September 2015 – Market Update

By Paul Rogers,

As we head into September, prices have flattened out but are remaining firm due to a relatively brisk pace of business. The typical summer doldrums aside, construction was active and material shipped, but there was still an ample supply of wood in the marketplace. A reduction of a U.S. tariff to Canadian exporters that went into effect in August (as stipulated by the Softwood Lumber Act of 2008), opened the doors for Canadian mills to earn a higher margin in the U.S. market (so much so that many mills withheld the sale of their wood in July so that they could take advantage of this discount in August). However, U.S. demand was overstated so sales did not materialize to the extent that had been anticipated. In addition, the economic crisis that China is enduring also lent to the fear that the market would be affected with a softening of prices, based upon the theory that their demand would taper off. In fact, China has not taken as much inventory as they had in the past: Canadian production for off shore sales is down and that has been the case for some time now (but that is not to belittle the immediate adverse effects that a collapse of the Chinese economy would certainly present). The reality is that there was plenty of wood in the market to meet demand (despite mill shut downs and one heck of a June-July sales streak). Construction is continuing to chug along at a good pace and sales predictions (particularly, for New England) for the Fall season are favorable. Until outtake outpaces production and inventory stores, we can anticipate pricing to remain flat to up for the remainder of the month, and likely tick upward in October.

Housing analysts have recently scaled back their forecast of 2015 housing starts by 4.3%, citing that the bad weather in Q1 has delayed the progress of construction to the extent that it cannot be made up this year. In addition, the real estate market is hot due to a lack of inventory, and the escalating prices of homes are keeping some first time homebuyers on the sidelines. The good news is that we are still pacing almost 10.8% ahead of 2014 and the squeeze on available homes for sale will likely keep the market propped up. Predictions being what they are, mills have taken action to become more responsive to the market by implementing methods that have improved the control of their production. By doing so, they can capitalize on the highest demand (and money-making) dimensions. The Recession got the attention of the surviving mills that better methods for production and profitability had to occur in order to stay in business. One way was to better anticipate and react to market needs, and drive production towards those needs. The phenomenon of lumber dimension “runs” was one focus of attention: there is always a dimension that is in short supply as seemingly all consumers are calling for it at one time. In years past, mills would react too late and/or need time to respond to these demands, which would create a run in pricing, escalate lead times and then oftentimes create a glut afterward from overproduction. Today, most mills are running equipment that have quick-change features that drastically reduce the set up times. They are also utilizing advanced optimizers that best determine the greatest yield of stock in its raw form. With these improvements, runs can be capitalized upon by the mill’s ability to easily switch production to the product most in demand. In conjunction with working with market analysts, they can also have a better concept of demand and limit overruns. Overall, the improvements have had a positive effect for all as it has helped to limit the spikes and gluts in pricing (as well as prevent outages), thereby creating a more stable market.

As for our own inventory, we are well-stocked with quality lumber at very competitive prices and are extremely grateful to have enjoyed a busy summer. We hope that we can continue to earn your business and prove to you that we are the lumber company that you want to use for your project. Thank you for your business!

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