Freres Lumber June Market Update: Persistent Strength in Panel and Lumber Markets

June 22, 2020

The western plywood markets continue to roll along, with persistent strength in panel and lumber markets in general. This current bull market in commodities is about 9-10 weeks old. During this period of time there have been slight pauses. However, it seems that each week, the markets continue to experience price surges in most commodities. For now, it is pure demand out there driving the bus. The carryover from the much-talked-about Home Center business surge still seems to be keeping buyers on their heels. This has incubated during the heat of the virus lockdown period. It may not be the only factor to explain the strength of commodity markets. But it is certainly one factor, and as it turns out, a significant one. That sector of business gave the markets a stealthy head start on most everyone.

Many plywood buyers have lean inventories and continue to chase their loads each week, as demand outstrips nearby supply. Order files often reach into mid-late July from western plywood mills, with some even further out. Most Canadian plywood producers are quoting August shipments. Much like western plywood mills, most SYP plywood mills have quoted into mid July or beyond. Typically, mills would maximize production during a market like we have now. As producers find themselves short of workers to adequately staff mill jobs, that is not always possible in many areas. In many instances, this is capping production and further adding to market strength. Lengthy order files are definitely forcing the hands of buyers.

Field inventory into the first of May was even lighter than many anticipated. In some areas business was dismal at best in March and April. And with uncertainty around the nature of opening up parts of the country, most businesses were ultra conservative in their purchases. They had lean inventories, and their business activity merited that strategy. As markets in lumber started to get off the ground in late April and early May, most buyers were skeptical about near term prospects. Location-specific activity started to roil the commodity markets as other areas still locked down sat, watched, and waited. Consequently, the markets built up enough steam without many parts of the country in active participation yet. Customers have been reeling ever since; unable to catch up to the demand in front of them.

Looking Ahead

A few weeks ago, some would say that June looked like a done deal. Now, it looks like July is very close to being a done deal, based on current order files. It is obviously a good environment for mills, but equally disconcerting for customers. Particularly customers with long delivery lead times, as they are compelled to make decisions on purchases that may not arrive at their door for 7-8 weeks. Tough decisions. Whether the strength in panel and lumber markets can sustain themselves even further into the summer is something that remains to be seen. However, it still seems too early to get in front of this train. We have only begun the summer building season, and many things could derail or fuel things further. There are many things that can impact the market in both ways. Interesting times, indeed.

Bob Maeda