15 Jan January Market Report: Strong Wood Products Markets to Welcome in 2018
January 15, 2018
Wood Products Market Predictions for 2018
Wood products producers are some of the most pessimistic prognosticators around. Rarely do we at believe that the future will bring sunshine and fair markets. 2017, however, ended on a high note from a macro-economic perspective and 2018 looks like it will continue along the same path. 2017 housing looks like will finish just under 1.3 million starts which is about a 3% increase over 2016. This is a good but not a runaway market. Forecast for 2018 is for about the same percentage increase, which bodes well for gradual and sustainable growth for all producers, including Freres Lumber Company. Builders confidence, measured by the National Association of Builders, is at a high not seen since 1999. Lack of availability of labor and land are seen as the largest impediments to future growth.
Low Panel Inventories, Active Wood Products Market
Inventory levels going 2018 are also very low and panel consumption is up 7%, which is also bullish for product pricing in 2018. Canadian forest fires and hurricanes in the US in 2017 provide a good example of how lean inventories can lead to dramatic price increases. While the immediate demand spurred by the hurricanes is well past, the effects of last season’s forest fires will persist at least through the first quarter. Wood products producers in the US and Canada have not replenished log decks depleted by forest closures. We hear that Canadian producers will run into log supply issues again during their winter breakup when logging slows due to ground conditions.
New Developments in the International Market
China recently lost a trade dispute involving hardwood panels which has resulted in significant anti-dumping and counter-vailing duties. We are already getting solicitations for Chinese softwood panels as they attempt to avoid hardwood duties. Chinese structural panel imports were up 374% in 2017.
High LVL Demand Strengthens Pricing
Veneer pricing is strengthening primarily due to demand from the LVL sector, but is strengthening across all grades. While veneer has hit historical highs in the last quarter, there is a very good chance that prices will continue to escalate going forward unless raw material costs decrease. We are planning on running a more typical schedule going forward with additional overtime at both green ends. We will also run additional hours at the plywood plant if sales are agreeable.
Log prices are persistently high and there is little indication of retreat in the short term. High log costs will mean higher average product prices if producers want to remain profitable, but also unfortunately opens the door to additional imports.
2017 was a difficult year due to the fire at Plant 4, downtime on our crane, and forest fires. We believe we are well positioned to take advantage of good markets in 2018. We also pray that 2018 will not bring unexpected disruptions. There were enough in 2017.