Notes from the Forest=9-28-18 Edition

Ladies and Gentlemen:

The lumber and panel markets continued to trade below seasonal averages again this week. The end of the month and quarter did generate some limited sales action, but not enough to move the sales and inventory needle at most producers. Buyers remain concerned about the markets’ short term overall health. Monday will be the start of the 4th Qtr., and many buyers are already in receipt of their inventory dollar value goals for every week through the remainder of the year. While it’s is not as demanding as ‘be clean by Halloween’ it is clearly going to be on buyers’ minds through the remainder of the year. Producers made outbound calls to large and small customers this week hoping to get buyers to reengage with the marketplace. Mills offered discounted prices and quietly pointed out to buyers that it has been quite sometime since they placed a replenishment order.

The National Association of Realtors? (NAR) reported that their Pending Home Sales Index (PHSI) which is a forward-looking, contract signing, not actual closing, on previously owned homes declined in August, 2018, <-1.8%> to a reading of 104.2. The PHSI has now fallen on an annual basis for eight months in a row. The U.S. Commerce Department has reported that after two straight monthly declines, new home sales rebounded 3.5% to a seasonally adjusted annual rate of 629,000 units in August. However, the July 2018 sales pace was revised down to 608,000 units from the previously reported 627,000 units. Earlier, the National Association of Realtors? (NAR) reported that existing home sales remained steady in August 2018, this after four straight months of declines. Sales gains in the Northeast and Midwest were able to cancel out sales downturns in the South and West. Total existing-homes sales, which are actual completed transactions on single-family homes, townhomes, condominiums, and co-ops remain unchanged from their July 2018 levels of SAAR 5.34 million in August. When compared to existing- home sales in August 2017, August 2018 sales are <1.5%> lower.  

Spruce & Stud Market -: The inquiry and sales pace of Eastern and Western Canadian SPF Std., & Btr., and No. 2 & Btr., remains quiet considering the time of the year. Producers facing the pressures of month and quarter end and daily demerge charges piling up on unloaded railcars made outbound calls trying to get buyers to reengage with the marketplace. However, instead of concentrating on the sale of their usual ‘canned tallies’ producers worked on selling off their problem inventory items. As prices continue to come off and with varying opinions on when the end might come into sight, buyers have become even more reluctant to purchase anything beyond current needs.  Sales of low-grade stock were extremely challenging this week. With inventory on the ground and production continuing at consistently high levels, mills opened the week by offering double-digit discounts and encouraging buyers to make, ready to purchase, firm offers. Stud trims sales, showed some signs of stabilizing. Producers reported being able to sell prompt shipping production within $ 5 - $ 8 MBM below of last Friday’s reported levels. CME Lumber Futures started the week with modest losses, but came roaring back with close to up limit on Wednesday and there was strong positive follow through on Thursday as well. The continuing up and down gyrations in the Futures market have given buyers an additional incentive to remain cautious in their purchases.

Hem\ White Fir -:  The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, remains devoid of energy and urgency. With month and quarter end pressures at hand, and unloaded railcars on mill sidings piling up daily demerge charges, mills diligently made outbound calls trying to reengage buyers with the markets. Throughout the week buyers reported receiving calls from not only U.S. producers offering discounted prices, but also from Canadian producers who are offering prices that are severely undercutting the domestic producers. Narrow widths were particularly vulnerable. With prices being quoted from the ridiculous to the sublime, buyers quickly determined that this is not the time to reenter the market for any volume purchases. Instead buyers continued to purchase their most pressing needs and this only after every possible substitution from in inventory stock was considered. Demand for low-grade stock was also subdued and mill pricing clearly reflected their inventory position; with some quotes double-digits lower at midweek and others holding the line at last Friday’s levels. Sales of stud trims remain challenging and nothing was sold this week without the benefit of an opening discount and acceptance of a counter offer.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains mired in the doldrums. Buyers lack confidence in the marketplace and are limiting their purchases to must have fill-ins, but only after substituting higher grades or longer lengths which they have in inventory. With empty railcars and daily demerge charges adding up, producers doubled their efforts to get buyers reengaged with the marketplace. They did that by offering double-digit discounts on 2x4 – 2x6 – 2x8 from the opening moments of the week and listening carefully to every counter offer any buyer was willing to propose. Mills had better success selling 2x10 and 2x12 and pricing was flat to modestly lower. Demand for low-grade and stud trims has suddenly evaporated. Producers immediately acted to keep these items from becoming inventory burdens and offered double-digit discounts from Tuesday morning through the remainder of the week and reported minimal success with their price reductions.   

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remained on the quiet side. Buyers continue purchasing only their most pressing needs; concerned about a potential price correction later in the 4th Qtr. With the start of the 4th Qtr., many specialty buyers already have their target inventory dollars goals in hand for the remainder of the year. Again, this week traders noted that wider width boards and timbers remain very difficult to source. Producers continue to quote shipment on these items for late Octobre through early to mid-Novembre, which is giving buyers reasons to pause and consider the purchase. Decking sales – 2x4 – 2x6 and 5/4 x 6, remain extremely challenging. Producers continue to make outbound calls to previous volume decking customers in the hopes of rekindling interest. Much to their dismay, many of their customers have converted to alternative species and products.

 Shake & Shingles -: The sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), remains as gloomy as ever. With the start of the 4th Qtr., buyers are even more sensitive to what they are purchasing. Buyers continue to purchase only what they have sold and little to anything more. Again, this week, producers on both sides of the border resumed making outbound calls to follow up on previous quotes. Once again, they made it clear that they were willing to listen to any ‘reasonable’ counter offer. However, buyer demands made accepting such counteroffers challenging, especially with an increase in costs of raw materials and the sudden decline in the quality of the logs they are receiving.  Canadian producers continue to deal with the aftermath of the U.S. Commerce Departments decision on the Softwood Lumber Agreement and the products they manufacture and sell. Several Canadian producers discussed what impact a long and cold winter would have on their ability to continue in production in the coming year.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber remains lackluster.  As more prompt shipping wood appears on mill and secondary sell sheets and the 4th Qtr., gets underway, buyers have become even more reluctant to take on any size inventory position. The pricing pattern established several weeks ago remains intact. Again, this week, producers were able to capitalize on the tight supply of 2x4 and prices moved modestly higher. In the remaining widths pricing remains vulnerable. 2x6 is clearly under the most downward pressure but the other widths aren’t that far behind. Again, this week. the inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains on par with seasonal norms. However, like the past several weeks, although demand is decent, the only way producers could secure a purchase order was to offer discounts just about on par in value with the construction grades. Low-grade and stud trim sales remain in sync with production. Allowing producers to hold pricing at last Friday’s reported levels. Sales of small squares and timbers have showed some small signs of stabilizing. However, producers continue to resort to double-digit discounting on selected items to keep production sold. It was another week where over production of 5/4 x 6 Standard Radius Edge Decking has led to another round of double-digit price concessions. On the other hand, 5/4 x 6 Premium Radius Edge Decking was able to sell at or within a few dollars on either side of last week’s reported levels. 

Pressure Treated -:  With the exception of the Carolinas, which remains in recovery mode, the inquiry and sales pace of pressure treated lumber, plywood and accessories remains close to, if not modestly ahead of, seasonal norms. Pro dealers are reporting an uptick in demand over the past week, as builders and remodelers are gearing up for the final push of the year. Large box retailers are reporting that as cooler weather makes its way from the north to the south, they are seeing their Friday afternoon and weekend business also picking up. Declining prices on brite feedstock, the resulting lower prices for finish treated products, and the start of the 4th Qtr., are all serving as major deterrents to the amount of inventory buyers are willing to purchase and carry in inventory. This is putting additional stress on pressure treaters to make partial truckload deliveries, sometimes as often as 2 and 3 times in a week.  And this just as 2019 contract renewal season is just about to be in full swing.

OSB & Veneer Panels Overview –: Sales of OSB and plywood continue to lack any sense of energy or urgency.  Producers are quoting production anywhere from next week to as far out as the week of 10/8. Unchanged from the previous 2 weeks. Mills with longer order files tended to hold their prices at previously established levels. Producers with shorter order files had little choice but to aggressively seek buyers for their unsold production. Buyers continue to purchase must have fill-ins and are pitting producers against secondaries to see who will provide them with the best price and delivery time. It is just about time for the kick off of contract renewal time. Buyers who are still sitting on higher priced inventory have the potential of being a hard sell.

OSB -: The inquiry and sales pace of OSB continues to fall below seasonal norms. Buyers uncertain about the markets overall health are limiting their purchases to must have fill-ins and are letting the mills and secondaries duke it out over price and delivery time and then deciding who gets the order. Again, this week, producers made outbound calls to large volume buyers, offering ‘between us’ deep discounts. However, those discounts definitely came with significant volume requirements. Exactly how much inventory was moved is difficult to say, but producers are still quoting production for the weeks of 9/24 – 10/8, which is unchanged from the past 2 weeks.  Overall prices continue to trade at previously established levels. The exceptions are Southeast and Mid-Atlantic, where stalled sales into the Carolinas has caused an excess of 7/16” panels and producers discounted hoping to be able to move some of that inventory into other zones. 

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remains on the dull side. Producers are quoting production scheduled for the weeks of 10/1 -10/8, which is unchanged from the previous 2 weeks. Thanks to sustained production schedules of 2 – 3 weeks, producers are able to quote from previously established levels and dismissed counter offers out of hand. For their part buyers continue to purchase their must have fill-ins and are letting the mills and secondaries fight it out for the order. Traders continue to pay close attention to storms that are forming in the Atlantic Ocean and are prepared to act should they become full-fledged hurricanes with a target somewhere on the mainland U.S. Deliveries into the Carolinas remained stalled, as many highways remain closed due to continuing flooding.  Sales of underlayment, sanded, siding, concrete form and other specialty panels remain in sync with production. Mills are offering production for the weeks of 10/1, and prices are being quoted at previously established levels. 

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains lackluster. Mill production schedules remain locked in the weeks of 9/24 -10/1, unchanged for another week. Hoping to reinvigorate the market, mills started the week offering double digit discounts on ?” 4-ply and thicker panels. The wait-and-see purchasing pattern established last week continues to persist. West Coast truckload buyers continue purchasing highly mixed truckloads to cover their immediate needs. Carload buyers in the Midwest and Northeast continue to receive calls from producers offering deeper discounts. Regrettably, the lower prices are doing little to inspire buyers to purchase volume, but it is raising their concerns about the overall health of the Western Fir Rated Sheathing markets. Sales of value-added panels – underlayment, sanded, siding, concrete form and other specialty panels remain steady to sneaky strong. Producers are quoting production for the weeks of 10/1 – 10/8, which has resulted in prices that are flat and firm again this week.

Food for Thought: -: So exactly what took you so long? Now there’s a universal question. It’s asked of everyone from pizza delivery person, to parents who are relieved but still visibly upset that their child has just returned home safely, but not in the designated and agreed upon time frame. This question, is once again, being asked of the lumber and panel manufactures in North America. 

Clearly since the start of time, the lumber and panel markets have been and remain driven by supply and demand. Of course, another real factor is the lack or the overabundance thereof, of on ground inventory when compared to current sales levels. Make too much without the necessary demand and prices fall. Make too little, as we just experienced from the mid-February to late May \ mid-June, prices go skyrocketing. 

There is no group that I know of that can control their markets, most of the time, like the OSB manufacturers. To put it nicely they know how to get back into the driver seat. They have consistently been able to bring their market back under their control by simply limiting and in some instances greatly reducing their production. I remember back in 2015, when over a 3 – 4-week period between the start of Septembre and the beginning of Octobre, that the OSB markets went from an oversupplied and steadily dropping market, to an amazing tightening of supply and prices rocketing higher.  Lasting well into the 4th Qtr.

So, lumber and panel producers of North America, what is taking you so long to duplicate what appears to be the winning formula of the OSB producers in days gone by? Instead of continuing to make more and more and selling it for less and less, why not start making less? You know they say the highest form of flattery is copying what someone else in doing or wearing or saying. It seems to me that making less, will mean you can make more.

Just some food for thought.