Sluggish North America lumber market starts to improve in late June/early July, as Canadian wildfires fuel lumber supply chain concerns; US housing starts trend higher since early 2023 but remain below average for past two years: Russ Taylor Global

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VANCOUVER, British Columbia , July 17, 2023 (press release) –

The following US market analysis originally appeared in the June issue of the Truck Logger BC magazine and a modified version was published in Timber-Online (Austria). This article provides some updates from the earlier versions.
The sluggish North America lumber market finally started to improve in late June and into July. The one driver that seems to have triggered the market is the severe forest fire situation across Canada. Buyers started to get concerned that this event will negatively impact Canadian lumber production in the short term from reduced supply, as well as later in the fall when log decks could run low. Hence, lumber prices are rising!

The underlying reason for poor lumber prices in most of the first half of 2023 has been too much domestic and imported supply in North America, as well as globally, that continued to chase flat demand. Higher interest rates coupled with inflation, slumping consumer confidence and concerns about a potential recession later in the year have been some of the key factors negatively impacting home buyers.

US housing starts have been trending higher since the start of the year, but they are at much lower levels than the average of 1.6 and 1.55 million units over the last two years. After averaging 1.375 million starts in the first four months of the year, US housing starts spiked to 1.63 million starts in May 2023. Whether this is a temporary spike or not will be tested over the next few months, but my view is that US housing starts will grow at slower levels while housing completions will remain steady near 1.5 million units.

The first quarter 2023 results from Home Depot and Lowe’s could be considered as further evidence of slowing consumption as both retailers reported negative quarterly same-store sales. Customers skipped big-ticket items like grills and opted for smaller, less expensive home projects. At the same time, colder and wetter weather in the western US coupled with falling lumber prices were also responsible for lower dollar sales. During COVID-19 there was a spree of pandemic-fueled home projects, but these have faded as consumers juggle other spending priorities such as summer vacations and restaurant meals. As a result, both companies indicate that their same-store sales over the next nine to twelve months will be lower by 2-5 per cent. With repair and remodelling representing 40 per cent of US lumber consumption, this may not sound like good news. However, since the DIY stores measure their same store sales performances in dollars and not volume, a small reduction in sales volume means that there is lots of lumber volume being sold at price levels that are up to one-third less of what it cost during the pandemic.

My lumber demand outlook for 2023 calls for a 4-6% reduction in North American consumption compared to 2022, mainly from lower housing demand. The one wildcard that I am most worried about, that is brushed off now, is the pending credit crunch at US banks. Despite no further bank failures, there is the potential for a more severe second round later in the year. This could be tied to a potential US (and Canadian) economic recession with all the demand reduction and job losses associated with this event, not to mention mortgage foreclosures.

Commodity lumber prices have been below cost for BC Interior SPF sawmills for most of the first half of 2023. The price for W-SPF 2x4 #2&Better random length lumber (FOB Mill, Prince George BC) averaged only US$370/Mbf (US$239/m3, net) in the first half of 2023. The estimated breakeven cost for BC mills during this time would have ranged 10-20% higher, hence the extensive number of BC sawmill curtailments.

The massive and unprecedented price premium held by southern yellow pine 2x4 #2&Better (SYP; FOB mill) to W-SPF 2x4 (FOB mill) earlier in April 2023 has shrunk from US$180/Mbf to US$46/Mbf by the beginning of June, or close to the historic spread of US$50-75/Mbf. However, this premium of SYP to W-SPF further eroded through to mid-July when W-SPF commanded a US$55/Mbf premium (not a discount) to SYP. A US$235+/Mbf swing in comparative pricing between products that can normally substitute for each other is remarkable. What this should mean going forward is the price variance between the two competing lumber products will need to move back to a more normal spread of US$50-$75/Mbf. This means that one species’ price must move, so either W-SPF decreases, SYP increases, or there is a bit of both. My sense is that SYP will need to go up the most, as mid-July W-SPF prices of US$445/Mbf (US$271/m3, net – FOB mill; or about US$370/m3 delivered to the US East Coast; as of July 15) are still hovering close to the breakeven levels of many SPF sawmills. As a result, if appears that W-SPF prices could move higher and even up towards US$500/Mbf FOB mill (US$322/m3 FOB, or US$400/m3 delivered to the US East Coast), by the end of July or early August before prices cool.

A phenomenon of North American lumber prices is how producers with similar products in the same region (like SPF or SYP) seem to over-produce and drive prices for their products lower despite other competing species having much higher prices due to more balanced supply and demand. This can mean that price recoveries can be slow and unpredictable!

With flat to slightly increasing demand trends expected for the rest of 2023, lumber supplies will continue to see some reductions in all regions of the US and Canada, except for the low-cost US South. BC production is expected to be lower in 2023, up to 10 per cent for W-SPF in the Interior and around 5 per cent on the Coast, where other North American regions should see smaller reductions.

Offshore US imports were already trending lower in second quarter as US prices became too low to attract any sustained lumber volumes from Europe. However, the potential of rising lumber prices in third quarter should reverse this situation soon!
Export markets are also flat with Japan and China all seeing flat to lower demand as there are surplus supply volumes that are currently depressing wood products prices around the world.

As I expect that US lumber prices will increase for at least all of July, this should be of great interest to Canadian and European lumber exporters to the US. Will it last beyond July? The consensus in one recent survey (by Gregg Riley) says “no”, but normally the consensus is wrong! So, the bet is on!

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