June 2013- Market Report

Regionally, the anticipated demand for lumber in May was beyond the reality as sales didn’t meet expectations for most, leaving many retail and wholesale outfits heavy on inventory and scrambling for a way to spin off their stock before an impending market correction. Fear-based purchasing at the beginning of this year, driven by the prospects that shortages were imminent and sales would be inordinate, brought us to the stage that we are at now, where there is more inventory than is needed for the business that is currently in the pipeline. Purchasing only enough to cover immediate needs, buyers are finding accepted counters and prompt shipments the norm. Conversely, there is a looming notion that sudden demand will kick in and purge inventories. Some traders and larger wholesalers have been striking deals with mills, making block-buys and multiple truck orders with the anticipation that the market will rebound. With summer shutdowns approaching, this is could be quite likely, but not until there are enough sales to turn inventories at the retail level. The rebound may also not be to the extent that may be anticipated: with a four-month run up of pricing (with the Random Lengths Framing Composite peaking in April at $450), pricing had gone too far in one direction, and was destined to retract.

Emotional buying (and a trust in the guidance of reports and predictions of lumber experts) has created the current market situation. Earlier this year, few would have believed that there would be a price retraction at a time when building should be in full-swing. The concern, at that time, was that there wasn’t going to be enough material to supply demand, bolstered by the sentiment that the lumber industry is ill-poised for producing to pre-recessionary levels. However, mills reacted quickly to demand and were able to exceed expectations. The overzealous predictions of what business would occur had proven to be a fallacy, as pre-recessionary sales levels in the modern economy can be fleeting. For those who overcompensated covering their inventory at the beginning of this year and felt, with confidence, that they’d have the upper hand against competitors who didn’t “buy in”, now have buyer’s remorse and are feeling a bit bruised.

Until inventories cycle through on the retail level (and when that is predicted to occur is the one hundred thousand dollar question), the market will continue to correct and prices will come down. The anticipation is that a spur in business is needed to at least flatten the market and that summer shut downs may play into stemming the decline (or even create a moderate rebound). 

In the meantime, it is best to carefully monitor the market to see what develops (as we’ve learned that it can turn on a dime), and keep in close contact with your Shepley sales representative.

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