December 2017 -Lumber Update

by Paul Rogers,

To say the least, the lumber market has been on a wild ride for most of this year, contending with the uncertainty and interruptions caused by duties, natural catastrophes and trucking shortages. Unfortunately, it appears that the momentum that has been built up by all of these factors is carrying on through December, as prices remain abnormally high in the face of a steady demand and poor fulfillment. One recent development that fanned the market was the U.S. Department of Commerce’s announcement on November 2nd that the final determinations in the countervailing (CVD) and anti-dumping (AD) duty cases against Canadian producers would be levied at 20.83%. Although this still needs to be ratified by the U.S. International Trade Commission (ITC), it was a blow to the speculators who were hoping for a new Softwood Lumber Agreement (SLA), which had been rumored to be in the works for months and would have relieved the burden of duties. However, the opposite happened as some mills responded by announcing immediate increases that were designed to further bolster themselves against the penalties. The next step is for the ITC’s ratification on December 18th: if they agree that duties should carry forth based upon their presented evidence of injury, the duties will stick. However, if they find that there is not enough evidence to support cause for penalty, both the duties and the investigation will cease and be terminated. The uncertainty of what will happen in the ruling has got buyers and sellers perplexed as to how to respond but, in the meantime, other factors continued to prop up pricing to even more uncomfortable levels: trucking issues are now being coined as “severe” and a “fiasco” and seemingly with no end in sight. Late shipments exacerbated the need to pull material from distributors who, in turn, were dealing with their own late trucks and were also running out of stock. Supply remained tight (with many mills’ order files out four plus weeks) and outtake was strong, so market pricing remained firm. Nonetheless, buyers were scared of having too much on hand when (or if) a correction materializes and so were extremely cautious and put much consideration in to forecasting their turns before buying. Another factor tying in to current purchasing decisions (and will weigh heavily on the market in coming weeks) is the now common end-of-the-year business practice to pare down inventory levels, in an effort to avoid tax penalties for value of material on hand. End of year goals are to run inventory lean and replenish after the New Year which will, for all intents and purposes, help to keep the mills’ order files full. With mills’ up-coming holiday shut downs, winter weather threats and more to develop with the CVD-AD situation, we can anticipate pricing to be firm through December and likely well in to January.

There is talk on the West Coast that their Spruce/Pine/Fir (SPF) will be in increasingly tight supply in 2018 (due to Mountain Pine beetle kill and forest fires), which will likely cause alternatives such as Doug Fir, Hem Fir and Southern Yellow Pine to become more popular. For our own inventory, we make a strict rule of ordering SPF where and when it’s available (it is the preferred specie on Cape Cod) but we do carry Doug Fir in dimensions that SPF is not available in.  Our territory may likely have to react to market conditions by incorporating more Doug Fir in to the mix if the SPF situation becomes a reality. Doug Fir, a long-time standard for framing, is still favored by some but its position in our market is considerably small as compared to other areas of the country as it has a propensity to be a little heavier and dense than SPF (but it can rival it in quality and price).  When a substitute is introduced, it generally sets most people in to thinking that it is inferior to what they normally get. However, when we look upon our product offering now and see what volumes of building material we currently sell that we didn’t sell in the not too distant past (such as Engineered Wood framing, PVC boards and decking, Advantech OSB subfloor and many others), it becomes apparent that there were circumstances that enabled them to get a strong foothold in the market place and the performance, price and general positive qualities had to supersede the original in order for them to last. When the supply and costs of our traditional materials come under attack, you can be sure that we are working hard behind the scenes to not only secure what you need for when you need it, but to also be on point for seeking and researching the alternatives. Conversely, if you have any experience or comments you would like to share with us on alternative species or materials, please do so as we truly value what you have experienced in the field. In the meantime, rest assured that we are well stocked with the quality materials that you have come to depend upon us for and that we always clip the peaks and valleys out of extreme market swings in our best effort to protect your profitability. 

Although lumber pricing may be turbulent right now, keep in mind that there are services that we offer that can help keep your costs down. Just a few examples are our Estimating Department (which excels at giving you accurate and complete building materials lists), our Engineered Wood Department (that can show you the opportunities that EWP framing has to offer) and our Shipping Department, who will accurately pick and load your order in sequence of use, and ensure that it arrives on time and in full. We have many outstanding services to offer, and the ones listed above are just the beginning. Please be sure to reach out to your sales person who will be happy to show you all that we have to offer. We have had a great year and want to thank all of you who helped to make 2017 a success; on behalf of all of us, we wish you the safest and happiest of holiday seasons and thank you for your business!


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