Lumber Market Update-January 2023 | Shepley Wood Products
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Lumber Market Update-January 2023

As the housing market searches for a new level in the face of economic upsets and adjustments, suppliers are doing their best to predict its path for 2023. In the meantime, one and all are continuing to keep inventory levels close to the bone, with the intent to react only if there is a clear-cut reason to…which has yet to come. Unlike the past few years, there is little to no scrambling going on to cover outages. Rather, the new market tone (which is subdued at best and dormant at worst) has buyers sitting on the sidelines, reviewing and declining offers to the frustration of traders. However, a dealer’s reliance upon mills and distributors to have inventory on hand that they can ship promptly may be the undoing of this market as they, too, are trying to produce or carry just enough material to cover short-term needs. The wild card however is shipping, which has never really recovered from the driver and rig shortage and remains an unpredictable factor. With this time of year, when a single snow storm can shut down mills, roads and rail, it’s best not to gamble with fate but rather to have enough inventory on hand to carry you through these possible interruptions. Nonetheless, a softening of sales and the downward trend of pricing has business owners wanting an immediate reduction of inventory value and an increase in “turns” (how often a product is sold and replenished), so it’s a very fine line that buyers must follow in order to please everyone. As of print, mills will be shutting down for the holidays and will reopen after the New Year, and dealers have scheduled their replenishment orders for delivery after the first (a calculated move to avoid having to pay taxes on inventory carried through the New Year). Prices have firmed with the mills’ upcoming closures, but are still flat and are expected to remain that way through January, unless an event suddenly clamps down on available lumber.

As pressure to reduce and rotate inventories builds upon lumber buyers, old habits and new approaches are being analyzed. Two strategies that became commonplace during the pandemic years in managing supply and meeting demand were increased communication about upcoming needs between customer and supplier and a broadened exposure to suitable substitute products. Enhanced communication became a strategy that required contractors to convey their needs with their suppliers’ far in advance of their actual start dates, in order to ensure that material would be ready for shipment. Substitutions (in the situation of which common materials or brands were suddenly not available so alternatives needed to be sourced), changed the habits of only using one product over another. Both were key in helping to prepare all for what to expect in terms of project needs, with the ultimate goal of keeping jobs within budget and on schedule. The end result was usually a good one. A supplier can never have too much knowledge of a customer’s needs or expectations in anticipation of how best to supply a project, and many contractors found better alternatives to their regular products that they would have otherwise not have been exposed to. Now that the housing market is retreating, we are ironically back to the same situation in which communication and substitutions need to be emphasized and considered as a means to keeping jobs on schedule. As producers reduce production, potential outages and growing lead times may occur so an emphasis to stay in front of upcoming needs is necessary so that we can all be proactive instead of reactive. Substitutions also need to remain a consideration as some suppliers’ production has never really recovered from the pandemic. While pricing remains at all-time highs for many products, alternatives can often come at a savings. Furthermore, the dealer’s need to drive down inventory levels usually starts with consolidating and reducing their product offering. For instance, a slow-down in sales means that fewer sticks are being sold out the door, which affects a buyer’s decision as to whether or not they should carry full units of all lengths of lumber, or perhaps reduce or eliminate the slower-moving lengths for the sake of selling more of the longer and more popular lengths. With poor turns there is a significant aging risk, which affects the quality and salability of the item. Substituting a 16’ piece for a 14’ may cost a little more, but if slow-turning 14’s don’t merit a dealer keeping them in stock because the volume to purchase is greater than the volume sold in a reasonable time, then it may make logical sense for 14’s to go away.

In short, healthy businesses have to constantly study what they do well and what they could be doing better in order to maintain or improve upon their financial health. The challenge is to act upon the necessary changes in a timely manner, without deviating from their core commitments. In the face of adversity, the pandemic gave us great exercise in meeting these commitments with the bonus that it also created stronger relationships between us, our suppliers and our customers. We are well-prepared to meet your needs in 2023 and look forward to taking on whatever challenges may come. Thank you for your past, present and future business