April 2012 Market Report

The sales momentum seen throughout first quarter 2012 has carried into April as demand on lumber has remained relatively firm across the region. However, many of us remain concerned that the business that we have been enjoying during this unusually mild winter was merely robbed from spring. This mindset is what is keeping inventory levels painfully low across the board and the industry as a whole precariously perched on the verge of a lumber shortage. Traders are vigilantly warning their dealers to “cover their needs” for the next six to eight weeks as, if any significant demand occurs, prompt shipments of lumber will not be available. Granted, the “instill a sense of urgency” technique of closing a sale is in play to some extent here, but the concern is real. Run of the mill (pun intended) mixed tallies of lumber that would, in normal circumstances, be quoted by three or more suppliers are now offered by typically one source and not necessarily by a mill that would be a preferred selection. As a result, the market is in a fragile state of balance where demand isn’t significant enough to create immediate and urgent concern, but the potential for that to happen is clearly there. Prices are remaining firm with little fluctuation, but if spring proves out to be a busy period there will not be enough supply in the chain; the potential impact could be that lead times will grow, quality will be inconsistent and pricing will spike.

For now, supplies are meeting current demand. However, according to an article written by Peter G. Hall, Vice President and Chief Economist of Canadian Export Development, the United States housing surplus is shrinking by almost a million units per quarter while housing starts remain almost half (675,000) of what they should be (1.4 million) in order to keep up with the U.S. population growth. The economy is rebounding and there will be a release of pent up demand for homes, but what has got us all concerned is a “snap” in that release that could potentially bring whatever growth we could enjoy to a halt. Canada does have enough wood to meet demand, but it happens to be in tree form at the moment. Mills cannot simply harvest a tree from the forest and fire up their saws to promptly produce lumber as the drying, milling and shipment process has to be followed. Unfortunately, there isn’t any way of expediting the process, so product needs to be in the process before demand is placed in order to meet the regular lead times and price expectations.  Again, the balance of supply and demand is everything in the market and therefore predictions of what business to anticipate and what levels to harvest, produce and buy are at the forefront of everyone’s minds in the supply chain. This has been a very unusual year for us so far for business as, historically, the months of January and February are slow due to weather conditions. With the warmer weather has come a higher volume of sales at an unexpected time and it made our crystal balls cloudier than they were before. At a recent national buying show in FT Worth, Texas, lumber dealers were being grilled by traders and mill representatives about what business they are anticipating over the course of the next quarter (and beyond) as they are desperately trying to determine what direction to take for their supply levels. For the most part, the replies were positive in that “this year will be better than last” but that’s merely an easy answer to an obscure question as we’re all searching for specifics.  With U.S. job growth exceeding 245k per month over the past three months and expected to maintain a pace of 200k for each month for the rest of the year (Barclay Capital), there is a lot of excitement that business will maintain and even grow. However, the Gross Domestic Product isn’t growing at the same pace which may be a better indicator that there is a plateau in sight. Sage advice is to maintain excellent communication, pay close attention to market conditions and use your best judgment.

Excellent communication is a commitment that we make to you so that we can help each other in this business relationship and is also what we strive for internally in order to determine what positions we need to take in order to protect your and our interests in lumber inventory. We cannot predict exactly what we will encounter in the coming months as far as the business climate is concerned, but rest assured that we take notes and act upon the feedback that we receive from you. It is in this endeavor that we are able to position ourselves above our competition and provide a level of service to you that we hope is unparalleled. I am pleased to say that, through our relationships and clear communication efforts, our inventory is on very solid footing in that it is excellent quality and price competitive. We appreciate the feedback that you can give to us and value your perception of the market. On behalf of all us, we most sincerely appreciate and thank you for your business.

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