February28

Lumber Update – March 2020

By Paul Rogers

The mild winter we’ve had has kept sales steady and strong, with dealers and wholesalers scrambling daily to get lumber in as fast as it was going out. This level of activity at the peak of the winter months was certainly welcome, but also unusual. Speculation prevailed on all supply levels as to whether or not we were cheating into spring business or if the level of activity would be sustained for the near future. Most buyers bought in to one camp or the other. The conservative-leaning ones looked upon the situation with the thought that, with winter still staring us in the eye and knowing that New England weather can change on a dime, one good storm could snuff out the spark of sales for some time and bring the pace to a halt. The more optimistic buyers put their faith in the prevailing weather pattern and figured that whatever interruptions would occur would be short-lasting. The longer that February remained mild, the more sales remained strong and obtaining inventory became increasingly difficult, with even some common dimensions (such as 2×6 10’s) becoming extremely scarce. At this point, even the conservative buyers were all-in and so ensued a rally of sorts which continued to ramp up the market. With March (the official start of our “Spring Building Season”) now upon us, it remains to be seen how long activity will be sustained but, as of print, sales are still strong and there appears to be plenty in the pipeline. As what happens in most of these cases, we’ll see the rise of prices based on the initial demand and for as long as it takes for dealers to be satiated. We anticipate pricing to be firm (and to climb a little more before the end of the month). We are glad to report that we were of the optimistic camp, so we are well-stocked with very competitively priced lumber.

We have some great news to report. The U.S. Commerce Department had announced on February 4th, 2020 that a preliminary determination of the current softwood lumber duties imposed upon Canada at the current rate of 20.23% may be reduced to as low as 8.21% as soon as August 2020. This has been brought about by a September 4, 2019 NAFTA ruling, in that the Canadians claimed that the U.S. used flawed calculations when imposing the original duties that were initialized in November 2017. According to the report, the rates are prone to change in the coming months but, once the final determination is released, new rates will be implemented. Even with the duties, lumber remains a relative bargain compared to other building products, in which many have suffered significant increases due to various factors in recent years. Considering the U.S.’s current volume of construction, the escalation of operating (most notably labor) and transportation costs, and the loss of harvestable timber, one has to wonder why lumber prices haven’t been much higher than they have been, even with the Softwood Lumber Duties in place. One reason is that, even though domestic construction is thriving, the commercial and multi-family sectors still lead the category while residential home construction appears to remain governed by the lack of having enough qualified, skilled workers in the trade. If labor weren’t an issue, we’d surely be seeing even more construction and thus greater demand on lumber. Other factors that have had a positive impact on keeping lumber prices down are the diversion of foreign markets’ demand to Russia and Eastern Europe for timbers rather than Canada and the conversion of domestic markets to Southern Yellow Pine (SYP) rather than Spruce-Pine-Fir (SPF). In both cases, demand has lessened for Canadian timbers and so pricing has fortunately been relatively stable. In our market, we can attest to the influence of Russian and Eastern European lumber as an alternative. This “Euro” wood has become more abundant on the East Coast due to the price becoming more competitive with duty-imposed Canadian lumber. For those of you who have used Euro wood, it is typically a fine, high quality board that we have certainly been impressed with. On the other hand, Southern Yellow Pine framing (which has long been considered a lower quality specie when compared to SPF, due to its inferior workability and stability, and is generally lower-priced) has become much more popular across the nation. This can be attributed to the fact that several large Canadian lumber companies (Canfor, Interfor, West Fraser), who had the foresight to see that their livelihoods were at stake considering the competitiveness of the global economy, the devastation from the Mountain Pine Beetle kill (over 18 million hectares destroyed since the 1990’s, with over 58% of sellable pine volume lost by 2017), forest fires (exacerbated by deadwood caused by the Mountain Pine Beetle) and rising transportation expenses, bought Southern Yellow Pine mills in the southern United States and started producing and marketing SYP lumber in force. They have had good success in selling SYP framing in areas that had been long-standing SPF or Doug-Fir hold outs, thanks to an improved quality and attractive price point. Not overlooking the ever-growing engineered wood category, both Euro wood and SYP have also had a big part in relieving some of the demand off of the Canadian lumber market and it appears to be a trend that will continue to grow for the foreseeable future.

New England is a very traditional market, with many who say that Cape Codder’s in particular are slow to accept alternative products on the precept that if we don’t have to, we won’t. We’d rather think of it in terms of us being experienced with the tried and true and, being the skeptical Yankees we are, less apt to deviate from the norm. Nonetheless, we are happy to be regularly buying and selling Euro wood to satisfied customers and we’ll see if Southern Yellow Pine framing makes it over the bridges. In the meantime, we are grateful that it is helping to keep prices in check and that it opens up more Canadian SPF lumber for us to enjoy. Thank you for your business!

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