Ladies and Gentlemen:
The lumber markets have made a 180-degree turn. Buyers have gone from, ‘I don’t need, I can’t use it, it’s no good for me;’ to ‘I really need it, how soon can I get, and can I please have some more?’ The plywood markets have also benefited from the lumber markets turnabout, with prices holding firm or moving incrementally higher. OSB, which really did not need any more upward pressure, was also able to build on the lumber markets’ sudden burst of energy and urgency. Seven consecutive days of up limit pricing in the CME Lumber Futures is getting most of the credit for the lumber markets firming and upward swing. However, the truth be told, logistics, coupled with winter weather is in reality what is currently pushing the lumber, panel and for that matter the building materials markets higher.
A closer look at the Bureau of Labor Statistics (BLS) Nonfarm Payroll Report, with an emphasis on the construction sector reveals that employment in the construction sector overall declined by 5,000 jobs in January. Bringing six months of increase to an end. In January, residential construction employment increased by 4,400 jobs. That was counterweighed by a 9,000-job loss in the nonresidential construction sector. Residential construction employment in January stands at 3.1 million, broken down as 883,000 builders and 2.2 million residential specialty trade contractors. Over the last 12 months, home builders and remodelers added 88,000 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,104,200 positions. In January, the unemployment rate for construction workers rose by 0.7 percentage points to 5.6% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic.
Spruce & Stud Markets -: Building on the CME Futures ongoing surge, the Western and Eastern Canadian SPF Std. & Btr., and No.2 & Btr., markets started the week with an abrupt change in direction. Discounts were gone and the markets have moved onto much firmer footing, with corresponding higher prices. Office wholesalers covered their shorts, which allowed production schedules to expand, and that served as the catalyst to get even the most cautious of buyers to return to the markets. No one loaded the warehouse but end of Q1 needs and beyond were covered. Mills started the week quoting double-digits above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 2/28+/-. Low-grade sales also gained momentum. Mills started the week quoting at or above last Friday’s levels and prices trekked higher from there; for production available for the week of 2/21+/-. Activity in the construction and low-grade sectors effortlessly spilled into the stud trim markets. Mills started the week quoting stud trims above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 2/21+/-.
CME Lumber Futures –: The CME Lumber Future Contract will expire at 12:00 Noon CDT on Tuesday March 15th, 2022. For the past 5- days (2/4/22 – 2/10/22), CME Futures were up 5 consecutive days. CME Lumber futures have gained $225.00 for the week and are now trading above the Midweek Cash Market of $1230 by $19.90 CME Futures at $1249.90. One Year Ago, today (2-10-21), CME Futures closed at $950.80.
Hem\ White Fir -: The increase in sales activity that started late last week in the Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir easily carried over into this week. Consecutive up limited days in the CME Lumber Futures market, as well as increased activity in other species served as the catalyst to get Hem \ White Fir buyers back into the marketplace. Mills started the week quoting dimensional lumber flat to higher and prices continued to trade at or higher from there; for production available for shipment the week of 2/21+/-. Additional availability from Canada has allowed demand for low-grade to ease. Mills started the week quoting low-grade at or on either side of 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 2/21+/-. Activity in the construction grade market sparked renewed interest in the stud trim markets. Mills started the week quoting stud trims at or below last Friday’s levels, and prices traded at those levels or moved higher from there; for production available for shipment the week of 2/21+/-. The double- and triple-digit counteroffers mills were accepting last week on stud trims have evaporated.
Green Doug Fir -: The Green Douglas Fir (GDF) Std. & Btr., & No.2 & Btr., market finds itself in disarray. Late last week’s activity in the narrow widths and 2x12 carried over into this week at many, but not at all producers. While 2x8 and 2x10 were still somewhat vulnerable and subject to modest discounting early in the week. As a result, buyers found a wide variety of prices on equivalent items from one mill to another. Mills ended the week with production available for shipment the week of 2/21+/-. Long lengths (22’+) remain a hot commodity, but the price appreciation of the past several weeks has faded. Mills continue to quote long lengths at last week’s levels for production available for shipment the week of 3/7+/-. Low-grade sales remain lackluster. Mills started the week quoting at or below last Friday’s levels, and prices traded at or on either side of those levels from there; for production available the week of 2/14+/-. GDF stud trim sales have slowed, and the recent correction in KD product pricing has eliminated some of the GDF price value proposition. Mills started the week quoting stud trims 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 2/21+/-. Depending on who you were talking with, transportations issues were somewhat improving, or as bad as ever; or perhaps even worse.
Cedar Lumber -: Western Red Cedar (WRC) lumber sales remain steady to strong. Buyers continue to ramp up their purchasing activity as they work to secure their springtime, and on key items beyond needs. Open market availability remains limited. As many of the larger producers have contracts in place with large box stores and pro dealers. Transportation and road conditions continue to hamper the shipment of logs from the woods to the mills. With log decks shrinking, at some producers, continued steady production has suddenly become challenging. Mills started the week, as a price guide only, quoting above last week’s gains and prices pressed higher from there. However, as in the previous several months, most sales were conducted as PTS or PTS +, and with no firm shipping date provided. Timbers and decking were on the top of many buyers’ lists and those two items are in extremely tight supply. However, board, dimensional lumber, fencing, pattern stock and siding are also experiencing limited availability.
Shake & Shingles -: The Western Red Cedar (WRC) Shake & Shingle markets continue to be held hostage by a lack of raw materials and the necessary labor and equipment needed to process finished goods. Buyers want and need to purchase for jobs that their contractor customers have pending. Unfortunately, mills have little to no extra product available, and with late shipments an ongoing problem, most producers are unwilling to take on additional sales burdens without firsthand knowledge of how much or how little of the raw materials they need can be secured, and of course at what price. As a result, sales again this week were limited. Mills started the week quoting above last week’s levels and prices held close to those higher values from there. Buyers offered to purchase PTS and PTS + if that would be an incentive to get mill to accept their purchase order.
Southern Pine Lumber -: With prices in the Southern Pine No.1 & No.2-dimensional lumber markets, showing signs of stabilizing late last week, and that activity carrying over into this week, buyers who had been on the sidelines began recalculating their inventory needs and resumed purchasing. Apart from 2x12, which remain in tight supply, mills started the week quoting at or below last Friday’s levels, however, with increasing sales activity, prices were able to trade at or on either side of those levels from there; for production available for shipment the week of 2/21+/-. Limited production and availability of high-grade products allowed mills to raise prices again this week and move production schedules into the week of 2/28+/-. The pattern in low-grade sales remains unchanged from previous weeks. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 2/28+/-. Stud trim sales continue to hold steady. Mills started the week quoting at last Friday’s level and prices hovered close to that level from there; for production available for shipment the week of 2/28+/-. Demand for small squares and timbers showed signs of renewed interest at midweek. Mills started the week quoting above last Friday’s levels and prices edged higher from there; for production available for shipment the week of 2/21+/-. 5/4 x 6 Standard and Premium Radius Edge Decking sales continue to exceed limited mill production. As a result, mills started the week quoting R.E.D. above last week’s gains and prices climbed higher from there; for production available for shipment the week of 3/7+/-. Trucking in the South remains problematic.
Pressure Treated -: Pressure treated sales remain reserved. This as old man winter refused to loosen his grip on parts of North America, and brite feedstock prices remained influx. Treated buyers are nervous, and as a result, they are limiting their purchases to fill-in needs. And this even applied to pro dealer buyers who are working in pockets of steady to strong jobsite activity. Large box store treated buyers have also reined in their purchases. Not wanting to relive last year’s drop in sales; when DIY’ers retreated from their projects due to sticker shock, and which left box stores overstocked with high priced inventory. Winter buy orders are available for shipment and many buyers have given treaters the green light to ship at will. The issue remains the lack of available trucks and drivers. Treaters were hoping that as their regular sales slowed that the trucks that would normally be needed to ship those orders would become available to ship the winter buy materials instead. To date that has not been the case.
OSB & Veneer Panels Overview –: OSB remains the driving force in the panel markets. Plywood sales remain, in varying degrees, mired in buyer indecision and their constant concern of downside risk and being caught on the wrong side of the markets. Late shipments continue unabated and continue to apply pressure to dwindling on ground field inventories. A tightening, albeit expected to be temporary, in the availability of resin added another layer of complexity to an already confused marketplace. Winter weather has slowed jobsite activity in many parts of North America, however, once the weather rights itself, builders are expected to try and make up for lost time. Finding sufficient panel products to meet that anticipated demand is going to be the focus of panel buyers.
OSB -: Manufacturing malfunctions, winter weather, resin once again in tight supply, missed \ reduced contract shipments, late shipments due to a lack of available trucks and drivers, empty railcars, and train crews to pull loaded cars out of mill and reload facilities, were all highlights of another tumultuous week in the OSB markets. After several weeks of searching for coverage and coming up empty hand, some exhausted buyers moved to the sidelines. Other buyers so desperate for replenishment scoured the OSB and secondary markets seeking coverage. For these buyers price was no longer an issue – securing product was. Unfortunately, most of these buyers ended the week empty handed, as well. As mills and secondaries with anything to sell reached out to a select group of customers. Mills started the week quoting above last Friday’s high double- and triple-digit gains, and prices pushed higher from there; for production available for shipment the week of 3/7+/-.
Southern Pine Panels -: Inconsistent and lacking direction were the words traders used to describe the Southern Pine Rated Sheathing markets this week. Recent winter storms, followed by frigid wind chills in several areas in the South, have taken their toll on logging, production, and transportation. On top of that, some of the largest resin producers were negatively impacted by the below freezing temperatures, putting this key production ingredient into even tighter supply. Late shipments continue to strain on ground inventories, but buyers remain reluctant to purchase additional inventory, fearing any price correction had the potential of placing them on the wrong side of the markets. Even desperate OSB buyers looking for a substitute product remained leery. Mills started the week quoting Rated Sheathing at or below (Eastside thick panels) last Friday’s levels and prices traded at or in a narrow range on either side of those levels from there; for production available for shipment the week of 2/28+/-. Mill Cert. sales continue to hold their own. Producers started the week quoting Mill Cert. at 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 2/21+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remains slow but steady. Mills started the week quoting at last Friday’s levels and prices traded at or inched higher from there; for production available for shipment the week of 2/21+/-.
Western Fir Panels -: Discounting early in the week helped to secure additional carload volume sales, and that coupled with OSB buyers frantically looking for coverage, led to improved sales and a much firmer tone in the Western Fir Rated Sheathing markets. Mills ended the week with prices being quoted at or above last Friday’s levels and production available for shipment the week of 2/28+/-. The sales of CD Struct I, CC, CC PTS and Mill Cert varied from item to item, but overall, were slightly more active than in the past weeks. Mills started quoting all these products at or on either side of last Friday’s levels and prices traded in a narrow range from there; for production available for shipment the week of 2/21+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels remains lackluster. Mills started the week quoting the entire complex at or modestly above last week Friday’s levels and prices traded at or edged higher from there; for shipment available the week of 2/21+/-.
Food for Thought-: The lumber, panel and building materials markets are currently revolving around winter weather, and logistics difficulties. Both of which neither buyers nor sellers have any real control over. And yet, buyers and sellers are spending copious amount of time and energy worrying, and trying to gain control of what is uncontrollable.
If buyers continue to purchase, not out of necessity or anticipated need, but rather because they are unable to get product already purchased delivered, then at some point the markets will suddenly and unexpectedly, I might add, become over bought.
You might ask ‘how can that possibly be?’ I hear you saying that you need inventory and that we are closing in on the start of the spring as we are almost two-thirds of the way through winter. My friends, you would be correct on both subjects. However, as oft times happens, suddenly late shipments start to arrive, and you go from being underbought to . . . well . . . over supplied. Typically, at the same time prices start to correct lower. This as buyers suddenly have less need for additional replenishment. As sales slow, mills and secondaries with contract and open market ownership start to adjust prices lower, in the hopes of attracting buyers back into the marketplace.
If this sound all too familiar, and it should, it is exactly what brought the markets tumbling lower in late April and May of 2021, and over the recent several weeks. I am not predicting that old man winter isn’t going to hang around for another 5 – 6 weeks. I will leave that chore to the groundhog. I am certainly not predicting that trucking will suddenly improve. What I am expecting that with springtime approaching and mill production schedules extended that sales in the lumber, panel, and building material industry will continue to shake off the current lull and sales will pick up from mid-February through mid to late March. Buyers will continue to buy, in excess of anticipated needs ‘just to be sure, to be sure,’ that they have enough inventory on hand. When it all starts to arrive, usually all at once, the downward spiral will begin in earnest, and it will last until we are once again underbought. It bears repeating . . . ‘purchasing more of what you cannot get delivered does not make it come faster … until it all arrives at once.’ Or if you prefer, ‘no buyer has enough inventory when the markets are moving higher. On the other hand, every buyer has too much when they are moving lower.’
Just some food for thought.