January 14, 2019
Wood product markets began to show marked improvement as we ended 2018. The end of 2018 can best be categorized as a slow bleed, with product prices dropping across the board. Even good news for wood products markets didn’t slow the downward trajectory of prices. It wasn’t an overwhelming turn of tide, but it was enough for the market to recognize that pricing was overplayed to the downside and that opportunities for the bold are emerging.
Log pricing for 2018 had the largest impact for us relatively to finished product prices. Log prices were stubbornly high, even while the product prices were showing precipitous declines. There was the fear that there could be another impactful fire season which would deprive us timber supply, as it did in 2017. There was also the hope that high commodity prices would bring on a new normal due to the lack of available housing. Regardless, log prices are finally returning to a more reasonable level and I think the industry has been reminded of the fact that prices never stay high forever and there is always another downturn around the corner.
Panel prices experienced an almost 40% drop from the highest levels over the last 6 months of the year. While take away is improving, pricing still isn’t at levels that would encourage producers to run hard. I believe that most producers will enter 2019 with a sense of caution and awareness of downside risk. There was just a little too much pain suffered in the last couple of quarters to forget too quickly.
Veneer began to turn the corner before panels, but there was still enough froth in the market that Random Lengths print prices continued to decline until last week when prices finally held firm. This would mark fourteen weeks of straight declines before prices stabilized. As has been typical the last few years, the veneer market is much less dependent upon plywood demand than it is on LVL demand. LVL demand has picked up again and initial indications are that the engineered wood producers anticipate a strong 2019. No where is the LVL impact more evident than on the spread between CD 54s and Random Width. Core material has been cheap through out 2018, even with stronger panel markets, and there is little indication that it will recover without additional panel capacity in the market. There just aren’t enough panel producers to consume the random width veneer that is available. Engineered wood producers will end up paying for the low off grade veneer through persistently higher prices for 54s. In wood products, we always need to come out with pricing back to the log.
We are optimistic that 2019 will be a good year, but there are no guarantees. The US market will be a much stronger and safer one if prices don’t run up to all time highs again. You can be very certain that when product prices rise to higher levels, the US will once again become a dumping ground for wood from all over the world. A little bit of consistency would do us all quite a bit of good.