Notes from the Forest-6-14-19 Edition

Ladies and Gentlemen:

The lumber markets, with the exception of Southern Pine, experienced a renewed sense of energy and urgency over the course of the week. This being the result of Canfor’s Monday morning announcement, that with the exception of 1 of their B.C. sawmills, the remainder would be curtailing production, in varying degrees, starting on 6/17 and running through 7/26. This on the heels of last week’s other B.C. lumber curtailment announcements. The OSB and plywood markets remain on the quiet side, unable to gain any momentum from the frenzy in the lumber markets, or Norbord’s announcement that they are indefinitely curtailing their OSB plant located at 100 Mile House in B.C. starting in August.

Housing industry news is always difficult to source early in a month. I did come across these interesting production tidbits to share. According to the Wood Products Association’s Lumber Track Publication, North American lumber production through the 1st Qtr. of 2019 was down <-3.7%> compared to the same period a year ago. Total production was 15.016 billion board feet, down from 15.588 bbf through March of 2018. U.S. output totaled 8.634 bbf through March, up 0.4% from the 1st Qtr., of 2018. Production in the West was down <-3.5%> to 3.533 bbf, while output in the South gained 3.5% to 4.694 bbf. Canadian production totaled 6.382 bbf through March, down <-8.6%>. Output in B.C. dropped <-14.7%> to 2.684 bbf, while production East of the Rockies fell <-3.7%> to 3.698 bbf. According to the APA – The Engineered Wood Association - North America structural panel production rose 0.3% in the first quarter of 2019, when compared to the fourth quarter of 2018. OSB production fell <-1.0% >from the fourth quarter of 2018, but was up 2.7% when compared to the first quarter of 2018. Plywood production was up 3.4% from the fourth quarter of 2018, but was down <-6.6%>, when compared to the first quarter of 2018.

Spruce & Stud Markets -: The inquiry and sales pace of Eastern and Western Canadian SPF Std., & Btr., and No. 2 & Btr., suddenly filled with energy and urgency on Monday afternoon. The result of Canfor’s Monday morning announcement, that with the exception of 1 of their B.C. sawmills, the remainder would be curtailing production, in varying degrees, starting on 6/17 and running through 7/26. The entire SPF complex jumped higher on the announcement. As did CME Lumber Futures (see below). Buyers interested in narrow widths (2x4 – 2x6) and 2x12, is particularly robust. Prices were up double-digits at midweek on these items and continued to edge higher through the remainder of the week. 2x8 and 2x10 sales are steady to strong but the upward price momentum was more reserved. Producers are currently quoting production for the weeks of 7/1 – 7/8, but office wholesalers do have some remaining contract ownership, which can ship earlier, but at a premium to mill replacement levels. Sales of low-grade stock and stud trims also continue to benefit from the recently announced curtailments and the resulting improved interest in the markets. Prices on low-grade and stud trims are modest to moderately higher and mill production schedules are into the weeks of 7/1 – 7/8.  

CME Lumber Futures – The CME Lumber Futures contract for July expire at Noon CDT on Monday 7/15. For the last 5-days of trading (6/7 – 6/13) CME Futures were Up 5-days in a row. Including 2 days that were up limit. CME Futures gained $ 59.40 this week, and are trading above the Midweek cash market, ($320 MBM) report, by $ 53.80 (CME $ 373.80).  A clear reflection of the recently announced B.C. sawmill curtailments.

Hem\ White Fir -:  The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, took on a much firmer tone after Canfor’s Monday announcement that with the exception of 1 of their B.C. sawmills, the remainder would be curtailing production, in varying degrees, starting on 6/17 and running through 7/26. The discounts of Monday morning quickly evaporated and prices almost immediately firmed to last Friday’s reported levels. As buyers returned to the market, mills moved order files into the weeks of 6/24 – 7/1, or beyond. Several key item pricings turned to the “+” side. Many mills were off market Tuesday afternoon as they attempted to reconcile orders with and into production schedules. Mills were quick to announce that not only has a bottom been found and bounced off of, but that the markets were clearly headed for higher ground. They pointed to the jumps in CME Lumber Futures, as just one example. Buyers are not quite as bullish as the mills. They did react to the announcement and they did cover projected inventory needs. Buyers current attitude seem to reflect more of a let’s wait and see attitude. Demand for low-grade stock and stud trims continue to benefit from the curtailment announcement, with prices continuing to trade modest \ moderately higher.   

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., started the week off slowly and mills offered modest discounts on 2x4 – 2x6 – 2x8, hoping to get production, on ground inventory and sales back into alignment. However, the news of Canfor’s significant reduction in production, at all but 1 of their B.C. mills quickly moved buyers back into the market and those discounts quickly evaporated. Prices were on much firmer footing midday Monday and remained so, or moved higher, through the remainder of the week. Demand for low-grade stock and stud trims are just about in sync with production and prices are trading at, or modestly above last Friday’s reported levels.  

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock slowed modestly over the course of the week. Several traders placed the blame for the slowdown squarely on the shoulders of recent bouts of inclement weather throughout the U.S.; along with continued flooding in the Midwest. Others thought it was the simple fact, that with few exceptions – 4x4 and 1x4 fence pickets as examples – that whatever else they needed to source could be found either at a mill, or in smaller job size quantities from local 2-step niche distributors, and often at a discount. So, the need to carry extra inventory was, at least for now, unnecessary. Still others thought it was the cumulative effect of losing customers to alternative products over the past several years. Transportation issues have the ability to delay prompt shipping materials from mills by as much as 2 – 3 weeks.

Shake & Shingles -: The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), has once again become lop-sided. There are producers who are reporting that their sales are steadily improving and they are quietly attempting to inch prices higher. Other producers are reporting a dearth of sales since the start of the month of June, and are wondering where their customers have disappeared to.  Supply continues to outpace production on most items. However, recent production curtailments, at several large and medium size Canadian producers, is helping to bring supply and demand closer into sync. A notable exception would be premium quality Shakes, which are currently very difficult to source. However, lower grade product is readily available. Transportation issues is the one thing that hasn’t changed in this market. Both trucking and railcars are in tight supply and delays in shipments are getting close to exceeding 3 – 4 weeks.

 Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber continue to lag well behind traditional seasonal norms. Significant changes in the SPF and Western Species markets had no immediate impact on Southern Pine. Buyers continue to purchase their most pressing near-terms needs, as prompt shipments and discounts are readily available on almost every item. Production continues to overwhelm demand. Mills started the week offering discounts across the complex, albeit, the discounts this week are smaller than in previous weeks. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR continues to follow in the footsteps of the construction grade markets. Buyers for both truss and modular home manufacturers continue to report a modest downturn in their customer sales activity. Resulting in on-ground inventory lasting longer than originally projected. Demand for low-grade stock remains sluggish. Mills started the week, once again, quoting moderately below last Friday’s reported levels and listened for buyer feedback. Stud trim sales continue to plummet and with it their pricing. In the past 3? weeks stud trims have fallen <-$75> MBM, and stud trim pricing remains vulnerable. Demand for small squares and timbers remains in its downward spiral. Producers in both production zones hoping to eliminate over production, particularly in 6x6, started the week quoting below last Friday’s levels and encouraged buyers to come to them with reasonable, and even not so reasonable, firm counter offers. However, the lower prices only pushed buyers further away from the markets. Demand for 5/4 x 6 Standard and Premium Radius Edge Decking in both production zones is now well below seasonal norms. Eastside producers were particularly aggressive with their discounts on Premium grade, but Standard grade discounts were not that far behind. Westside producers just offered moderate discounts on both grades and urged buyers to make firm counter offers.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories continues to ramp up. Pro dealers are reporting steady to strong sales, this in spite of several bouts of inclement weather, which did flood jobsites in the Southeast, Mid-Atlantic and Tennessee Valley. Large box store retailers reported slower sales this week, but are anticipating that their sales will quickly accelerate as they prepare for Father’s Day and then the Canada Day (1st July) and 4th of July sales blitz. All of this is playing out against the backdrop of vulnerable pricing in the brite feedstock markets. Pro dealers are doing their best to keep their on-ground inventories lite and are counting on their pressure treated partners to be able to respond quickly to their inventory needs. As mentioned previously, large box store treated buyers do not have that luxury. Especially, when their competitor is often across the street, or sharing the same parking lot. Box store buyers are charged with keeping the store bins full and backup readily available.

OSB & Veneer Panels Overview –: The panel markets started the week, continuing to lack the energy and urgency typically associated with this time of the year. Norbord’s announcement that they are indefinitely curtailing production at their 100 Mile House, B.C. OSB mill, starting August 2019, did catch buyers’ attention, but failed to draw buyers back into the OSB markets. Plywood sales remain quiet. Plywood mills are quoting production scheduled for the weeks of 6/17 – 7/1. OSB mills are quoting production scheduled for the weeks of 6/17 – 7/8. Prompt shipping panels always seem to be available. Office wholesalers, with contract ownership, reported that sales of those contracts continue to be stressful.  

OSB -: The inquiry and sales pace of OSB started the week restrained. Producers started the week offering modest discounts from last Friday and then listened for buyers’ firm counter offers and feedback. Norbord’s announcement, on Tuesday 6/11, that they were indefinitely curtailing production at their 100 Mile House, B.C., OSB mill, starting in August, did get buyers attention. Especially, in Western Canada and along the West Coast. However, with August several weeks away, buyers continued to purchase near-term needs; while waiting for signs of how the curtailment might stabilize their market. Elsewhere, in spite of lite field inventories, buyers continue to purchase only near-term needs. Mills production schedules are covering a wide range of time. Several mills are now reporting they have curtailed production and simultaneously sold several large blocks, at ‘between us pricing’ and are now quoting production scheduled for the weeks of 7/1 – 7/8. Other producers are quoting production the weeks of 6/17 – 6/24. However, prompt shipments remain available from both producers and the secondary markets.

Southern Pine Panels -: The inquiry and sales pace in the Southern Pine Rated Sheathing remain on the quiet side. Producers are quoting production for the weeks of 6/17 – 6/24; unchanged from last week. If necessary, prompt shipments always seemed to be available. In spite of lite field inventories, buyers continue to purchase only their near-term needs and counted on the seller, be it a mill, office wholesaler, or local 2-step distributor to be able to provide them with a quick delivery. Producers in the Westside and Central zones started the week offering modest discounts, with the hopes of getting the sales ball rolling early. Again, this week, Eastside producers employed a different strategy; they quoted from last Friday’s reported levels and listened for buyer feedback. Eastside mills are also dealing with an influx of less expensive, imported panels from Brazil and Chile. Sales of value-added panels – underlayment, sanded, siding, concrete form and other specialty panels remains slow. Sales of underlayment and concrete form were particularly challenging and mills resorted to modest discounts early in the week to keep production of those items from becoming an inventory issue.  

Western Fir Panels -:  The inquiry and sales pace of Western Fir Rated Sheathing remains subdued. Mills are quoting production for the weeks of 6/17 – 6/24. However, prompt shipments could almost always be found. Producers started the week quoting a few dollars below last Friday’s reported levels and then negotiated with buyers; oft times on an item by item basis. Buyers continue to limit their purchase to pressing needs. West Coast truckload buyers either purchased a highly mixed truckload, or in some instances turned to a local 2-step distributor for units out of warehouse. Carload volume buyers in the Midwest and Northeast continue to keep a low profile. Purchasing either a highly mixed carload, or turned to a local distributor, or mill owned reload to cover fill in needs. The sales of underlayment, sanded, siding concrete form and other specialty panels remain lackluster. Again, this week, underlayment sales required modest discounts. While the remaining products sold at previously established levels.     

Food for Thought -:  When all is said and done . . . When all is said and done . . . Much is said, but very little if anything gets done!!

That certainly seems to hold true in many facets of our lives today. However, I want to highlight, in particular, our U.S. House of Representative and U.S. Senate, in regards to the passage of the Innocent Sellers Fairness Act. Which, is again, being recommended by the National Lumber and Building Materials Dealers Association (NLBMDA) for passage. To refresh your memory this bill preserves a victim’s access to the courts, while holding the seller(s) harmless when they have not acted negligently in the design, manufacture, sale or installation of a legal product.

As an example: You own a lumber and building materials business. You sell products that you buy from 2-step distributors, perhaps your Co-Op, or on occasions directly from the manufacturer. However, at all times you do not manufacture anything. Let’s say you sold a disappearing staircase to a customer, and you delivered it in its original box to the jobsite, or your customer loaded it at your facility. For whatever reason, clearly out of your control, that disappearing staircase is defective and as a result someone has been injured while using it. Today as the law reads, “no amount of care can free a seller from the product’s liability.” The plaintiff and their lawyers know this too and as a result, they are suing anyone and everyone remotely involved in the sales of that disappearing staircase. I hate to say it but the deeper your pockets, the better.

 So, to review, your involvement in the disappearing staircase was that you bought it from someone else and sold it to a customer. Now suddenly, you are being sued, and if during discovery, they can determine who you bought it from, they’ll be sued as well, along with the manufacturer who made it and the companies that provided the lumber and hardware as well. Eventually, you may be able to get your company removed from the case, but until then, you need an attorney to represent you at each hearing. So will the other companies that are involved in the manufacturing of the staircase.

This is where the NLBMDA is working, again, towards helping to get lumber and building materials dealers out of this litigation merry go round. The Innocent Sellers Fairness Act according to the NLBMDA would ‘bring balance to our legal system by recognizing that business owners that only sell products and are not involved in the manufacturing process should not be held liable for defects that they did not create”.

Before, you jump to any conclusions, this particular piece of legislation has been kicking around D.C., since 2012, if not before. Sadly, this particular bill has been introduced in every Congress since 2012 and has never made it out of a subcommittee, let alone to a hearing in that subcommittee. So, as you can see there is plenty of blame for each political party to share. Perhaps, now would be a great time to join with the NLBMDA and contact your Congressperson and your 2 Senators and ask them to take action on this bill. Your businesses future could depend on it.