January 2012 Market Report

Lumber sales activity for 4th quarter 2011 came much later than anyone had anticipated and, as a result, what would have been normal sales during the course of October and November was condensed into a few short and bustling weeks in December. As the habit for most has been to carry only enough material to cover immediate needs, dealers, wholesalers and mills all felt the rush of business as demand quickly out-stripped the available supply. Complicating matters was the harsh reality of a trucking shortage, which reached a fever-pitch for many as wood that was sold remained in mill’s yards with no way of getting it out to reloads or lumber yards.

Some dealers took a position in December to buy enough wood to stretch them through the mill’s holiday shutdowns and curtailments (well into mid and late January). Considering the recent spate of business, this was a wise move as, for the first time in many years mills went into shut-downs with full order files and little to no wood on the ground. These full order files mean that, when the mills re-open after their shut-downs, all production will be directed toward filling presold orders and not towards building a surplus. As a result, the dealers who did not buy ahead may not be able to fill their needs and may be forced to pay premium prices on sub-par wood and tallies in order to get the wood fast, if they can get it at all.

Although demand in this market fluctuates constantly, a shortage of wood (and a lack of a way to get it into yards) will drive prices upward. Factor in any possibility of poor weather conditions prohibiting access to logs, the supply shortage could be further exacerbated and potentially escalate prices further. As a precaution to shortages and price hikes, we had invested in our inventory in December in an effort to obtain pre-increase pricing for the quality wood that you demand. For the first quarter of 2012, we anticipate prices to be firm to up based upon market conditions, which are currently a tight supply and a moderate demand.

Another factor that may be affecting our available supply in 2012 is that China has awoken to the fact that buying a better quality product produces a higher yield. As a result, their recent purchases of higher grades of lumber from Canadian mills (even top-shelf “J” grade) are cutting into what is available to the U.S. market. Over the next five years, China proposes to build 85 million housing units (or, as compared in square footage to the average American housing unit, approximately 42 million U.S. housing units). Once cresting regularly over 2 million houses per year, the United States is still working in the range of just over half a million. With such a low ratio of building as compared to the Asian market, the U.S. market has increasingly become more irrelevant to Canadian production. According to Pat Bell, Canadian Minister of Jobs, Tourism and Innovation, China alone is taking 30% of British Columbia’s total lumber production. As a lumber supplier that is committed to carrying a higher quality product (with respect to the fact that money and time is wasted on inferior products), we understand why China is moving towards the better grades. Anyone who’s experienced “bargain” priced wood can quickly attest to the fact that cull piles are an expensive result. Nonetheless, the demand on higher grade commodity products is a phenomenon that we will be watching closely.

Although some market indicators are clearer than others, we use our best judgment based upon our strong relationships, current facts and gut instinct. We take what we feel are the necessary steps to protect our inventory from shortages and out-of-control price hikes by buying volume when we see an opportunity. In addition, we negotiate contracts with our preferred lumber, plywood and pressure treated suppliers to guarantee a supply at competitive market rates. As we enter into a new year, we are very confident that we have great quality products that can offer a higher yield than what many other competitors offer, yet at very competitive pricing. To this end, we are confident that we are in a good position to service your needs, despite whatever this winter may bring. Please remember to stay in close contact with your Shepley sales representative should you have any questions or concerns and, most sincerely, thank you for your business.

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