March 2016 – Market Update

by Paul Rogers,

February turned out to be an unusual month for the market, as fits and starts to business (brought about by unusually favorable weather and interrupted by the occasional storm) kept demand in flux. On the heels of a very busy January and the premise that winter would carry on with its mild path, sales were stronger than anticipated. Mills initially reacted in kind with production, but as the impact of the shaky Chinese economy and a less than robust U.S. demand were realized, pricing started to slide back. Studs, in particular, were the most affected as they were in a state of free-fall for a period. Tembec, Resolute and Scotsburn (both prominent stud mills) decided to do their part in curbing the bleed by shutting down mills and/or eliminating shifts and it was effective: in a matter of a day, pricing rebounded by upwards of $25/mbf. Although the reaction was swift, it wasn’t as long lasting as they would have liked as, eventually, pricing relaxed to more conservative levels. Though studs were the bargain for a time, other dimensions were frequently offered at discounted pricing as well, only to rebound abruptly. Overall, with the approach of spring and strength growing in the market with the subsiding of winter, prices firmed as dealers moved to cover their needs. March is shaping up to be a month that will see some additional firming and upward movement to pricing. However, winter certainly isn’t over just yet, so weather interruptions may help to prolong the roller coaster pattern we have seen of late.

China’s once robust economy, which so many global markets have relied upon for their own economic strength, is faltering and the impact is having an adverse effect on all markets, including lumber. The U.S. and Canadian mills depended so heavily upon their demand during the last recession that they were seemingly the only glimmer of hope that would keep them afloat. Today, we are seeing a steady decline in their outtake and, as a result, sights are being set on U.S. demand, which still is far from being able to make up the gap. Finding other territories to offset the hole that China is leaving will be a daunting task, especially for the Canadians who, when turning to the U.S. market, will also have to contend with the strengthening dollar. Mills operate on thin margins and simply cannot survive when the market bumps along at levels that are not profitable, so they either shrink or close, neither a strategy that any business strives for. As mills work to survive, we will see more market manipulation in the manner of curtailments and shut downs, and likely a greater consolidation of mills. However, we will also become more valuable customers to the survivors. Survival of the fittest, in part, can be attributed to developing relationships with the strongest players, and is fundamental to future success. We keep this in mind when determining where our business goes. With the recent routs in the Dow and concerns over what this election year may bring, Americans may re-evaluate their plans and take pause before entering into any major purchases. Regardless of what course may take place, we are confident that we are amongst and partnered with the fittest of the fit and are looking forward to a strong year.

The recent cycle of the market has afforded us some opportunities and we are extremely grateful for the spate of business that we have enjoyed so far in 2016. Although “buy cheap and sell high” is the typical business motto, we can tell you that it is not ours: we realize that business isn’t about taking advantage of your customers, but rather about protecting them, earning their trust and helping them grow their own business. As the market cycles, we look for and act upon opportunities so that we can pass them on to you. We are happy to be part of your success and encourage you to solicit our help with your project. Thank you for your business!

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