September20

October 2017 – Lumber Update

by, Paul Rogers

An unusual alignment of circumstances caused September to be a difficult month to navigate the lumber market. Political, natural and industry events and situations created unsteady footing in terms of anticipating what to plan for a pace of business and the inventory needed to cover it. First, the U.S. Department of Commerce was to finalize the penalties of the Countervailing (CVD) and Anti-Dumping (AD) duties against Canadian lumber imports on September 6th but, instead, announced a postponement in the hopes that a gap period would promote the opportunity to arrive at a new Softwood Lumber Agreement.  Adhering to the terms of the duties, the CVD penalty (assessed at 19.88%) has been alleviated until the end of this year whereas the AD penalty (at 6.87%) remains in effect. This essentially allows Canadians to sell wood to the U.S. at a significant discount (especially at current market rates), but also creates a potential scenario for deflation, in which the Canadians want none of. When faced with price deflation, talks of supply constraint typically go in to effect and there was no shortage of cries about supply issues. The devastation and interruptions caused from wildfires in British Columbia to the flooding and wind damage from Hurricanes Harvey and Irma (along with the threats of subsequent Hurricanes Jose and Katia) were of epic proportions, and our hearts sincerely go out to all of the unfortunate people who have suffered through these catastrophes and wish them Godspeed as they work to put their lives back together. Although the initial impacts to a real supply constraint were attributed to channel interruptions (closed plants and ports), available stores were quickly thinned out as nervous buyers who didn’t want to get caught empty-handed bought at a frenzied pace (plywood, in particular). This lent to difficulty in obtaining material and created lead times that were uncomfortably long. Finally, prior to the CVD delay announcement and the impact of these natural disasters, the general consensus amongst the industry was that wholesale and retail lumber yards were “under-bought”, which is largely true: prices had been steadily climbing for several months now, and a correction was in order. The problem is that as time passed and buying was withheld in the hopes of a price drop, inventories thinned but buyers were still only willing to buy to fill immediate needs. This strategy kept sales active, propping up prices. As business for the fall approached and supply threats emerged, buyers started buying in volume at the high prices but quickly learned that they were not able to get what they needed when they wanted it. This only added fuel to the fire, and placed mills squarely in the driver’s seat. This steady pull has kept prices firm (and is likely to continue to do so, especially in light of recent events) as we head in to October, which is normally an active month for business. Based upon these events, we anticipate prices to remain firm to up for the month of October.

There is nothing like a crisis to bring out the true nature of people and, as we’ve recently seen with Hurricane Harvey and Irma, both the good and the bad get high exposure: from the selfless people who put their own lives on the line to save a life or to comfort those who are suffering, to the ones who are opportunists and work to strategize a way to take advantage of people when they are most vulnerable. A vulgar example of the former is a recent incidence of where bottled water was selling for $8.50 a bottle, $99.00 a case in a store in Texas, in the aftermath of Hurricane Harvey. Although there are laws against gouging in disaster events, the lines of decency are crossed when basic necessities become unobtainable due to price and it’s hard to pardon the retailer for gouging his customers when they were most vulnerable. As we’ve seen with our own gas prices recently, commodities are affected as well but, at least in most cases, the cost burdens are shared by the majority and alternatives or postponements are sought. When we are faced with a hurricane threat, plywood becomes our hottest product and it is a common scenario that we will get calls from people who don’t normally do business with us, looking to buy all that they can. Although, in terms of pricing we are susceptible to the market like everyone else in the supply chain, we will NEVER gauge our customers on any product, in times of crisis or not. Furthermore, we will protect their needs by limiting volume to any one customer. Enacting an allocation process, charging a fair price and engaging in a conversation of true needs so that no one customer is holding it all is the fair process. Most importantly, supporting our customers by investing in our inventory and working off of average costs, not replacement or speculative costs, is the right course of action:  we never take advantage of our customers or of situations that may allow it.

We are well-stocked and ready to service your needs and hope that you consider us for your next project. We also hope that you know us well enough to know how serious we take our commitment to our role on Cape Cod, supporting our customers and our community at large. Although our business is technically building materials, we look at it differently: we are in the people business. Please be sure to reach out to any of our capable sales people for help with your current or future project, and thank you for your business!

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