Opinion: What Could Make This Lumber Market Go Higher?

Editor’s Note: Our ongoing focus on trends and impacts of the lumber market has generated considerable discussion and reaction.   While we are not lumber market experts, our membership expects us to ask the questions they are asking and uncover information that can help them navigate the marketplace challenges they face. Our goal at SBC Magazine in covering the lumber market is to spur conversation and dialogue on the topic.  To that end, we want to share a perspective submitted to us by Matt Layman, publisher of Layman’s Lumber Guide. Matt has been publishing a lumber report since 1984 and regularly provides his expert analysis to SBCA chapters and individual members.

 

The question “Can Canadians Owning U.S. Lumber Mills Influence Random Lengths?” is a great one and as you might expect, I have an opinion.

First Random Lengths.  News organizations are all influenced by information they are given. Considering the financial investment that all contributors have in the lumber market, we all must assume that everyone talks their position.  Rarely will a mill confess true weakness.  And rarely will they under sell strength.  Large office wholesalers selling a wide variety of products are a convenient and good source of information.  However, we must consider their long or short position or bias towards the market. That influences what they say and how they say it.

Case in point.  This week prices are mixed.  2x4’s continue to gain while many other items falter.  Why?  Two weeks ago, office wholesalers/brokers bought heavily.  They bought the 2x4 three-week delayed shipment in hopes of price appreciation for two weeks, then an easy sell.  That was nonsensical.  Three week shipment means the dealers are over bought, or if it is a shipment issue, the mills are not selling production.  Either way, a 3-week order file is a sign of a topping market.

So, brokers tell a story that supports their long 2x4 positions and we get a higher print while mills fail to sell production.

As for Canadian mills, I have been touting for over a year that the “US Lumber Coalition” is so hell bent on punishing Canada and its imported SPF lumber, they have let the Canadian Lumber Cartel buy a monopoly.  We saw two examples in 2017 when one mill single handedly spooked SPF up $40/mbft…twice…and it stuck.  The duty was cited as the excuse, but in actuality, they were doing the bidding of the other Canadian mills.  Stick it to the U.S.  You go first and we will follow, and they did, in just a couple of days…without orders to substantiate.

Now Canfor is spending $125 million to build a lumber temple right in our back yard, Georgia.  Tolko just announced a partnership with Hunt Lumber to build a brand new 200 mmbft sawmill in LA (its first U.S. investment).  Who’s next?  Every family owned sawmill that just made a ton of money and can get a premium for selling out.  Canadian production subsidies and the “duty” are a smoke screen.  Canada keeps on squealing like they’re hurt, meanwhile they are accumulating larger piece of the entire lumber market pie.

The Canadian Lumber Cartel owns more than 25% of North American softwood lumber production and is growing. They are marching through the south like General Sherman’s army, only the strategy is quite appealing.  They leave behind a few wealthy families while they slip the noose a little tighter around the whole industry’s neck.  The lumber market on both sides of the border is screwed. 

I was asked today by a large national home builder, “What could make this market go higher rather than crashing?”  At the time I answered, “Nothing.”  In retrospect, the answer is “the Canadian Lumber Cartel”.  They have the inclination and the clout to draw a line in the sand and say…no lower prices… in fact, higher prices...just because.  I would go so far as to say, when this market looks its most bleak, that is exactly what will happen.  Without warning, a price line will be drawn in the sand.  This time it will include SYP.

Our focus should not be on Canadian owned sawmills influencing Random Lengths’, or Madisons’, or Crows’ or Laymans’  pricing, rather Canadian owned sawmills controlling the entire lumber industry.  We should be more than concerned...even fearfully worried about the exposure we have to unjustified, whimsical higher prices now that we have relinquished control of open market pricing.

My fear for our lumber market, our component manufacturers, our lumber dealers, treating plants and home builders is unpredictable price manipulation…and right now…there is nothing to stop it.