Ladies and Gentlemen:
U.S. buyers returned from their long Memorial Day holiday weekend in a more upbeat \ quasi optimistic mood. Attendees at last week’s Montreal Wood Convention had taken to social media with up tempo comments, acknowledging that lumber and panel markets still had some correction left in them, but a bounce was getting closer. There was last Thursday and Friday’s uptick in CME Lumber Futures and the hope that the lumber market might be closing in on a trading level. The mood lasted for all of maybe 3-hours. After that buyer’s mood turned back to bearish, and when commenting on the markets stabilizing, it was a consistent chorus of ‘we are not there yet!’ During the remainder of the week there were bursts of activity, only to be followed by hours of limited to no activity whatsoever. With downside risk still a factor, buyers limited their purchases to essentials and used local 2-step distributors to assure prompt shipment. Transportation issues are improving in many parts of North America. However, there are still pockets of limited to no available trucks or railcars, and a backlog of unshipped product remains at mills and reload transfer facilities.
On Wednesday (6-1-22), The U.S. Census Bureau reported that total construction spending during April 2022 was estimated at a seasonally adjusted annual rate (SAAR) of $1,744.8 billion, 0.2% above the revised March estimate of $1,740.6 billion. The April figure is 12.3% above the April 2021 estimate of $1,5553.5 billion. During the first four months of this year, construction spending amounted to $520.8 billion, 12.4% above the $463.3 billion for the same period in 2021. Private construction spending was at a SAAR of $1,394.7 billion, 0.5% above the revised March estimate of $1,387.9 billion. Residential construction was at a SAAR of $891.5 billion in April 0.9% above the revised March estimate of $883.5 billion. Nonresidential construction was at a SAAR of $503.2 billion in April, -0.2% below the revised March estimate of $5044 billion. In April, the estimated SAAR of public construction spending was $350.1 billion, -0.7% below the revised March estimate of $352.7 billion. Educational construction was at a SAAR of $79.6 billion, in April, -.07% below the revised March estimate of $80.1 billion. Highway construction was at a SAAR of $103.4 billion, -0.1% below the March estimate of $103.5 billion.
Spruce Markets -: Back-to-back Monday holidays in Canada, on 5/24, and the U.S. on 5/30, has led to additional weakness in both the Eastern and Western SPF Std. & Btr., and No. 2 & Btr., markets. Canfor’s announcement of their continuation of reduced production, for the near future, at their Western Canadian mills and rotating down time for maintenance in July and August did nothing to increase buyers’ interest in the markets. Imported European Spruce continues to offer stiff competition to Canadian SPF. Mills started the week quoting below last Friday’s high double-and -triple-digit price correction and prices proceeded to move lower from there, with many items available for immediate shipment, but with transportation issues, particularly railcars, remaining a major shipment headwind. Low-grade sales remain soft. Producers started the week quoting low-grade below last Friday’s levels and prices declined further from there, with prompt shipment available on most items. Buyers’ interest in stud trims remains muted. Mills started the week quoting stud trims below last Friday’s significant downturn in pricing, and prices proceeded to deteriorate further from there, with many trims available on the ground.
CME Lumber Futures –: The CME Lumber Future Contract for July will expire on Friday, July 15th, 2022, at 12;00 Noon CDT. For the past 4-days (5/27 – 6/2), CME Lumber Futures were up 1-day, and down 3-days. For the past 4-days CME Futures have lost -$84.50 and are trading below last Friday’s Cash Market of $750 by $151.50, CME Futures at $598.50. One Year Ago, today (6-2-21), CME Futures closed at $1330.50.
Hem\ White Fir -: Last week’s significant price correction in the Hem\White Fir Std. & Btr., and No.2 & Btr., markets, removed what little energy there was left in these marketplaces. Buyers, trying to avoid further exposure to the markets’ correction, are substituting a longer length or higher grade they have in inventory to replace an item they are missing. Others have turned to local 2-step distribution for units to tide them over. Mills hoping to renew buyer interest, started the holiday shortened week quoting below last Friday’s levels and encouraging buyers to make counter offers. Mills had many items available for prompt shipment. Office wholesalers with contract ownership and recent open market purchases sold below mill levels and still struggled to sell their canned tallies. Low-grade sales remain in a tailspin. Mills started the week quoting below last Friday’s levels and prices deteriorated further from there, with many items available for immediate shipment. Stud trim sales have ground to a halt. Mills started the week searching for a new trading level in studs that would spark buyers’ interest. They quoted below last Friday’s levels and listened to counteroffers, but even that failed to peak buyer interest. Mills have stud trims on the ground and available for immediate shipment.
Green Doug Fir -: Last week’s double and triple-digit price correction in the Green Doug Fir (GDF) Std. & Btr., No.2 & Btr., market, and mills willingness to accept even deeper reduction, along with KD prices correcting equally as fast, had buyers firmly on the sidelines, or heading for the exit. Hoping to draw buyers back into the market, mills started the week quoting below last Friday’s losses and prices progressively moved lower from there, with many items available for prompt shipment once transportation could be secured. Low-grade buyers continue to keep a low profile. Mills started the week quoting low-grade below last Friday’s levels and prices moved lower from there, with prompt shipment available on most items. Buyer interest in GDF stud trims remains limited. With KD stud trim pricing in full retreat and some KD stud trims now being quoted below GDF, buyers made the switch to the KD products. As a result, GDF mills started the week quoting stud trims below last Friday’s levels and prices deteriorated further from there, with many items on the ground and available for prompt shipment.
Cedar Lumber -: Sales in the Western Red Cedar (WRC) lumber market continue to trail even recent pre-pandemic years. Buyers seeing pricing on other board and dimensional lumber species deteriorating, chose to limit their replenishment, and exposure to the WRC markets. As a result, WRC mills experiencing limited sales to start the week, and immediately resumed discounting decking grade products, especially 5/4 x 6, as well as narrow width dimensional lumber. However, this week S1S2E and Hit & Miss boards joined in the price correction. Producers started the week quoting fencing, wider width dimensional lumber, siding, and timbers at last Friday’s levels. However, buyers were already pressing mills for counteroffers on those items. Some mills capitulated to small counteroffers, while other leaned on what is left of their extended production schedules. Trucking was improving in some lanes but remained difficult in others.
Shake & Shingles -: Manufacturers of Western Red Cedar (WRC) Shake & Shingles started the week quoting above last Friday’s elevated price levels. A lack of available logs, the Freshet, and the resulting higher prices they are paying for what little they can secure was given as the reason for the increasing prices. Several manufacturers in Canada were closed again this week, still lacking sufficient logs to resume production for even a few days. Adding to buyer frustration, besides higher prices, and limited availability of any new production, was the lack of available trucks and where those drivers were willing to deliver loads to of finished product. The lack of finished product has once again sent buyers in search of alternative species or fabricated products to substitute for WRC Shake & Shingle products.
Southern Pine -: Buyer interaction with the still correcting Southern Pine No.1 and No.2-dimensional lumber markets was limited again this week. Last week’s market selloff further increased buyer’s resolve to limit their exposure to the declining markets. Choosing to purchase either a highly mixed truckload from a mill source, or units out of local 2-step distribution to assure timely delivery. Mills with growing on ground inventory started the week quoting below last Friday’s levels and prices deteriorated further from there, with many items available for immediate shipment; but with transportation issues continuing to cause major shipping headwinds. Concerns about the high-grade markets ability to hold its premium to the remaining portions of the SYP markets, had high-grade buyers slowing their replenishment. Nevertheless, high-grade prices remain at or above last Friday’s levels with shipment available for the week of 6/20+/-. With the price spread between construction and low-grade continuing to narrow, sales of low-grade continue to suffer. As many buyers chose the higher grade at close to a low-grade price. Mills started the week quoting low-grade below last Friday’s levels and prices pushed lower from there, with many items on the ground and available for prompt shipping. Stud trim sales are lackluster. Mills started the week quoting below last Friday’s levels and prices declined further from there, with prompt shipment available. Small squares and timbers remain the brite spot in the SYP market. Mills started the week quoting small squares and timbers at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for shipment available the week of 6/13+/-. Buyers’ interest for pressure treated 5/4 x 6 Standard and Premium Radius Edge Decking remains limited. Prices on RED have been declining since April 8th and they continued their decent again this week.
Pressure Treated -: The typical increase in sales activity at the large box store sector over the long Memorial Day holiday weekend failed to meet the levels of the previous 2 (pandemic) years. Box stores reported an increase in customer foot traffic, but most of it was centered in the lawn and garden section of the store. In the lumber section it was limited to odds and ends in treated fencing and landscape timbers. Pro dealers who service the multifamily and tract builder sector reported that their treated sales remains steady to strong. As job site activity resumed at breakneck speed immediately following the planned Memorial Day holiday down time. Treated buyers continue to keep their facility inventories lite, as prices on brite feedstock continue to correct lower and with it the price of treated lumber, panels, and accessories. The lack of reliable trucking continues to limit just how lean pro dealers can keep their treated inventories and still meet customer demand.
OSB & Veneer Panels Overview –: A federal court judge’s permanent injunction invalidating certification of imported plywood panels from Brazil bearing the PFS-TECO grade stamp, added another layer of complexity onto the plywood markets. As buyers struggled to understand how this injunction would impact both the Southern Pine and Western Fir plywood markets, especially along the eastern seaboard. OSB mills dealt with another week of softening sales and prices. Even a major fire, 2-week ago at Tolko’s High Prairie Alberta OSB facility, did nothing to change the ongoing softening in the OSB markets. Office wholesalers continue to struggle with the sales of their contract ownership and were selling below mill replacement values to keep product sold. Local 2-step distributors continue to report steady to strong sales but noted that in some key items inventory outages were developing. Transportation issues are improving across North America, but pockets of limited trucks and empty railcar availability still exist, and a significant backlog of unshipped product remains.
OSB -: OSB producers started the week in search of a new trading level that would inspire buyers to return to the marketplace. Buyers started their week checking with producers on current price and availability. The same buyers were also communicating with office wholesalers with contract ownership to see how their prices compared with the mills. Mills prompted buyers throughout the week for their feedback and encouraged ‘reasonable counteroffers.’ Mills started the week quoting below last Friday’s levels and prices continued to work lower from there; for production available for shipment anywhere from prompt through the week of 6/20+/-. Transportation issues varied from one region to another, but even in areas reporting improvement, there remains a backlog of unshipped product.
Southern Pine Panels -: The Southern Pine Rated Sheathing market started the holiday shortened week on a much firmer tone and with substantially less product available for immediate shipment. Last week’s federal court permanent injunction invalidating certification of imported plywood panels from Brazil, bearing the PFS-TECO grade stamp, raised additional questions during the week. Buyers, especially those who stock and rely on imported panels, are struggling to understand exactly how the permanent injunction is going to impact what they have in inventory or have previously sold. Brazil’s share of the domestic market is relatively small, approximately 11% of the total domestic usage, and as of late that percentage had been shrinking. Buyers remain cautious and conservative in their replenishment strategies, as downside risk in the domestic markets was still a factor. Mills started the week quoting 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 6/27+/-. Mill Cert., sales are in sync with production. Mills started the week quoting Mill Cert. 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 6/20+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels continues to trade at previously established levels. Mills started the week quoting the entire complex at or below last Friday’s levels, prices traded at or incrementally lower from there, with production available to ship the week of 6/20+/-. Transportation issues in the South showed modest improvement during the week but there is still a backlog of product that needs to be shipped.
Western Fir Panels -: Western Fir Rated Sheathing producers reported a slow start to the holiday shortened week. Buyers checked price and availability and mills encouraged them to make counteroffers. However, with prices still in the process of retracing, buyers were cautious in offering any price, no matter how outlandish, for fear the mill might accept it. There were frequent discussions between traders regarding the ramifications of the permanent injunction barring a plywood certifier (PFS-TECO) from operating in Brazil. Could this possibly open more opportunities for Western Fir along the East Coast? Mills started the week quoting sheathing below last Friday’s levels and prices continued to trek lower from there; for production available anywhere from prompt to the week of 6/20. The inquiry and sales pace in the CD Struct I, CC, CC PTS and Mill Cert panel markets, remains in a corrective mode. Mills started the week quoting the entire complex, once again, at or below last Friday’s levels and prices continued to trade at or moved lower from there; for production still available for shipment the week of 6/13+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remains little changed from previous weeks. Mills started the week quoting the entire value-added complex at or below last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 6/13+/-.
Food for Thought-: The housing industry news for April, which was recently reported by the U.S. Census Bureau, the National Association of Realtors® (NAR), several national real estate brokerage firms, and others, has become unbelievably bearish. And early predictions for May are not much better. It seems as if Americans have suddenly decided that now is not the time to purchase the home of their dreams. Oddly, just as more homes are suddenly coming on the market for sale, which was the reason for price escalation over the past several years.
The talking heads on radio, podcasts, and what we call today’s television, are asking if the housing bubble has once again burst and if housing will once again lead us into another recession? While I am certainly no economist, I see a direct correlation, which they apparently cannot see, or they choose not to see, between mortgage interest rates at 5% + and almost 1-point to close and the price of housing as to what turned buyers off to the housing market.
Consider this, the U.S. Census Bureau reported the median sales prices for a new single-family home sold in April was $450,600, but the average sales price was $ 570,300. Explains why suddenly we have a 9.0-month supply of unsold single-family homes for sale. The NAR reports that the median existing-home prices, which includes single-family home, condo, townhouse, co-op in April was $391,200, up 14.8% from April 2021.
A buyer may have been approved for a $ 350+K home purchase at 2 ½% to 3¼% mortgage but fails the lending litmus test at 5% +. Another reason for the considerable number of new single-family and existing homes available in the market. That is also the reason the multifamily construction continues to increase to new record levels. People need to live somewhere. Certainly, there must be a way to tame inflation without killing the housing market. It would be beneficial in just so many ways. Just some food for thought.