Notes from the Forest, July 17th

Ladies and Gentlemen -:

The separate paths the lumber and panel markets have been on continued for another week.  Lumber mills, with the exception of Southern Pine, which lost ground again this week, were able to take advantage of extended 2 – 3 week order files and prices remain firm or pushed modestly higher.  Panel mills continue to deal with markets that lack both energy and urgency.  This week discounting in the panel markets was more discerning, and reflected the items that a particular mill had too much on ground inventory. Wild fires in the Pacific Northwest and Western Canada continue to limit logging and producers continue to express their concern on near term log availability and its possible negative impact on mill production.

Housing news this early in the month is always hard to find, but production information seems to abound. According to the Western Wood Products Associations “Western Lumber Facts” publication, Western lumber production through May totaled 5.948 billion board feet, up 0.9% compared to the first five months of 2014. Production in the Coast region through May was up 1.8% vs. the first five months of 2014. Production in the Inland region was up 0.9% during the same period. May production across the West totaled 1.086 billion feet, down 15.1% from April and 8.2% below the May 2014 total.  On a national scale, WWPA “Western Lumber Facts” reported U.S. lumber production through April totaled 10.673 billion board feet, up 3.7% from the first four months of 2014. Production in the West through April was up 3.2% compared to a year ago. Output in the South was up 4.1% during the same period. Nationwide, production in April totaled 2.794 billion board feet, up 1.9% from March and 1.4% higher than the April 2014 total.

Spruce & Stud Markets -:  Inquiry and sales of Eastern and Western Std. & Btr., and No.2 & Btr., SPF remained lackluster again this week.  Mill order files stretch from late July into the early weeks of August.  Producers’ attitudes seem to be one of ‘buy it, or don’t buy it – it’s up to you’.   Mills dismissed out of hand even the smallest of discounts.  CME Lumber Futures ended the July 2015 contract period on Wednesday at a significant discount to cash, which surprised many traders. Office wholesalers noted that the lack of market movement was hindering their sales prospects; and they worked diligently on selling their contract ownership.  However once the contract wood had been disposed of, wholesalers approached the mills looking for only back to back trades. Demand for low grade was in sync, barely, with current production levels and prices held steady from last week’s reported levels.  Stud trim sales are slow and mills did listen to $ 2 - $ 3 MBM discounts to keep that production sold and moving through the pipeline. 

Hem \ White Fir -:  Inquiry and sales of Hem\ White Fir No.2 & Btr. dimension lumber were steady to slower than in the previous weeks.  Nevertheless, mills have extended order files and as a result prices held steady to higher depending on the specific species and producing mill.  Inland traders were heading for the annual meeting in beautiful Coeur d’Alene, Idaho, and that certainly had an impact on the sales pace of their markets. The Texas and Oklahoma markets continue to improve, and those areas’ demand for additional volume helped to keep upward pressure on the markets.  Low grade stock was a mixed bag, with some mills quoting at last week’s levels, while others found demand exceeding production, and raised prices moderately higher.  Stud trim sales continue to keep up with production levels and depending on the specific mill, the quality they produce, prices were flat to a few dollars higher. 

Green Doug Fir -:  Inquiry and sales of Green Doug Fir Std. & Btr., and No.2 & Btr., were not as strong this week as in previous weeks. However, mills have extended order files, and that helped support the current pricing structure.  Pricing on narrows were flat, while demand for wider widths continues to exceed production levels, and mills edge their prices modestly higher, with 2x12 seeing the largest gains. Both low grade stock and stud trim sales and production are close to being in sync and prices traded at or a few dollars above last week’s reported levels. 

Cedar Lumber -: The pace of inquiry and sales of Western Red Cedar (WRC) boards, dimension, Radius Edge Decking, timbers, bevel siding and pattern stock continued to gain strength this week.  The secondaries in Texas and Oklahoma have finally been able to sell through a large portion of their on ground inventory.  They returned to the market last week looking for, but not necessarily finding prompt shipping fill-in stock. Mills are quoting delivery on many key items for early to mid-August delivery.  Some of the same buyers returned to the market this week trying to get a step ahead of the market. Wild fires continue to burn throughout the Pacific Northwest and British Columbia, and that has limited logging operations.  Although not necessarily directly impacting producers, at this moment, mill sales managers did keep their customers abreast of the ever changing availability of logs, and the impact that would have on their production and ability to meet shipment times, if supply suddenly were to evaporate.  With a reduction in the SLA anticipated in August, several mills are opting to defer and quote shipment after 7/31, or asked buyers to pay the difference in the tax percentage to get shipments prior to the end of the month.  Sellers reported demand for almost anything in Select Tight Knot was strong and exceeding production levels.  5/4 x 6 Radius Decking sales and fencing item sales remain robust and prices are firm and moving higher. 

Shake & Shingle -:  Inquiry and sales activity of Western Red Cedar (WRC) Shake & Shingle continue to outpace production by a substantial margin. High wild fire danger levels throughout the Pacific Northwest and British Columbia have the woods open for logging for only a few hours every day.  Producers short on raw materials were either shutdown trying to rebuild log decks before starting back up again, or working only 1 – 3 days per week.  As a result many mills and brokers are quoting shipment for 3 to as much as 5 weeks out.  These extended order file times are playing directly into the hands of the alternative products manufacturers who have stock available to ship within days. 

Southern Pine -: The inquiry and sales pace of Southern Pine No.1 & No. 2 dimensional lumber remains weak, and production continues to outpace demand by a significant margin. As mills struggle with production they had little choice but to resort to lowering prices, which  just gave buyers another reason to continue their wait and see attitude towards the markets.  Mills had some success in holding the price of 2x12’s steady.  2x8’s were clearly the weakest link and even with double digit discounts mills struggled to sell on ground and scheduled production. High grade stock, D.S.S., S.S., and MSR up until this week had been fairly immune to the slowing market trends.  This week, however, the Southern Pine markets malaise caught up with high grade, and while the discounts were not as large as in construction grade dimension; prices were in the process of adjusting.  Demand for low grade was also slow, and mills in all zones offered modest discounts to keep production from becoming a burden.  Stud trims sales were steady enough that mills were able to hold quotes at last week’s levels.  Small squares and timbers also experienced minor price adjustments, as both 4x4 and 6x6 edged lower.  4x6’s held at last week’s reported levels.  Demand for 5/4 x 6 Radius Edge Decking remains rather one-sided.  Premium grade pricing continues to move double digits higher, with 16’ length pricing now exceeding   $ 1100 MBM.  On the other hand, demand for Standard grade remains paltry and even with double digits discounts across the complex, mills reported having excess inventory building up in the sheds. 

Pressure Treated -:  Sales of pressure treated lumber and treated accessories rebounded after last week’s moderate to slow pace.  Pro dealers led the way this week with many of their contractor customer returning from a week of vacation.  Hot and humid weather did keep jobsite activity on the slower side, but as in past weeks contractors started early, took a break during the mid-day heat, and returned to work from 4:30 until sunset. Large box retailers dominated the marketplace last week, and this week they were in a let’s sell what we just bought mode.  A decline in brite stock pricing was negatively impacting pressure treated profit margins.  However, what was causing concern for the treaters was good news for the retail and secondary buyers. Trucking issues have spread across the country, and treaters in the Pacific Northwest without their own fleet of delivery trucks, were having the same issues that have burdened their brethren in the South, Mid-Atlantic and Northeast.   

OSB & Veneer Panels -:  The OSB and veneer panel producers continue to deal with markets that lack both energy and urgency.  Buyers continue to limit their purchases to must have fill-in items.  Buyers had little trouble in locating what they were looking for from a plethora of mill or secondary choices.  Discounting this week was more selective, and oft times clearly reflected what item(s) a particular mill had too much inventory of.  Trucking issues have spread from the South through the rest of the country.  Some producers noticed that railcars were in tight supply or that service seemed to be more hit and miss than in previous weeks.  

OSB -:  Inquiry and sales of OSB continue to be lifeless.  This week producers tried their best to hold prices at established levels, and only accepted $ 1 - $ 2 MSF counter offers, if they accepted any at all.  Buyers’ reaction to the change in the producers’ sales strategy was a shrug of the shoulders, and a call to an office wholesaler who had contract ownership that they needed to sell and desto.  Mill order files are 2 weeks or sooner, but if a buyer were to offer ‘Reporter’ levels, volume was suddenly available for immediate shipment.  Many buyers felt that the market has already peaked for the time being, and that continued hot and humid weather, along with summer vacations, and the start of school in some areas in mid-August would further slow demand.  Trucking and railcar issues continue to plague many producers in the South and Mid-Atlantic.

Southern Pine -:  Southern Pine Rated Sheathing mills continue to report that their inquiry and sales pace is significantly behind the normal levels for this time of the year.  Mills opened the week, as they have in the previous weeks, by offering modest discounts to the last Friday’s reported levels; and then listening carefully to what the buyers in the marketplace said they might be willing to pay for volume as small as a mixed truckload. Further complicating the life of Southern Pine plywood sales managers is the return of imported panels from South America and Europe into their traditional markets. These panels have been missing from the marketplace since the 2008 market collapse but now they are back and priced in such a manner as to give buyers a reason to consider them when they are ready to make a purchase. Secondaries were noticeably missing from the market this week as they continue to struggle with selling off their previous positions.  Sales of underlayment, sanded, siding, concrete form and other specialty panels have stabilized at the previous week’s discounted levels. 

Western Fir -:  Western Fir Rated Sheathing producers reported sales remain slow. Discounting this week, however, was more on an item by item, customer by customer basis; rather than the wholesale discounting of the previous 2 – 3 weeks.  Depending on the specific product and mill, order files range from as soon as we can find a truck or railcar to load, to the week of 7/27.   Buyers continue to fill-in as stock is needed and oft times that continues to come from local 2-step distributors who at times seem more motivated than the producers. High wild fire danger levels in the Pacific Northwest continue to have logging schedules interrupted, and mill managers on the edge of their seats as log harvesting has been dramatically reduced over the past 3 weeks.  Some of these fires are also encroaching on manufacturing facilities, giving buyers something else to be concerned about.  Underlayment sales continue to drag and mills offered minor discounts to keep production sold.  The sales pace of sanded, siding, concrete form and other specialty panels has moderated and product sold at last week’s established reduced levels 

Food for Thought -: As lumber, panels and building materials buyers, we often have blinders on to other facets of the forest products industry.  A quick scan of the RISI website quickly helps to bring you back to reality, and helps you to realize that the markets we deal in daily are only a small portion of the overall global forest products industry. While we focus on wood products, panels and timbers, other buyers are honed in on pulp and paper, wood biomass, tissue, and Nonwovens.  The odd part is that all of them are using and competing for the same source of raw materials in the forests of the world. These markets also have their ups and downs, just like the lumber and panel markets, but oddly enough their ups and downs, unless there is a global economic down turn, do not usually coincide with our markets.

This week has been wonderful; at one time children, their spouses, and our granddaughters were under the same roof.  I slept like a log?

Key Words:   Notes from the Forest