The North American softwood lumber market ended October 2018 at a low point for the year—a complete reversal compared to its record-setting performance earlier in 2018, which also came on the heels of solid performance in 2H2017.
Throughout Canada, inventories still remain heavy, customers are quiet, producers are just starting to announce seasonal downtime and secondary suppliers have an abundance of wood on hand. At sawmills, log supply has been plentiful and small orders of fill-in lumber are about the only sales tasks that need to be addressed.
Market conditions for North America softwood lumber products—the supply-demand balance—has changed drastically in recent weeks. The slowdown in US construction activity has caused lumber producers to pump the brakes just a few months after surging demand drove price levels to new highs.
At the start of 4Q, suppliers quickly found themselves with overflowing inventories and more manufacturing booked to come online quickly. Buyers, meanwhile, have backed off almost entirely and prices have responded accordingly.
An unexpected predicament recently manifested itself in the form of labor action for producers in British Columbia (BC); the United Steelworkers Union, representing sawmill workers across Canada, is currently in negotiations with two BC employer groups that have been hit by rotating strikes at select operations. In response, several individual operators have announced seasonal curtailments and downtime. This sudden uncertainty is hitting at a time when lumber demand is soft and prices are lower than earlier in the year, so the impact to production has not yet been felt in the market.
- Western Spruce Pine Fir
WSPF lumber manufacturers in Canada picked up pace last week, especially compared to the slow pace of sales they labored through for most of October. Standard construction framing 2x4 lumber commodities garnered sawmill order files into the week of November 19th. Fiber and car supply were both adequate but if buyers continue to ramp up orders, transportation equipment availability could get scarce quickly.
- Eastern Spruce Pine Fir
While log supply, transportation and production of ESPF lumber continued to go smoothly last week, Eastern Canadian producers noted that sales activity was spotty. As the week wore on more inventory-depleted customers came to the table, sensing that a bottom would be reached soon if it wasn't already this week. Sawmills had little success in extending their order files, most of which were still around two weeks.
- Kiln Dried Fir
To hear traders tell it, kiln-dried Doug fir lumber commodities hit a price bottom this week. As Canadian producers finished shipping excess production volumes to offshore destinations—at price levels higher than those available in US markets—domestic business seemed to stabilize this week and prices stopped crashing.
- Oriented Strand Board and Plywood
ESPF plywood improved last week, with mills putting in a bottom and pushing order files out to the end of November in some cases. Buyers were light on inventory after overcorrecting and running too low. Construction activity in Toronto remains slow, as OSB continued to search for a bottom price.
Western Canadian panel dealers were busy early last week before sales tapered off. Plywood mill order files were apparently three to four weeks out, mill-dependent. After producers raised their prices again midweek, wholesalers decided not to chase. OSB numbers “firmed a bit” but didn't move significantly.
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