350.8 billion, -0.2% below the revised February estimate of $351.7 billion. Educational construction was at a SAAR of $80.3 billion, in March, -.08% below the revised February estimate of $81.0 billion. Highway construction was at a SAAR of $103.1 billion, -0.4% below the February estimate of $103.5 billion.?

Spruce Markets -: Buyers of Eastern and Western SPF Std. & Btr., and No.2 & Btr., started the week with a more tempered approach to their purchasing. Having covered their immediate needs over the past 7 -10 days, and many expecting those products to ship relatively promptly, buyers have decided not to chase the markets or production schedules further, at least for now. Mills started the week quoting at or modestly above last Friday’s levels, and prices traded at or inched higher from there; for production available for shipment the week of 5/23+/-. Mills noted that when they started quoting shipments for the weeks of 5/30 (Memorial Day) and 6/6, buyer pushback immediately intensified. Low-grade sales were able to build modestly on last week’s uptick in activity. Mills started the week quoting low-grade at or above last Friday’s levels and prices traded at or inched higher from there; for production available for shipment the week of 5/16+/-. Stud trim sales remain steady to strong. Mills started the week quoting stud trims above last Friday’s levels and prices continued to trend higher from there; for shipment, the week of 5/23+/-. There were glimmers of hope for trucking improvement throughout Canada. However, rail service in Canada and West of the Mississippi remains a consistent problem.??

CME Lumber Futures –: The CME Lumber Future Contract for May will expire on Friday, May 13th, 2022, at 12:000 Noon CDT. For the past 5- trading days (4/29- 5/5) CME Lumber Futures were up 2-days, and down 3-days. For the past 5-days CME Futures have lost -$24.80 and are trading below the Midweek Cash Market of $1090 by $70.00 CME Futures at $1020.00. One Year Ago, today (5-5-21), CME Futures closed at $1634.90.?

Hem\ White Fir -: ?Having covered a substantial portion of their immediate and anticipated needs over the past 2-weeks, pro dealer buyers’ approach to the Hem \ White Fir Std.& Btr., and No.2 & Btr., were noticeably more reserved at the start of the week, and that cautious outlook prevailed during the remainder of the week. Buyers noted that higher prices, extended production schedules and shipment delays, which were the cause of the most recent price reductions, are, once again, the same issues they are facing today. Secondaries, on the other hand, were active in the markets and purchased additional volume. Mills started the week quoting construction grade above last Friday’s levels and prices traded at or trended higher from there; for production available for shipment the week of 5/23+/-. Low-grade has successfully found a trading level and counteroffers have evaporated. Mills started the week quoting low-grade at or modestly above last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 5/16+/-. Stud trim sales continued to build on last week uptick in activity. Mills started the week quoting above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 5/23+/-. ?

Green Doug Fir -: Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., mills reported steady follow through from last week’s surge in activity. Buyers in search of quick shipments to replenish dwindling facility inventories bemoaned the continuous lack of available trucks and empty railcars for mills to load. Mills started the week quoting construction grade above last Friday’s price gains, and prices climbed higher from there; for production available for shipment the week of 5/23+/-. Low-grade sales are once again in proximity of production levels. Mills started the week quoting low-grade at or modestly above last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 5/16+/-. Soaring K.D. stud trim prices had buyers who can switch between KD and GDF, once again, making the change. Mills started the week quoting GDF stud trims above last Friday’s levels and prices moved higher from there; for production available for shipment the week of 5/23+/-.?

Cedar Lumber -: ?When compared to the previous 2-years (2020 – 2021) activity in the Western Red Cedar (WRC) lumber market seems to be close to a crawl. However, most traders agree that it is closely resembling the activity level of 2019, a pre-pandemic year. With the weather improving across North America, traders have dropped inclement weather as the issue for holding the market back; and have instead now placed blame on a lack of business coming from the large retail box store chains. Whatever the reason, near-term sales and interest in the WRC lumber market remains lackluster. Thanks to extended production schedules and transportation headwinds, mills have been able to quote WRC boards, dimensional lumber, fencing, siding and timbers at last Friday’s levels and prices traded at or modestly on either side of those levels from there. Again, this week. decking remains the most difficult item for mills to sell. With inventory on the ground, mills started the week quoting decking below last Friday’s price adjustment and listened for buyer feedback and counteroffers. ?

Shake & Shingles -: ?Canadian Western Red Cedar (WRC) Shake & Shingle manufacturers continue to report a dearth of available raw materials, and the Freshet on the Fraser River is doing nothing to improve the situation. Mills are also reporting that when logs are finally secured, the price is not necessarily reflecting the quality of the logs they are receiving. But as one production manager said, ‘we need to have something to process’. With log prices and their availability an unknown, mills started the week quoting defensively and above last Friday’s levels. The few sales that were transacted this week were, once again, conducted as PTS+, and without a firm shipping date. A lack of finished product, and higher prices not improving availability has WRC buyers in search of alternative species and manufactured products to meet their anxious builders and their customers’ needs. But many builders know that their customers want real WRC products and will settle for nothing less.?

Southern Pine -: ?Construction sector and pro dealer buyers of Southern Pine No.1 and No.2-dimensional lumber continue to limit their purchases to highly specified loads, needed to fill immediate needs. Speculative purchasing remains off the table, and is considered unnecessary, as these buyers continue to voice their opinion that mills will have all that they need, when they need it. Pressure treaters continue to keep a low profile as their sales to large box stores continue to trail the pandemic levels of 2020 and 2021. Except for 2x12, which is still in search of a trading level, mills started the week quoting the balance of construction grades at or modestly on either side of last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/23+/-. High-grade buyers continue to search through the markets for products they need to keep their manufacturing facilities in operation. High-grade prices remain in an upward tilt, as increased demand and limited supply continues to keep these items in tight supply. Demand for low-grade and their sales varied between production zones. Westside producers were actively seeking a trading level, as their prices remain elevated above the other zones. Mills started the week quoting low-grade at or below last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 5/16+/-. Stud trim sales remain active. Mills started the week quoting stud trims at last Friday’s levels and prices held close to those levels from there; for shipment, the week of 5/16+/-. Sales of 5/4 x 6 Radius Edge Standard and Premium Decking, along with small squares and timbers remain in the doldrums. Mills started the week quoting at or below last week’s price cuts, and prices moved lower from there, with many items on the ground and available for prompt shipment. ?

Pressure Treated -: ?Last week’s sudden uptick in activity in the pressure treated lumber, panel and accessories markets carried over, in varying degrees, into this week. Buyers returned to the treated markets as their lite field inventories, rising costs of brite feedstock and therefore treated products, and unrelenting shipping delays, are creating problems in their ability to keep up growing jobsite activity. There was even limited follow through to last week’s significant round of replenishment at the large box store levels. Although most box stores are on VMI programs, and their replenishment process consists of drawing down inventory from those programs. Buyers overall remain cautious and conservative in their treated products purchases. Unable to forget the surge in prices at the start of the year, and the 6 – 8-week price correction, which finally ended just a few weeks ago, and with prices several hundreds of dollars below their recent highs. Demand remains subdued in the small square and timber, and 5/4 x 6 Standard and Premium Decking markets. With prices of brite feedstock continuing to correct lower, treated buyers are doing their best to avoid purchasing these items beyond their most pressing needs. ?

OSB & Veneer Panels Overview –: The OSB and plywood panel markets remain on firm footing. However, trading became more pedestrian like as the week progressed. Having covered a major portion of their immediate and near-term needs over the past 7 – 10 days, buyers have become more cautious and conservative in their replenishment strategies. Suddenly extended production schedules, higher lumber and panel prices, ongoing delayed shipments, coupled with higher interest rates, inflation, the war in Ukraine, and last week’s negative GDP report for Q1 of 2022, were all viewed as headwinds and reasons to begin once again limiting their exposure to the potential of the downside in the panel markets. Producers with order files stretched anywhere from the week of 5/16, to as far out as the week of 6/6 took the slowdown in stride. Feeling somewhat confident that steady to improving jobsite activity and dealers desire to keep their field inventories lite, will have buyers back in the marketplace seeking replenishment. ?

OSB -: ?The OSB markets started the week building on last week’s uptick in activity. The pace however moderated as the week progressed as extended production schedules, higher prices and other economic factors had buyers once again concerned about the downside risk potential in the OSB markets. ?Producers started the week quoting OSB above last Friday’s levels and prices moved modestly \ moderately higher from there; for production available anywhere from the week of 5/16, to as far out as the week of 6/6. Transportation issues continue to complicate timely shipments in different regions of North America. With empty railcars difficult to source throughout Canada and West of the Mississippi River in the U.S. ?

Southern Pine Panels -: ?Buyers in the Southern Pine Rated Sheathing markets continue to limit their purchases to covering their near-term needs. Speculative purchases, for now, remain out of the question. Buyers showed greater interest in anything that could ship close to prompt, and even indicated that they would pay a modest premium for those products. Mills started the week quoting Pine sheathing at or above last week’s levels and prices traded at or trended higher from there; for production available for shipment the week of 5/23+/-. Mills in the Eastside and eastern reaches of the Central zone, continue to deal with an influx of imported panels arriving along the East Coast, and being quoted and sold at or below domestic mill replacement levels. Demand for Mill Cert., panels remain steady to strong. Mills started the week quoting Mill Cert., at or modestly above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/16+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels remains slow but steady. Mills started the week quoting the entire complex at or on either side of last Friday’s levels, prices hovered close to those levels from there, with production available to ship the week of 5/23-+/-. ??

Western Fir Panels -: Last week buyers of Western Fir Rated Sheathing panels made inroads in covering a sizeable portion of their immediate and anticipated needs. This week, higher prices, extended production schedules, coupled with erratic transportation availability had buyers, once again, focusing on the market’s downside potential. A risk, that most buyers are unwilling to accept. As a result, buyers started the week approaching the market with a more tempered and cautious purchasing plan. Mills started the week quoting at or modestly above last Friday’s gains and prices traded at or edged higher from there; for production available for shipment the week of 5/23+/-. Counteroffers were dismissed out of hand, unless they came with significant volume, and even then, mills limited those price concessions to token values. The inquiry and sales pattern in the CD Struct I, CC, CC PTS and Mill Cert panel markets, remains unchanged from previous weeks. Mills started the week quoting the entire complex at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/16+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remain in close alignment with production. Mills started the week quoting the entire value-added complex at or a few dollars above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/23+/-.

Food for Thought-: ?With the strains of Sir Edward Elgar’s Pomp and Circumstance playing in the background, the college and universities’ graduation season is once again upon us. Many of those graduates are fortunate enough to have interned at various businesses and have already found employment. Others will be leaving the halls of higher education but not sure what lies ahead for them. These are bright young people, and must ask, as I ask every year about this time . . . What have we in the lumber and building materials industry done to attract these people into our industry? And more importantly once they join us how do we retain them??

I have been around the lumber and building material industry for nearly 6-decades and I still find the industry fascinating and ever changing. We have technology, we have machinery, we are active in the ecological and green movements, and we provide shelters for people and places for industry. We have much more to offer in the ways of employment opportunities than just seasonal help in the garden centre. If our industry is going to continue to grow and thrive it cannot rely on those of us who, while not planning to leave any time soon, cannot be here forever.

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To all the Mothers and Mother figures in our lives . . .

Happy Mother's Day