November30

December 2012 Market Update

Similar to what we experienced in 2011, lumber sales in 2012 came alive fairly late in the fall season resulting in a rush of sales that, at times, was difficult for some to manage. Business was quiet through September and into late October, and dealers intentionally kept their inventories low as prices eroded, but also because there was a lack of confidence that sales would materialize. As soon as business popped, dealers inundated the market with orders and struggled to get prompt deliveries; stock at reloads and mills were quickly depleted and, in response, reloads set demands on mills to ramp up production. However, mills enjoyed the run up of business and did little to try and slow the pace as it gave strength to prices.

What did slow business was the effect of Hurricane Sandy, which essentially pushed sales down the calendar. Some were talking of additional price hikes due to material needed for the rebuilding of destroyed structures along the New York and New Jersey coasts, but that is unfounded for now. Hurricane Sandy did have a major impact on several of our key suppliers who were without power, communication or both, due to the storm for better than a week. CSX announced a temporary embargo of all rail freight cars destined to Philadelphia north up to Massachusetts in an attempt to try and prevent an unmanageable backlog of cars. This did contribute to a tightening of available lumber, but it was short-lived. As power came back on line and companies once again found their footing after the storm, they struggled to find trucks to deliver their material as, by this time, reloads and dealers were clamoring for their now-very-late orders. By the time November arrived, a sudden draw on construction materials and a tight supply exacerbated by storm delays tied into moderately rising prices. Traders were suggesting to dealers to buy “while the material is still available and while it’s at today’s price”, and some dealers took that advice although it seemed to be more of a reactionary suggestion due to the Hurricane as well as a desire to run up of business.

Trucking is still a very real issue as, in many cases, Christmas trees trumped lumber deliveries, further extending lead times. It’s anticipated that this latest cycle will follow the norm, in that the rise will be met with a decline as supply and demand meet equilibrium. When a leveling will happen depends on how much more building is slated to occur in the coming weeks and what impact the winter weather will have in New England. Mills typically shut down during the holidays and many already have full order files that won’t be filled until they reopen after the New Year. While the mills work through their available log supplies, supply may remain an issue after the New Year if demand is sustained. As we head into December, prices are remaining firm as demand is still moderate against a tight supply.

In reflection of 2012, we had a good year for business and are extremely grateful to be enjoying some of the effects of the rebounding U.S. housing market. Looking toward 2013, we are optimistic that we will see more of the same. According to the U.S. Commerce Department, new home construction had reached an annualized rate of 872,000 in September, the highest figure in over four years (but still a paltry figure against the highs of 2,000,000 between the years of 2004-2006). As business continues to grow, concerns shift more toward available supplies, prices and lead times. Whereas a lack of steady business in recent years has gotten dealers nervous in investing too much in their inventories, the lack of having enough stock on hand contributes to reactive buying, further perpetuating the run-up and retraction cycles of lumber pricing. Although we may still be a ways from enjoying steady business that can instill confidence at the dealer level, it will also take that steady business to initiate a rebuilding of the infrastructure of the lumber supply channel (in order to promote a consistent environment for pricing and supply). According to the Forest Wood Products Journal, total employment in the building materials sector declined by 194,000, or 28% between 2005 and 2010. The amount of lumber mills that once existed to support a regular 1.5 million plus houses per year will have to slowly be rebuilt as over half are now out of business since the Recession. Another major concern is the trucking industry, which will have to become flush with rigs and qualified drivers. The American Trucking Association estimates that there’s currently work need for between 20,000 to 25,000 drivers nationally, a deficit attributed to the fact that  older drivers are coming off the road (for retirement or because they fail to meet CDL health requirements) and there is very little interest from our younger generations to take on a driving career. The ATA estimates that that number could go as high as 239,000 in the next ten years.

The key will be to have long and steady and not short and sporadic business cycles so that the threat of having too much overhead in the midst of a retraction won’t kill profit margins and harm businesses. We may not be able to enjoy this until the hangover of the Recession wears off and the rebounding economy finally ignites in the form of added jobs and consumer confidence. In the meantime, we need to adapt and thrive amidst this fluctuating business cycle. This is where we believe that our strength as a lumber yard comes in, as we believe in investing in our inventory and developing long-term relationships with our suppliers who keep us well-apprised of market activity. Based on this philosophy, we are able to refrain from knee-jerk reactions to market conditions and provide you with the consistent pricing and quality lumber that you need from a supplier in order to be profitable in your business. By carefully monitoring the market, our inventory and your activity, we are able to provide you with the consistency that may not otherwise be the case with other dealers.

Currently, we are in a great position with our inventory and are ready to provide you with your lumber needs in 2013. In addition, we are very grateful to have had a wonderful year and want to thank all of you for your past, present and future support. Have a safe and Happy New Year!

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