Ladies and Gentlemen:
The inquiry and sales pace of lumber and panel markets spent another week on the quiet side. Weather was clearly one of the factors for the markets’ sluggishness. Another factor, at least in the minds of many buyers, is the current pricing in the markets. Mills in turn believe that field inventories are ultra-lite for this time of year and have consistently reminded buyers that they could have purchased at lower price values, but declined the opportunity. Late shipments due to transportation issues are increasing and are adding daily to buyers angst.
The U.S. Census Bureau reported that housing starts in February were at a seasonally adjusted annual rate of 1,288,000. This is 3.0% above the revised January estimate of 1,251,000 and is 6.2% above the February 2016. Starts climbed to a four-month high in February, led by the strongest pace of single-family homebuilding in nearly a decade. Residential starts advanced 3% to a 1.29 million annualized rate. Construction of one-family dwellings rose 6.5% to an 872,000 pace, the fastest since October 2007. Earlier in the week The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reported that builder confidence in the market for newly-built single-family homes jumped six points to a level of 71. This is the highest HMI reading since June 2005. In prepared remarks NAHB Chairman Granger MacDonald said “Builders are buoyed by President Trump’s actions on regulatory reform, particularly his recent executive order to rescind or revise the waters of the U.S. rule that impacts permitting.”
Spruce & Stud Markets-: The inquiry and sales pace of Eastern & Western Canadian SPF Std., & Btr., and No. 2 Btr., have stalled at the mill level, and as a result, the price correction continues. Traders placed the markets’ sluggishness squarely on the inclement weather that spread from the Midwest, to the Ohio and Hudson Valley, into the Mid-Atlantic and all the way up into New England. Order files remain locked into the weeks of 3/20 – 3/27. Buyers searching for motivated sellers usually found them in the secondary market; where pricing was below mill replacement level, and on occasions significantly below mill replacement levels. March CME Lumber Futures closed out on Wednesday at just about a -<$10> MBM discount to cash prices. The trailing months ended higher, giving buyers what they hope is a clearer market direction. Demand for low grade stock has also waned, and producers adjusted prices lower early in the week, in the hopes of getting low grade buyers to re-engage with the marketplace. Stud trims sales also faltered as demand failed to keep pace with production.
Hem \ White Fir -: For yet another week, the inquiry and sales pace of Coastal and Inland White and Hem \ Fir remained on the quiet side. Mill order files remain locked into the weeks of 3/20 – 3/27, little changed from the past 2-weeks. With sales slow and mill order files closing in, producers offered a broader range of discounts starting at the beginning of the week. Fir – Larch was the exception, where prices held close to last week’s reported levels. The shorter the mill’s order file, the more attentive they were to buyer’s counter offers. The discounting also carried over into the low-grade markets as well, and prices moved modestly lower. Stud trim sales were hit or miss, but several producers reported that they were having some significant production issues, and that helped to keep the discounting to a minimum. Transportation issues challenged both the mills and buyers who were waiting on late shipments in a now declining market.
Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., did not keep up with production this week, or for that matter most of last. It also wasn’t helping that KD Doug Fir was selling below Green pricing. As a result, modest discounts appeared on the narrower (2x4 & 2x6) widths as early as Monday afternoon and the remaining widths were under some downward pressure as well. Producers remain confident that drier weather in California will rejuvenate this market in the near term. Of course, they also noted that 6” - 12” of snow this week in the Northeast had just cut off another prime consumption area. Demand for low grade stock - Utility and No.3, as well as Economy and No.4, remain stronger than the rest of the construction grade markets and pricing was flat but firm. Stud trim sales remain in step with production and prices remained flat for the second week in a row.
Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remains resilient, in spite of ever increasing prices and order files. Favorable jobsite weather in the Mid-Atlantic, South, and Texas, have pro dealers and local 2-step niche distributors selling volumes of inventory usually reserved for late March \ early April sales. As a result, buyers are in the market daily searching for, but finding very little, replacement inventory that is available quick shipment. As one trader said, ‘the most important thing right now is sourcing the items you need, especially to cover previously sold materials. Pricing is no longer a major factor’. As demand for WRC products continues to grow, the availability, high price, and the quality of logs is a growing concern for both domestic and Canadian producers. Adding to the Canadian producers’ worries is the pending results of the Countervailing Duty issue, and more importantly how retroactive those duties will be. Canadian producers are starting to fear that they will be asked to write some significant size checks once the issue is finally resolved; and they are hoping they have raised prices high enough to cover those costs. Late shipments are now common place as a lack of available rail cars have buyer frustration close to all-time highs, and now the resulting tightness in trucking is increasing buyers’ angst by the hour.
Shake & Shingles -: The inquiry and sales pace in Western Red Cedar (WRC) Shake & Shingle continues to gain traction as jobsite activity gains momentum. Current demand for Shingles is well outpacing demand for Shakes. Buyers reported making numerous calls looking for No.1 5x Shingles, with little to no success. Mills did report they do have an abundance of No.2 5x Shingles available but currently there is little demand for that grade. Producers report sourcing enough raw materials, particularly high quality logs, is giving them concerns about being able to produce consistently to the high level on demand they are anticipating.
Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No. 1 & No. 2-dimensional lumber remains sluggish. Buyers only enter the market on an as needed basis; and as of late there hasn’t been much need. Mills adjusted prices, with Westside zone producers being particularly aggressive from the opening moments of the week through its remainder. The lower prices corrected, the more disinterested buyers seemed to become. Tight supplies of 2x12 allowed mills to hold prices close to previously established levels. Demand for high grade stock – D.S.S., S.S., and MSR, has also greatly diminished, and with it order files. Mills had little choice but to offer discounts, in some instances significant discounts to keep that production sold. The inquiry and sales pace of low grade stock has also suffered a setback and mills adjusted prices double digits lower at midweek and listened closely to what the few buyers in the markets said they would be willing to pay for truckload volume. Sud trims remain a brite spot and prices traded within a dollar or 3 of established levels. The inquiry and sales pace of small squares and timbers was strong again this week. Pricing again this week was flat to modestly higher in the Eastside zone and significantly higher in the West. The demand for Standard and Premium 5/4 x 6 Radius Edge Decking remained in a holding pattern for another week. Producers in both the Westside and Eastside zones quoted from previously established levels and looked forward to what they hope will be an active spring deck building season; and renewed demand for their products.
Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories were a bit slower this week than they have been over the past several weeks. An outbreak of unwelcomed winterlike weather, and eroding brite stock pricing, which in turn were negatively impacting treated prices, bore most of the blame. As the week comes to a close, temperatures in the South and Texas had already moderated and treaters noted an almost immediate uptick in business as they did. Demand for fencing has been particularly strong as landscapers and fencing companies build their inventories for the season. Even with the temporary slowdown in sales, most treaters are reporting that March sales are on pace to set another monthly sales record.
OSB & Veneer Panels Overview -: The inquiry and sales pace in the OSB and plywood markets remain in the doldrums. Pricing has definitely become vulnerable, and some markets have become 2-tiered. It was another week where weather was not a friend of producers. Buyers had limited needs as old man winter had slammed the door shut on jobsite activity. Plywood order files range from the week of 3/20 to a few mills quoting for 4/3 at the very end of the week. OSB order files range from next week to mid-April and everywhere in between.
OSB -: OSB producers reported that inquiry and sales this week were on the bearish side, and try as they might to hold prices, it was clear that minor to moderate cracks in pricing were appearing in all zones. Inclement weather has stalled jobsites across the country. Depending on the mill, shipments are available from as early as next week, to as far out as 4/10 – 4/17. The consensus was that field inventories are ultra-lite for this time of the year. Producers remain confident that it is only a matter of time when – not IF – the markets will spring back into activity and they are anticipating a major price spike. Buyers noted that mills are naturally optimistic, but at this particular moment they are neither that optimistic nor convinced that this is the time to purchase significant volume. Secondaries with contract ownership worked diligently to keep that ownership sold as close to mill replacement levels as possible. Once that ownership was sold they worked the markets back to back.
Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remain on the dull side. Mills started the week by gradually moving prices lower. Westside zone producers were far more aggressive than the remaining zone. Producers are quoting shipment for the weeks of 3/20 – 3/27. The shorter the mills order file, the more willing they were to listen to and accept, a buyer’s firm counter offer. The long-awaited arrival of imported panels from Brazil and Chile has finally begun. Sellers from Florida to Boston are reporting inventory on the ground and ready to ship; with pricing set deliberately below domestic mill price lists. Office wholesalers worked the market back to back, while lurking about, waiting for their next ‘real’ buying opportunity to get back into the market. The inquiry and sales pace of underlayment, sanded, siding, concrete form and other specialty panels remain in lockstep with production and pricing was little changed from last week.
Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing mirrored more the traditional early weeks of January, than mid-March. Unfortunately, the weather pattern was also behaving in like manner. Producers with minimal order files and increasing inventory levels took a more proactive stance in the marketplace. Mills lowered prices modestly \ moderately at the beginning of the week, and were pleasantly surprised when buyers purchased modest – fill-in – volumes at close to their price levels. A late season snow storm in the Midwest and Ohio Valley, which later became a full-blown Nor’easter shutdown jobsite activity and it was being anticipated that it could be a week before the weather would permit work to restart. Producers believe that field inventories remain ultra-lite for mid-March. They believe that once the weather steadies and becomes more spring like, that sales will immediately pick back up. At this point buyers are non-committal, with many taking a wait and see attitude to the markets. The inquiry and sales pace of sanded, siding, concrete form, and other specialty panels also remain slow, but mills were able to hold prices on those items steady. On the other hand, a build-up of underlayment panels had mills offering small discounts from the start of the week.
Food for Thought -: But this time it won’t be our fault . . . Apparently, another bubble is about to burst, and it has the potential to negatively impact the economy and while it won’t be housing, it will impact housing, as well as repair and remodeling, and other aspects of the lumber, panel and building materials industry just the same. According to the Federal Reserve Bank of New York more Americans fell behind on their car loan payments in the 4th Qtr. of 2016, bringing the auto delinquency rate to their highest point since the Great Recession.
Apparently, the same loose credit behavior that did in the housing markets back in 2007 – 2010, have become the standard practice of automobile dealers starting in late 2012 and is still going on today. Most of these ‘bad’ loans have not been made by banks, but by the financial arms of the automobile manufactures themselves; offering low interest loans to attract buyers. Of course, some of the new vehicles cost as much as what a house would have cost back in 1967.
Here are some scary facts. Car loans delinquent by 30 days or more grew to $23.27 billion, the most since $23.46 billion in the 3rd Qtr. of 2008. They were up from $22.98 billion in the 2nd Qtr. of 2008. Seriously delinquent auto loans whose payments are 90 days, or more past due, jumped to $8.24 billion in the 4th Qtr. of 2016, the highest since the quarter before. In the 4th Qtr. of 2016, $142 billion in car loans were generated, giving 2016 the most auto loan originations in the 18-year history of the data, the New York Fed said. At the same time auto debt hit $1.16 trillion, with a $93 billion rise over the year.
Like housing when car sales start to slip and slow the effect goes quickly downstream, to the part manufacturers, which include glass, steel, tires, and the hundreds of parts that make up an engine and car body. When folks aren’t working, they buy less clothes, eat out less frequently and well we all recently lived through the Great Session. I’m not predicting another economic downturn but I what I am saying is here is something that seems to be below almost everyone’s radar, and can impact our industry quickly. This is just food for thought.
- Courtesy of Joe "In the Forest" Glitman | Contact Joe on Linkedin