September 10, 2018
Volatility Plagues Plywood Demand
Plywood demand has been lackluster over the last few weeks. We had one big week of purchasing before things became quiet again. Typical customer feedback includes lack of available labor to complete projects and a slow adjustment to persistently high wood product prices. There can be little doubt that price volatility has contributed to a reluctance to take risk and many purchasers are choosing to purchase “hand-to-mouth”. This strategy exacerbates market volatility because purchasers are largely late to the party when prices swing counter to their expectations. Gone are the days of true market speculators who are willing to take a gamble on volumes without orders to back them up. Wood products markets would be much more stable if distributors and wholesalers alike took an inventory stance instead of relying on the producers to scale production to current needs.
Shifting Demand Keeps Veneer Market Stable
The veneer market has been surprisingly stable in light of plywood price corrections and a tepid LVL market. There has been a shift in the overall market in the last couple of months as traditional green veneer sellers have shifted production to dry veneer. The net effect is increased demand for green veneer and stable pricing. Fire danger and stubbornly high log prices have left little incentive for producers to ramp up production.
Better Markets Expected Due to Continued High Residential Construction
Even with the lackluster panel market, we expect September to be a better sales month than August. Housing markets are still tight and demand is pushing both home prices and rents higher. Construction job growth increased by 29,000 jobs in the first half of 2018, but still wasn’t enough to help meet continued housing demand (RISI Structural Panel Commentary). The NAR (National Association of Realtors) listed the current inventory of homes for sale, at an extremely low 4.3 months, as a contributor to slowing existing homes sales. Median home prices hit an all-time high in June increasing another 5.2%. The escalating home values do little to encourage first-time home buyers to purchase a home. In the longer run, additional housing is needed to alleviate price increases and make housing affordable again.
Softwood Lumber Agreement to be Discussed in NAFTA Negotiations with Canada
The US has listed the Softwood Lumber Agreement (SLA) as one of the fundamental issues to be addressed during NAFTA negotiations. Canada issued a retaliatory 10% duty on panel products imported from the US in response to duties under the SLA. Veneer and panel products have never had US import protections like those so enjoyed by lumber producers, even though the fundamental issue of fiber subsidies is the same if it is a board or a panel. Our hope is that a bit of intelligence can enter the negotiations and that any protections claimed by the lumber producers will also apply to softwood panels.
Due to all the issues cited above, production schedules are somewhat unpredictable at the moment.