August24

September 2017 – Lumber Update

By Paul Rogers,

Recent wildfires in British Columbia created a major disruption to lumber supplies, as evacuations mandated the closure of many lumber and plywood mills. Starting in mid-July, the fires grew in intensity for several weeks before they were finally able to be put under control. As the fires grew, so did the angst of the lumber industry as the interruption to supply had an immediate affect to lead times and pricing. With news of over a dozen lumber and plywood mills closing (big producers such as West Fraser, Tolko and Canfor, some of which operate on 24/7 schedules) and an evacuation in excess of 40,000 residents, all eyes were set upon the poor people of British Columbia and the hopes that a dry summer wouldn’t further exacerbate an already horrible situation. Thankfully, firefighters were finally able to harness the wildfires by early August and mills came back on line almost immediately. Deemed to be the third worst fire season on record for British Columbia, the impact that it had to production was seen immediately in pricing as the market lit up with activity as buyers scrambled to make sure that they had their near-term needs met. However, no one was “all-in” and restraint was clearly seen across the board as few were willing to pay what were obviously reactionary prices. Nonetheless, buying was done where and when necessary, and deflation was slow-coming. Further quelling the urge to buy was a relatively lack-luster sales period and somewhat inflated inventory levels that were brought about by the anticipation of the latest Canadian duty (anti-dumping, implemented in late June) and the occurrence of annual mill shut downs.  In a rare circumstance, quelling the urge to sell was the stipulation arising from the countervailing duties’ reprieve in late August that will allow Canadians to sell duty-free for a few months (as part of the duty rulings, duties can only be enforced for 120 days after a preliminary announcement). Final announcements are tentatively anticipated for later this fall but, with the recess of the countervailing duty, Canadian mills would prefer to ship after the reprieve and spare themselves the expense. With all of these factors in play, there are many things to consider that can affect pricing but we anticipate it to be firm and remain firm throughout September.

When interruption to supply occurs, the market always reacts in kind by inflating pricing or by throwing out alternatives which, in particular to our territory, are rarely well-received. One wouldn’t think that short geographical distances would play a big role for building material options, but they do: Cape Cod contractors, as a whole, demand higher-quality products than many off-Cape contractors do. For example, we are a high-quality SPF (Spruce-Pine-Fir) market whereas lesser-quality alternatives such as HF (Hemlock-Fir, which is commonly used off-Cape), will not sell well here. Alternatives such as HF usually come with price concessions, but you get what you pay for: SPF is much easier to work with as it is not nearly as prone as HF to checking, cupping, twisting and splitting. As with any product, it’s critical to be certain that you are quoting apples to apples, as apples to oranges cannot possibly allow you to make the educated decision that you need to make for your purchase. The best deals don’t forfeit quality, so don’t be led by the price tag but rather by the whole package: a poor quality product will seldom make up for a bargain price. To regulate the quality of the lumber we sell, we only buy from SPF mills that do not pull out their finest pieces (known as “Premium”). These “NPS” mills (No Prior Select) will leave their Premium pieces in as part of their #2&BTR production so units will not, essentially, be cherry-picked. In addition, we buy Premium products from the mills that will pull it, as we know that it gains the best yield. In every case, we shop and buy better quality products because we recognize the value beyond just the price.

In terms of supply interruption, one can never fully predict what may occur. Many dealers operate on thin inventory levels and price according to current market conditions so, when a sudden event occurs that affects the market, it’s common for substitutes to be used, pricing to be drastically adjusted or for quote terms to be limited. Because we are committed to providing our customers with consistent quality, price and service on all of the products we offer, we protect ourselves against such swings by employing purchasing strategies and pricing methods that ensure ample supply and price stability. You can count on us, as we clip the peaks off of price spikes and will have the quality products that you need to do your job well, on time and on budget. Please be sure to let us help you with your next project, and thank you for your business!

 

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