June 12, 2017
The future looks good for for wood products producers, including panel producers like Freres Lumber Company.
Increase in Building Confidence Improves Wood Products Markets
The latest US residential home construction numbers showed a 2.6% drop in construction units in May. Given much higher homebuilder confidence and building permits increases, we believe the drop looks like an aberration and there will be stronger increases throughout the year.
From a producer’s perspective, the markets rarely begin to roll with escalating volume and prices until June or July. Weather always has a much larger effect on our markets than we give it credit for. The wet weather experienced across the West Coast has undoubtedly impeded starts on many projects and hindered what would otherwise be much stronger wood products markets indicated by the general economic improvement. Sunny days always return, and it feels like we are on the verge of much stronger markets.
Stable Markets, Increased Pricing, and Light Inventories
The first half of 2017 has been a little bit of an anomaly, in that there was significant panel price improvement in the first quarter and pricing has been relatively stable over the last couple of months. RISI predicts that structural panel consumption will increase by over 10% by the 3rd quarter of this year, the first double-digit increases since 2013.
We hear that wholesale and distribution inventories are extremely light. West coast panel producers don’t seem to have been overzealous with production so far in 2017 either, so producer warehouse inventory is thin as well. Could this be the perfect storm where demand surprises on the upside with low panel inventories? We may actually enter a marketplace where demand will finally outstrip available imported supply and domestic producers are not fighting for the leftovers.
Confusion in the Veneer Market
Sooner or later, resource value always pushes finished product prices. Softwood veneer has been in an epic battle since the beginning of the year to achieve price increases in slightly over supplied markets, whether domestic or imported. There are imbalances in markets created by imports that are confusing markets. Commodity plywood panel producers continue to suffer against OSB imports and CDX imports and domestic producers have shutdown, such as OMAK and Pacific States Plywood. For veneer producers it means that there are far fewer outlets for grades that don’t make an LVL grade quality, such as D or Centers, but all other grades are in demand. The industry needs to find an innovative way to deal with what is otherwise usable fiber.
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