October 2, 2017
The plywood market continues to surprise and exceed the expectations of almost everyone these days, including us here at Freres Lumber Company. Even with a more measured sales pace of the past couple weeks, mills continue to sell wood each day. Most customers are skittish about the high prices of commodity plywood, but that has been going on for much of the summer, which has brought much higher than normal price ranges. The south has led the way recently, particularly after Irma, and continued on a tear the past few weeks, with many commodity items up $70-100/m in just the past three weeks. Quick wood in the southeast – or anywhere – is nonexistent and this situation, coupled with low field inventories, has buyers scrambling for nearby coverage. Everyone needs the truck they ordered now, but they are scared to put another one on order until the last minute due to downside risks. The same situation exists in the commodity lumber markets in many areas of the country and demand continues to put pressure on yard inventories.
Plywood order files in the south are three weeks plus on average. Out west the files may be a bit less, but solidly an average w/o 10/2 – 10/9. Wholesale traders report moving through their modest inventories steadily at a very orderly pace and are now pondering their next move. As usual, this summer and now fall, buyers bird dog recent purchases relentlessly each week to fill in depleted inventories. Now, some traders who were skeptical of the post Irma market conditions, are beginning to believe the market may have some staying power based on reactions from their customers in the field. No one really knows, of course, but current sales activity would seem to support this view.
For the first time in years, just-in-time buying has generally not paid off for most people during the summer and early fall. While periodic transfers of industry inventories from customer to mill is not uncommon, this year much of the field remained skittish of high prices, and perceived production capabilities, and thus, kept inventories light despite solid demand in the field. Several events and pinch points during the summer and early fall have conspired to keep many buyers off balance by zigging and zagging at the wrong time. So, dealers with inadequate inventory who have elected to stay that course have been forced to buy in the spot markets from local distributors, paying the going rate for their specific lumber and panel needs, which usually means at a premium.
Commodity prices are high, that is for sure. However, given still strong demand, these levels could sustain themselves. Barring nasty weather, the building sector should still expect good demand for the next 60 days or until weather steps in and slows things down.