February23

March 2017 – Lumber Update

By Paul Rogers,

February, normally an uneventful month for the lumber market, proved to be one that was fraught with volatility as several developing factors kicked buyers in to high gear. Most notably, the proposed countervailing duties (CVD) to be imposed by the U. S. Department of Commerce against Canadian lumber suppliers for dumping was gaining momentum in a great way: with what started with the Western Red Cedar suppliers in January, Canadian framing lumber suppliers followed suit by hiking their prices amidst a growing certainty that duties would be imposed and retroactive 90 days from implementation (the preliminary date is set for May 1st). Another development that further fueled the market was the report that the timber supply of British Columbia would be dramatically slashed due to the effects of the mountain pine beetle, which devastated upwards of 54% of pine forests over a decade ago. Harvesting dead wood had been on-going ever since the infestation peaked in 2004, but the time has come that much of the dead wood is no longer salvageable. In order to meet demand, standing live timbers are now being threatened and so allowable annual cuts have been restricted, with more to come. With a shrinking timber supply, the proposed CVD and a vigorous economy, sales spiked as buyers jockeyed to cover their needs and protect themselves against higher prices. Supplies shrank and pricing climbed as wholesalers and retailers alike worked to cover their inventories for extended periods. The market has now since relaxed (tempered by bad weather and satiated buyers) and wholesalers are actively pursuing buyers for the wood they purchased, with mixed results. Nonetheless, the market is firm. For March, we can anticipate more volatility but the level of action will be dependent upon the pace that dealer’s digest their inventories and their evaluation of upcoming business.

There has been much consternation in recent months regarding the effects of the countervailing duties, which are just now having a profound effect on the market. Coupled with additional news of supply constrictions, it’s easy to understand how a rally can occur in short order and to an extreme. After all, it takes an almost inhuman constitution not to react, especially when the rest of the market appears to be “all in”. But what is almost just as disconcerting is what could possibly not happen: the duties are not set in stone, business, expected to be on par with 2016, is good but not crazy and supplies can be supplemented from other territories, such as European markets (which are not affected by the CVD and therefore could be at a better price point). The threat would be an overabundance of high priced material in the market, leading to a collapse. With our experience, we’ve learned to react, but not to overreact, as rash, emotional buying is dangerous: what typically goes up also comes down. Although it seems that we will incur higher prices in the spring, prudent, rational, non-emotional decision making and clear communication is the best defense against market swings. 

We have done our due diligence in covering our needs with competitively priced, quality materials and are very confident that we have effectively protected ourselves against market swings. We always work to be the buffer in the face of extremes, and will never make the brunt of market fluctuations yours to bear. Should you have any questions or concerns, please do not hesitate to contact your Shepley sales person: we will never stop earning your business and are committed to being your chief supplier of building materials. Thank you for your business.

 

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