November Market Report: Declining Markets and New Wood Products

November 14, 2016

A difficult wood products market presents challenges and opportunities for Freres Lumber Company.

Declining Wood Products Markets

Veneer and plywood prices have both declined over the last month. Veneer has been leading the decline with a very gradual, but painful, drop from $58.50 mid-summer to a current price of $51.50 for 1/10 DF CD 54. Plywood started October at $395 for ½” CDX 4-ply but has quickly dropped 13% to $344. It looks to be a very difficult winter. Looking longer term, plywood panel prices and production levels have been declining in North America since 2015, even though the housing market has shown gradual improvement. The usual culprits of high dollar currency value and an increased volume of imports generally take most of the blame, but issues like this are rarely black and white.

Plywood Outlook

Plywood has a larger exposure to the industrial markets than OSB, which controls the majority of market share in residential markets. Industrial production has been negative for over 13 months, which has heralded a recession the last 10 times it occurred since World War II (RISI Structural Panel Com-mentary, September 2016). Plywood should still improve along with the housing market, even though we hold a smaller market share.

Housing Market

The housing market continues to disappoint, even though it has improved slightly every year since 2009 to a current seasonally adjusted annual rate of 1.14 million units. Economists believe that the housing market is clearly undersupplied, with dramatic potential for future growth, but future housing supply faces substantial im-pediments (RISI Structural Panel Commen-tary, September 2016). Availability of lots, prohibitive regulatory and environmental costs, and lack of available experienced labor are at the top of the list.

Freres Lumber Announces new product, Mass Ply Panel

Last month we announced that we have patented and will continue development of a new product, the Mass Ply Panel. Since our news release, the response has been over-whelmingly positive and we have already fielded inquiries for the product.

The idea behind the Mass Ply Panel is to use our current production facilities to produce veneer-based panels which will be the individual manufacturing components of larger format panels. The end product panel can be as large as 12 feet wide by 48 feet long by up to 2 feet thick, al-though the majority of products are expected to be around 4-6 inches thick. We intend to produce these panels as complete wall, floor, or roof systems with potentially fewer intermediate supports or other structural elements. We hope that this product will allow multiple housing units on available lots and lower the amount of skilled labor required as they will be in completed structural elements that only need to be dropped in place with a crane and bolted together. We are trying to do our part to bring an end to the malaise in West Coast panel production but also develop innovative products for the US housing market. We still have a long ways to go before we have a completed Mass Ply product in place for the overall market.

Expanding Freres Lumber’s Facilities

In the short term, however, we are currently installing the facilities to expand our current product mix to longer products so we can differentiate beyond the CDX market. There are two major equipment centers being installed in December to accommodate new products. At the plywood plant we are installing a semi-automatic layup system in conjunction with the spreader. The intent of this equipment is to allow the production of parallel veneer panels much like an LVL product, while also retaining the ability to produce standard spreader products.

Coupled with the scarf-line equipment being installed at Cedar Mill Road, these products will allow us to make market specialty items such as laminate blanks, rim board, long-length plywood, or PLV (Parallel Laminated Veneer) which is often used in door stiles or window frames. We hope that this incremental product diversification will help us overcome some of the difficulties in the sheathing market and allow more consistent production schedules.

Stay tuned!