June 2015 – Market Update

By Paul Rogers,

Although business strengthened in May, the market continued to follow a descending trail into June. Historically, a Spring rally occurs before Memorial Day (with varying length and volume, which helps to prop up prices) but this year the rally didn’t materialize. Estimated demand was over-exaggerated and the deals offered and taken over the course of the sliding market (in anticipation of a turn-around in business) had left all in the supply chain overstocked. Instead of channeling efforts towards replenishment, distributors and dealers sweated out the selling of their current inventory and were hoping to do so before the market fell even further. Dealer purchasing was largely kept on the sidelines and desperation set in at the wholesale level, as traders aggressively offered discounted material only to be greeted by aggressive counters. With mills producing upon estimated sales from industry feedback, the lack of pull through has left an abundance of material which, in turn, has drawn down the value. As of print, the Random Lengths Framing Composite is dangerously close to the mill’s break-even point of $300. In response, mills have initiated curtailments in an effort to stave off production and prop up pricing but, until distributors and dealers work through their inventories, this hasn’t (and won’t) have much of an effect. Industry leaders anticipate that the demand seen in May will carry through into June but, with further curtailments expected to be announced and the Summer shut-downs on the horizon, expectations are that the market will be bumping along the bottom over the coming weeks but will firm at months end (or at least until a supply and demand equilibrium is realized).

Aging inventory isn’t good for any business, but a big concern for building material suppliers is “yarding”, a term used to describe inventory that is exhibiting the signs of aging (sun and wind exposure, excessive moisture and basic shelf-life). It is very important for lumber yards to manage their inventory so that it is rotated regularly with fresh stock and is also well-protected from the elements, as the waste that can occur with yarding can easily strip any profit that could have been realized with the sale of the product. Of course, there is always some fall-off that occurs due to handling and storage and, although this “cull” is a part of doing business, it’s everyone’s objective here at Shepley to keep it to a minimum. While we diligently rotate our inventory and keep it under cover (either by packaging (lumber and pallet covers) or inside storage), there are times when material is picked that should not have been loaded, and it isn’t always due to yarding issues. Usually, these situations involve shipping a full unit or pallet. Most of the time, however, our expert yard pickers are using their own grading skills to pick and choose the material to ship to you and will screen cull from the open lifts. There are occasions where we get an errant lift that is below our standards, and our employees are diligent in reporting quality issues. In turn, we immediately quarantine the stock and address it with our suppliers. In situations where you may have received sub-par material, most of you know that we will first apologize and secondly spring into action to replace the material. We realize the major inconvenience it can be for the both of us, so we put extra effort into training our people on the key conditions to look out for. In addition, we have a culture of clear, open communication between us so that we can work together to mitigate these incidences. If you have had any unfavorable quality experiences, we do apologize and welcome the opportunity to make amends.

We recognize that you have a difficult job, as building a home is demanding and complex. Quality issues should not be one your problems, so please know that we put in an extra effort here to see that you receive quality materials. We sincerely want to be here to help you with your project and will do our part to serve you the best that we possibly can. Thank you for your business!


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