Veneer Prices Remain High
I hear veneer prices are at an all-time high, as if that alone justifies a slowing or stop to price increases. I take exception to this type of thinking; anyone who believes in free market capitalism understands that the marketplace is complex and built upon a wide variety of factors.
There are several market influences that cannot be ignored when examining veneer pricing to market. It’s been a while since my college economics course, but as I recall there is something referred to as supply and demand.
International Supply Has Low Impact on Markets
Currently, veneer and panel imports from Canada are temporarily limited and South American panel production doesn’t seem to be exerting as much influence in the first quarter as compared to last year either. We are also hearing that our neighbors to the North have potential fiber supply issues in the coming months and are cautious about running additional hours until supply becomes available. And that brings me to my next point; log prices are at levels we have not seen for 20 years. Log cost also affects veneer pricing. We just came off a significant fire season and an extremely wet fall, which all contributed to limited timber supplies in the fall and winter. There is still talk of short log decks at some West Coast producers. High log prices should entice some log sellers to harvest timber as we approach Spring and the mild weather should allow the logs to reach mills. Northwest wood products producers are desperately in need of additional log supply and lower prices in order to compete against foreign imports.
Looking Ahead to a Strong Housing Market
The housing market is strong and seasonally adjusted annual starts are currently projected to increase at an 8% annual rate. Labor is still cited as an impediment to additional housing starts. However, I believe everyone in the industry prefers gradual improvement in housing starts compared to another boom and bust cycle.
Plywood Orders Increase
Competitive products utilizing the same raw material are high as well. Plywood composite prices have increased almost 22% since the beginning of 2017, which we are thankful for, but lumber composite prices have increased almost 40%. Our plywood orders files are as long as we have seen them since the Great Recession. We generally do not expect such a robust market at the beginning of January. A rising tide lifts all boats, so let’s pray 2018 continues January’s trend.
Log Costs, a Drag on Profit Margin
While higher veneer prices have provided some margin to the upside, higher log costs have more than offset it. Our hope is that balance will return to the market and veneer producers will reclaim some pricing power in the market that it has given up in the past.
Plant 6 Operation Update
Our new Plant 6 MPP facility is currently making panels in limited production runs as we wring out the bugs. We hope to be running more consistently in the near future.
These are exciting times!