24 Sep Freres Lumber September Market Update: A Turbulent Market for Western Plywood
September 24, 2018
Disappointing Sales Leading Into the Fall
The western plywood markets, with the exception of some increased buying prior to and after the Hurricane in the southeast, have largely been disappointing in September. The lethargy that has been prevalent in our marketplace is indicative of the commodity markets in general. Aside from SYP plywood, which got a shot in the arm from demand created by Hurricane Florence in the southeast, most other commodity groups continue to struggle to gain any visible traction. One thing feeds into another, as buyers continue to be able to fill their nearby needs of lumber and panels at lower prices than the week before. This is a pattern that doesn’t exactly build confidence for buyers or sellers. Typically, the fall months are strong consumption months for commodities and plywood, specifically, as builders seek to finish projects before inclement weather settles in at the end of the year, ushering in winter. It isn’t dead out there, in fact many companies report and forecast brisk business right into the end of the year, but there is also a palpable slowing in some regions where that did not exist earlier in the summer. Unfortunately, these events seem to coalesce at inopportune times for commodity lumber and panel products. The trade war collateral damage (some flagging business confidence in U.S., Canada, and elsewhere is affecting planning/spending), ample imports pouring into the US with a seemingly endless ability to go lower on price and effectively undercut domestic producers, bottlenecks in logistics and labor that put a lid on how fast we can actually build and, as mentioned, a bit of letting off the gas pedal in regards to building in some areas due to overheated home prices across the country. If one was told that Memorial Day would be the high water mark for business this summer, most of us would have scoffed at that seeming absurdity, but the power of group think – or the downfall of group think – is quite evident. Summer is officially over and fall is here.
It certainly seems possible that, barring any significant events that would greatly affect production or consumption, it may be every man for himself as we go forward into the end of the year. The business outlook for next year is still robust, make no mistake, but there are many things that could tug further on our markets in the months ahead. Marketwise, we pushed hard – too hard, it seems – on the way up for most all commodities, reaching all time record highs in the spring on a vast number of products. The summer swoon in commodity lumber and panel prices, massive drops in some cases, seems to have, at least temporarily, taken the wind from our sails. Buyer confidence is shaky, at best. And now buyers have, in large part, gone ultra-conservative in their purchasing. Its tough for markets to get much leg room with a needs based buying attitude permeating our business, but its seems to be there right now. Traders have also stumbled, sometimes badly, during this difficult summer. Now, with unfavorable market behavior (medium slow grind sideways/lower), there is little room to turn a margin for commodity traders.
Typical Cycles, with Positives and Negatives
This business always seems to have a “penthouse or the basement, with no stops inbetween” mentality and I’m quite sure we have not seen the last of that statement playing out again down the road. We overdue it on the upside and we are likely overdoing it on the downside now and setting ourselves up for more volatility ahead. There is just no way around it, that’s how our business works and behaves whether we like it or not. Fortunately, some markets are not heavy in inventory and require buyers to come in regularly to cover nearby needs. Every week there will be wood to buy and up for grabs to sellers. That’s a good thing.
Challenging Western Plywood Markets Persist
The glass is still half full, but nearby fundamentals will continue to challenge us and our marketplace. That said, don’t ever get too comfy with prognostications in this business. We saw how that can turn out this past spring and summer.