There are plenty of ongoing reasons for pessimism among lumber traders.
A dull start to the year led to an uptick at the end of January, raising hopes that the doom and gloom many had predicted would be off base. However, the run ended shortly after it started, and listless trading was once again the norm. Buyers stuck to the approach they settled on last year, only buying exactly what they need exactly when they need it.
If PTS (price at time of shipment) was a common buzzword during the pandemic-fueled highs of the lumber markets, LTL (less than truckload) volumes have since become the standard.
The economic headwinds that stalled out the housing market last year (inflation and mortgage interest rates higher than they have been in years) continue to linger, joined by fresh concerns about the economic viability of banking institutions.
Housing starts are well below year-ago levels. In April, the seasonally adjusted annual rate (SAAR) for U.S. housing starts was 1.401 million, according to the U.S. Census Bureau. That was 22.3% below the year-ago level. Single-family starts alone were off 28.1% compared to the year-ago level.
Hints of optimism poking through the clouds for lumber traders
Despite all of that, by at least one metric there is optimism. The monthly Random Lengths retailer survey has shown an uptick in expectations on a national level throughout 2023 thus far. That’s the opposite of the 2022 trend.
In lumber, dealers’ sales expectations hit 5.2 (out of 10) in December 2022, the ninth consecutive month registering either a decline or no change. After starting 2022 at 7.2, the figure rose to 7.4 in February and then 7.5 in March before starting its gradual descent. The 5.2 figure in December was the lowest since a 5.3 reading in March 2020, at the initial stages of the pandemic.
“We enter 2023 with very modest expectations,” one Midwest dealer said at the time. “I already miss the frothy craziness of the pandemic.”
In addition, a retail survey at the end of the year revealed how low expectations were for the year ahead. When asked about expectations for 2023 vs. 2022, only 6% expected sales to go up, while 76% expected them to go down.
All of that combined has made the responses to the expectation questions thus far in 2023 surprising. The figure jumped from 5.2 to 5.9 in January 2023, then continued to trend upwards with readings of 6.0, 6.3, 6.4, and finally 6.7 in May, the highest since last July.
A similar upward trend has also been evident in builder confidence in the single-family sector, which is measured by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index climbed five points in May to a reading of 50, its fifth straight monthly gain and the highest level since July 2022.
Curtailments have helped tighten lumber supplies and led to short runs as a result, as seen with studs in May. Wildfire season always has the potential to restrict log supplies and thus influence the market. Fires in late May in Eastern Canada have provided a prime example of that.
https://www.fastmarkets.com/insights/lumber-dealers-sales-expectations-show-hints-of-optimism