Freres Lumber December Market Update: Resurgence in Lumber and Panel Markets

December 22, 2020

In the past 3-4 weeks, we’ve seen a remarkable resurgence in lumber and panel markets. With the lumber markets starting their rise 6-7 weeks ago, we now see panel markets following as well. All commodity lumber and panel markets are on firm footing, once again, going into the New Year, with some sectors selling well into or through January.

Looking back

So, let’s briefly retrace the commodity market roller coaster over the past 6 months, leading up to the resurgence in lumber and panel markets. Over the summer months and early fall, commodity lumber markets gained upwards of $500-600/m while Plywood / OSB markets gained roughly $400-500/m over a 3-4 month period. Unprecedented. In August, the market’s huge weekly gains started to slow and by Labor Day, had leveled out and prices started to soften up. Buyers put away their PO books, and sat on the sideline as prices tumbled. This was across the board, in big chunks, during the next 6-8 weeks.

Demand hardly changed in the field, however, on the distribution and dealer side. Job sites continued to eat up lumber and panels, while yards gradually emptied out their inventories They seemed confident that there would be good buying opportunities as the market searched for a bottom. Prices moderated a great deal, and compelled buyers to come back into the marketplace. There was also a need for additional inventory to be brought into their yards. Prices on all commodities were still in the mid-to-high range, historically.

Many buyers felt they would have ample time and opportunity for cheaper buys and could fill-in buy and watch things. Everyone realized, a few weeks down the road, that they had already seen the bottom. In fact, as we can now see, demand was still rock solid as more and more buyers surfaced to do some fill-in buying. The market was starting to feel the extent of low inventories and still strong demand. Fast forward 6-8 weeks and what started out as some measured fill-in buying has mushroomed into Big Market Run #2 at the end of 2020.

Why and how did this happen again? With likely many contributing factors, here are a few to think about. Demand was strong this year and still is and it looks like it could be stronger yet, next year. Buyers have been whipsawed in the market and are having to deal with demand we haven’t seen since before the great recession. Production continues to be hamstrung by labor shortages. Along with Covid-related absenteeism, production is capped in many areas. The cost of commodity lumber and panels is also stretching credit limits for medium and small dealers. Customers aren’t comfortable at these levels, but the herd is going in one direction right now.

Looking ahead

Does this guarantee another bull market year for much of 2021? Well, not necessarily – many things can derail a good thing, as we know. We still have winter ahead. But as an old friend and mentor once said, “the trend is your friend” in commodity trading. The trend lines look strong for the lumber business in 2021. Another wild ride? It could happen.

Bob Maeda