January 29, 2018
A return to the highs of summer in lumber and panel markets
The month of January has ushered in strong commodity lumber and panel markets. A positive for mills like Freres Lumber, but looking back on what has transpired in just the past three weeks, it is difficult to imagine that most people would have predicted the level of market strength and pace witnessed thus far. In plywood, we have now recovered all of the price that was lost in November and December of 2017 and gone back to the highs of last year’s bull run through the summer and early fall. That is quite remarkable given that it is barely the end of January. With what has transpired in lumber and panel markets, one wonders what we do for an encore for the remainder of the winter.
Speaking of winter, even inclement winter weather, at times, has failed to deter these markets, which is interesting as well.
To recap very generally, the commodity lumber and panel markets of today: Lumber trading has been brisk since the end of last year, as some buyers have been feathering in inventory quietly or not so quietly, not wanting to repeat the mistake of being lean on inventory as it was last summer and fall. U.S. Lumber / sawmills – 4-5 week order files, with many items at all-time highs. Canadian Plywood mills in British Columbia have order files into the weeks of 3/19 and 3/26 – yes, that’s March, not February. Southern Pine Plywood mills are w/o 2/19 or 2/26 – solid. OSB mills has files into late February and early March, with rail car scarcity a major issue for Western Canadian producers who are unable to ship out what is sold. Western Plywood has been very steady and consistent almost the entire month of January, with prices on a steady upward trajectory. Order files are out to 2/19-2/26, on average.
Constraints seen in truck capacity
As things would have it in a bull market stretch, transportation has conspired to cause problems for almost everyone. Highway truck capacity has long been a challenge for everyone. Now, rail service seems to be dragging for almost every region with short capacity, long cycle times, and congestion, which all contribute to slow service in a hot market. As you can imagine, this exacerbates the stress for under-inventoried customers in all regions. Transportation is a big limiting factor in our business.
As a whole, things look quite strong for the foreseeable future. But, is it too much, too fast for this time of the year? I wish I knew for sure. Certainly, in markets of years past when people loaded up on lumber and panels in the early part of the year, they often gave it all back in market corrections in February and March. However, this year may be different. Fiber supply seems like it will continue to be a big factor in the supply side of things and real value buying opportunities for commodities could be much more scarce and short lived than before.
Remarkable start of 2018, but will it continue
With many customers saying they will be purchasing their needs only, based on currently high price levels, the market could very well be sustained for longer periods by this buying behavior. Some people posit that given much higher raw material costs this year, our prices are not nearly as high as they might seem, and that despite historical price ranges, we could blow right by them this year, with market circumstances as they are now. It will be interesting to see how it all plays out this year. Suffice to say, it’s been quite a start to the year and if it’s any kind of indicator, we may be in for wild ride this building season.