Production Looks to Be Declining Amid Pullbacks and Mill Closures That Could End Up Affecting Supply Chains and a Surge in Pricing
Another week has come and gone and we’re through the blistering cold that enveloped large parts of North America to welcome 2024. It was another condensed week for some with the observance of Martin Luther King Day on the 15th and we should be back to a normal business schedule to round out the month.
The market has continued to feel relatively lacklustre from the beginning of the year and into our current week. We are still seeing moderate takeaway at best, as consumers focus on their immediate-term needs only, sensing that there could be some further downward pressure in the market coming soon.
We continue to see mills, at the same time, holding a reasonably firm position on anything that has a 2-week order file or further. However, we have certainly started to see mills open up to discussions and counters on material that is more readily available and with a greater urgency to move. That tone has shifted from the more bullish stance that mills were taking overall as we rounded out the year. This is leading consumers to feel the potential for further downside.
There was a fairly significant announcement made by West Fraser this week regarding the permanent closure of their Fraser Lake mill. This had an immediate effect on futures, as we saw strong upward momentum Wednesday. This movement pushed futures up over print in the near term but the sense continues to be more softness in cash regardless of this announcement.
The immediate impact will perhaps not be felt in the market from a supply availability standpoint, but it’s one more piece of production pullback being felt in the Western Canadian supply chain. If we start to look back at some of the curtailments over the last few years, the thought does go to what may happen once we do get back to a healthier demand cycle in the marketplace. Could we see another surge in pricing if the market has overdone it on the downside of supply?
This is something that many will be watching and we don’t anticipate this coming into play over the immediate term. However, long-term prospects continue to shift in the North American lumber supply chain.
Supply & Distribution Update
Severe winter weather, including ice storms and subfreezing temperatures, maintained a grip on softwood lumber markets across much of North America. Sales in most species were limited and reported prices were narrowly mixed. Mills occasionally listened to counters but most had few prompt offerings and attempted to hold the line on quotes.
Although there are fewer prompt offerings most items are still available in the market for extended availability. A few curtailment announcements by mills could change this looking forward.
With the uncertainty of the market direction, buyers continue to fill their immediate short-term needs. Supply and demand are relatively well balanced but it is crucial to keep an eye on forecasts to ensure those needs can be covered in the future.
Distribution remains highly valuable in today’s market while driving sales and providing customers with less than truckload needs. Concerns about market direction have been evident as we start to see suppliers initiating the curtailments of mill production.
Distribution continues to operate with idle capacity while market uncertainty and winter weather remain less than ideal. As the forecast improves over the next couple of weeks, we could see this spark spring purchase while stock is still available and well priced.
Transportation has seen its challenges during these freezing temperatures but the availability of providers moving commodities is still ideal. Fuel pricing has had little to no change from previous weeks and rates continue to remain competitive.
The market is still quiet for distributors who continue to fight to keep their wheels turning. The annual driver shortage this time of year has yet to take an effect on the market and there are many organizations with prompt availability on almost all lanes. The improvements in the future weather forecast will hopefully spark new purchases and provide distributors with more freight to move.
News We Are Following
Canada Challenges U.S. Decision to Maintain Softwood Lumber DutiesGlobal Affairs Canada
Toward the second half of last week, the Minister of Export Promotion, International Trade and Economic Development, The Honourable Mary Ng, issued a statement regarding the ongoing softwood lumber dispute with the United States, noting, “Today, Canada filed a notice of intent to challenge the United States International Trade Commission’s (USITC’s) decision to maintain duties on Canadian softwood lumber products, under Chapter 10 of the Canada-United States-Mexico Agreement (CUSMA).”
Canada’s disappointment with the situation is well-documented and this once again raises the issue with the trading partner south of the border.
BC Announces Additional Funding to Support Wood Product ManufacturersForest Economic Advisors
The province of B.C. has announced new funding for 6 wood-product manufacturers which is designed to create and protect jobs while strengthening local economies. The province will contribute up to $8.6 million for 8 new capital projects to help develop new product lines, acquire equipment, and implement innovative technologies to preserve long-term sustainability.
West Fraser Timber Announces Permanent Closure of Fraser Lake, BC, SawmillForest Economic Advisors
Approximately 175 employees have been given the news that their sawmill will be closing down operations, although West Fraser is hoping to mitigate the job losses by providing affected employees with opportunities at other West Fraser locations.
The closure will reduce West Fraser’s Canadian lumber capacity by approximately 160 million board feet.
Downturn in U.S. Home Remodelling May Bottom Out in 2024Joint Center for Housing Studies of Harvard University
It’s expected that home remodelling projects will continue to decline this year as high prices remain amid elevated interest rates and weak home sales. Carlos Martín, Project Director of the Remodeling Futures Program at the Center notes. “These headwinds create considerable uncertainty in the economy, and remodelling spending is projected to fall from $481 billion last year to $450 billion in 2024.” This can have a significant impact on material purchasing and lumber prices as the year progresses.
The dimensional market was flat at best last week with, we would suggest, some downside pressure if we look at the overall position of the market.
We did see quite a range on pricing with some regional mills holding firm with limited supply and a bit of an order file. However, some of the national mills began getting a little more aggressive on their pricing and offerings.
The WRLA Buying Show took place last week, which may have fueled a little bit of aggressive price positioning to try to drum up some sales at the show. But the overall tone felt fairly muted again, with customers falling back on limited takeaway at this point due to weather and seasonality.
In 2x4, there seems to be more readily available material. We continue to see 16’ holding a premium over randoms, however, there has been a little pullback in some instances on 16’ pricing.
We did see print down slightly on 4”, but it really didn’t have much of an impact on mill lists overall. It seems more so of a case-by-case basis how mills are choosing to price their product, whether they’re looking to entice business or still have reasonable order files to fall back on.
There did seem to be some more competition at the wholesale and distribution level, which led to further confusion in the marketplace as to where 4” levels are currently trading.
There continues to be 6” available, perhaps not quite as abundant as 4” on many lists, however. We still don’t anticipate a lot of challenges in sourcing your 6” needs within a 2-week time frame at this moment.
Pricing on print was relatively stable. We saw downside pressure on the longs but it was mostly flat overall.
Again, pricing on 6” is trading within a range. There is not much interest in getting aggressive on the downside from the mill standpoint. However, wholesale and distribution may take a different position depending on their inventory levels and feelings about the upcoming market.
2x8 & 2x10
The 8” and 10” market was relatively flat last week. We actually saw a little uptick in the long lengths, as we have seen limited availability in 18’ and 20’ for both dimensions.
The closure announcement is certainly not going to assist this situation and there have been other rumours swirling about unannounced curtailments at some other mills that do participate in wide production as well as longs.
We could see continued tightness in wide-length longs and strengthen as a result. There will be a lot of eyes focusing their attention on the wides at this point, as again, takeaway has not been robust, but with the further pullback in supply, it may not take much to move the needle.
It was a flat week on print for 2x12 with not much happening in that market. Look for 2x12 to remain flat and stable at this point.
Stud demand this past week continued to mirror more of the same stance from weeks prior. As with many items in the lumber market these last two weeks, purchasers have maintained their cautious approach and remain steadfast in covering only their most pressing and prompt requirements.
Reliance on secondary distribution continues as buyers look to limit their exposure and keep a watchful eye for any escalation in pricing or market activity.
Mill lists remain somewhat slim with prompt offerings, as most 2x6 trims show mid-February availability or further, while 2x6 8’ again remain the most sparse and sought dimension. With order files somewhat extended, now 2-3 weeks with variable prompt offerings, mills are again holding to their established pricing. However, a quieter pace out of the gates this week could see producers again fielding counters in an attempt to garner stronger interest that has at times been fleeting of late.
Continue to cover your near-term needs as required. As in weeks past, we can expect similar market stability and a persistent concern for downside risk. Combined, this will generate a measured and hesitant market as buyers continue to hold to a “wait-and-see” purchasing strategy.
However, it genuinely feels as though the stud market has found a balance, and mills will be hard-pressed to pull pricing back yet again.
Treated product is flowing out into the yards for the upcoming season at a relatively stable pace. There actually has been a little bit more optimism shown at the retail level with comments that retailers have been asking to get their treated product in sooner rather than later. The thinking is that they are perhaps anticipating a good start to the season.
Again, time will tell, but a little bit more positivity in the treated market is being felt even before it really gets underway.
MSR sales remained fairly uneventful last week. Most mills were able to stay ahead of their order files and sell what prompt material they had available, but stretching out their order past 2-3 weeks wasn’t in the cards. Both 2x4 and 2x6 2100 continue to be items that are in relatively high demand. We don’t expect that to change too much going forward with 14’ and longer being the most sought-after items.
LTL MSR inquiries are still steady each week as most truss plants remain quite busy quoting prompt orders with limited inventory on the ground. When orders come in, most are looking to replenish quickly with very specified tallies. We haven’t changed our approach and continue to stock material for our inventory locations to help service these needs.
Please keep an eye out for any 2x4/2x6 2100 longs as well as 2x8 MSR as getting coverage on those items can be tough if there is a specific tally that you require.
Please don’t hesitate to reach out to us if you have any questions or would like an update on anything with regard to price and availability.
Douglas Fir & Larch MSR
As we collectively defrost from a series of major winter storms, the DFL MSR market finds itself looking for short-term motivation. As January is a historically slow period, many market participants have adopted a wait-and-see approach to buying while awaiting early signs of what the spring building season will bring.
Pricing trends in DFL 1800/2400 carried through from preceding weeks with 2x4 1800 dipping -$10 and 2x4 & 2x6 2400 posting $5 gains. As 2x8 MSR remains available from a limited number of producers, pricing has held within previously established trading bandwidths. Demand remains primarily focused on tallies including 14’-20’ lengths, Mill order files range from prompt to 3 weeks out.
While total availability has remained fairly well balanced against ongoing demand, it has been noted that list offerings out of some DFL MSR mills have become increasingly uneven by grade and width. There has been a reluctance from affected mills to quote specified tallies that do not play to their inventory shape. However, this means that there are opportunities to capture value from mills when working on material that addresses their sore spots.
Caution rightly continues to prevail when purchasing, but this quiet moment in the market can be utilized to assess your upcoming needs on heavily used items. You may also work towards addressing those needs where they align with the mill’s points of oversupply.
Plywood continued on a quiet tone as a Western Canadian buying show did garner some attention, albeit in small volumes, and remained fairly muted overall.
Mill order files have been pushed into early-mid February and contract load offerings are still key in fulfilling any prompt demand.
Random lengths print stayed flat after last week's drop as mills look to keep prices firm.
OSB continues to hold at a standstill. It was another flat print for the 6th consecutive week as buyers keep replenishment at a minimum for short-term use.
Contract offerings are covering anything immediately as buyers are largely staying on the sidelines for major volumes looking into late March. Winter in the prairies has also hampered any further inquiry at this time. Limited production to meet supply and demand has remained, allowing mills to keep prices higher.
We have inventories across the country to help fill your LTL and prompt lumber needs. Whether it’s studs, dimensional lumber, MSR, OSB or plywood, we have material on the ground and can fill your mixed truckload needs.
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