27 Jul Freres Lumber July Market Update: Increased Plywood Demand Continues
July 27, 2020
The Western Plywood market continues its unrelenting march upward on prices, and outward on order files. We are now closing in on 3 months duration with the current bull run in place for commodity lumber and panel markets. Normally, when we get this deep into a market run, prices tend to level out and tire. Overproduction will gradually overcome demand and the markets fall back. But this time around we have not seen any weakness, anywhere. Prices are at all time highs for many plywood and lumber items as we see increased plywood demand continue. In fact, the markets have continued to press higher through this week. It is quite remarkable.
Moreover, order files for plywood mills in the west are 6-7 weeks out for most mills. This is quite long for any period, now or in the past. Customers are readily buying September wood now. In Canada, some are even buying October wood. Pine Plywood continues to ratchet things up as well. It is maintaining a premium over Western Plywood on several items and in many locations. Dimension lumber markets are even more frantic than the panel markets, in many parts of the country. Currently, OSB markets are crazier than lumber markets. Nearby demand continues to propel the markets forward, as buyers scramble to meet both short and long term needs.
As crazy as it seems, there does not appear to be anything out there to stop this strong run in lumber and panels. Every week now, price records tumble. But in most instances for people who are short of product, price remains a secondary consideration. If the product is actually available for reasonable shipment, it will be sold immediately. Suffice to say that we don’t experience these kinds of markets often. They are “once in a decade” kind of markets, and it has been unprecedented in many ways. At least so far. Every market run ends at some time, including this one. Only this one isn’t ending just yet.
What is causing this market?
Many factors are involved in the making of a market like this, with a few likely ones to consider. When the Covid-19 virus started to hit hard in March, things shut down almost completely. For close to 60 days, little to no buying took place. Even during the virus outbreak, existing inventories were gradually depleted. Some inventories essentially went down to zero. Meanwhile, the home center for do it yourself buyers ramped up. As a vast majority of people were working from home, some found that they had more time on their hands. While self quarantining with no commutes, they decided to start or finish projects around their homes. That sector of business and the overall volume of wood involved was vastly underestimated. As it turns out, it still is.
Fast forward and home center/retail business continues to set all time records. The increased plywood demand continues on, unrelenting. Treaters have big backlogs and are enjoying record business. This phenomena kick started the market early on, unbeknownst to many buyers. As areas opened up in the May and June period, that added volume was significant enough to cause sharp imbalances in supply. Capped production is another major factor, while many sawmills and plywood plants continue to suffer from manpower issues. There are simply not enough staff to run mills at full tilt. Initial expectations were dire from many people, but it has turned out to be the exact opposite. Everyone crowded into one side of the boat. There is far less expected supply and far more real time demand. It is the perfect storm, a classic runaway. The making of a big, bull market run. We’ll see where we are in a month. It ought to be interesting. Make hay while the sun shines.