June 2012 Market Report

Lumber sales were strong in May and they continue to hold steady as we roll into June. However, supply issues have worsened and created numerous headaches for dealers, traders and mills alike. Several unforeseen circumstances have tied into the lack of production, further pushing pricing up and instigating a run on buying. The Random Lengths Framing Composite is up over 30% from where it was this time last year and, although we expect consumption to taper off as summer approaches, prices are expected to remain relatively firm as mills are having difficulty with production.

One of the most notable interruptions came as an unfortunately devastating and fatal mill explosion on April 23rd at the Sinclair-Lakeland mill in Prince George, British Columbia. The Sinclair-Lakeland mill, up until the time of the explosion, had produced over 10% of the United States’ Western stud supply. In response, stud pricing immediately increased by as much as $35-$40/mbf as both Eastern and Western studs were already in short supply. Traders quickly advised dealers to cover their stud needs over a 60 to 90 day period, clogging up order files and pulling any scant remnants of available inventory out of the market.  However, further exacerbating the situation is that, being the second recent explosion to occur at a lumber sawmill, the Canadian government mandated that an inspection of every lumber sawmill in British Columbia be done by May 9th to ensure that proper dust collection safety precautions were in place in order to mitigate the chances of another explosion. This, in turn, created delays in production as any mill that did not pass inspection had to rectify or implement the necessary safety precautions before they could start producing lumber again.

On the East coast, the mild winter and the strength of sales depleted log inventories, leaving some mills unable to produce any lumber products at all until they were able to reload their log decks (in some cases, not until late June or July). In addition, an over-abundance of wood chips stalled production. Modern mills waste nothing, so bark, wood shavings and sawdust (commonly referred to as “chips” in the industry) are sold to landscape wholesalers, paper mills and farms. As lumber has been in a depressive price state since the Recession, chip sales have been the back-bone for the profitability of many sawmills. To quote Stephen Long from his article in the Northern Woodlands publication (11/2006): “Being able to find markets for bark, slabs and sawdust, all of which used to be treated as waste, has become the sawmills’ key to staying alive – or even thriving – in an increasingly competitive international marketplace. In the words of one enterprising mill owner, he needs to be efficient at turning 5 board feet of log into 6 board feet of product”.

Sales of chips to paper mills create the bulk of the resale portion of the milling process and, as a result, sawmills rely heavily upon the consumption of wood chips by paper mills, who turn the wood pulp into paper. However, as society continues to become ever more paper-less, there is a lesser demand for wood chips. As a result, mills are having a tough time selling their chips. Over the course of the last six weeks, three paper mills have either put saw mills on a heavily reduced allocation or refused taking deliveries altogether. According to Thom Rafferty at Millbrook Lumber, “…the sale of chips by a lumber mill to a paper mill is a major source of revenue. Without the ability of a lumber mill to sell their chips to a paper mill, the lumber mill simply cannot operate remotely close to a profit. For example, a mill producing 75 to 100 million board feet annually, produces approximately a truck load of chips every hour which fetches roughly $1,000 from a paper mill.”  The lack of being able to sell the chips inevitably forces the mill to stop producing lumber.

More than 50% of sawmills that were in operation prior to the U.S. recession are now closed; the lumber supply chain has been thinned out so much that any moderate changes in supply or demand have profound effects on supply, lead-time and quality. Factor in the lack of truck drivers, and you’ve got a real challenge on your hands. That challenge has been faced head-on by Shepley, as we strive to be at your service and provide you the quality lumber and building materials that you need when you need them.

As always, please feel free to contact us for any issue or concern you may have with your building materials and know that we make it our collective goal to deliver on your satisfaction. Thank you for your business.

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