Who says the price of Lumber is going down

[mike_belben]

I will limit my comment to this so as not to get myself in trouble. 

Everyone please consider the risk that the current geopolitical events will flip the switch that causes the chinese to send back and flood us with cheap kiln dried lumber sawn from the expensive logs weve been sending them. Anyone stuck with expensive inventory or a big new mill payment will be in a bad way. 

[nativewolf]

Mike surprisingly our hardwood exports, log form, have been dropping.  At first this was mostly due to the tariff war, more recently covid, and now supply chain.  As logbyr says the demand today is domestic.  Now, there is surely a boom bust wave that is destined to start hitting our pricing pretty soon.  Just as sure as death and tax.  Mills are still running as hard as they can and it is nearly impossible to envision exports of any substantial form increasing dramatically.  The ports/trucking situation alone won't support it.  

It would take well on a year before hardwood lumber of any great capacity was making its way here.  In Europe the Ukraine was a major supplier of lumber/logs (though some of it was illegal).  It was not as bad as Romania where Austrian companies were harvesting the national parks.  It was a fairly significant producer.  China had stepped up buying there and in Eastern Europe when we got in the trade war.

As LL says the housing crisis in China still has a long way to unwind.  More companies recently filed.  Housing prices (per sqft) in major Chinese cities exceed that of London and Berlin which have standard of living far above Beijing and Shanghai.  That's a bubble.  The good news is that the average home/apartment size in China has been dramatically increasing which means more and better materials which flows back into lumber pricing at some point.  Russia.  Russia lost a lot of people in Covid, in particular in the far east which was always underserved in healthcare and infrastructure.  China has made far eastern russia almost a province at this point and if it can be clearcut it is.  They had some ancient old growth hardwood forests in far eastern russia, I would bet a house against a penny that they are gone.  They were amazing forests, real old growth like what was in Michigan and WI before the over harvest and fires.  Koreans got there first but man...it was an ugly old west kill you for logs sort of environment.  Chinese dominate now but because it's so hard to know what's happening it's hard to know how much remains to be harvested.

Anyway, point here is that due to the tariffs and then disruptions lots of the remaining hardwood forest in the temp regions were over harvested.  Harvest could continue in Romania and Ukraine for a few more years maybe but not much longer.  That's going to impact oak pricing.  Aspen and birch from Scandinavia and northern Europe could make a recovery if supply chains relax next year.  That would reduce the impact on plywood that YH sees.  

I think LL is focusing on a salient point, what happens in Chinese housing market is critical.  If the housing market collapses it would potentially have a far more devastating impact in China than the housing crisis here because in China the pricing is far more inflated than ours was.  Also that the vast vast majority of the risk is held by Chinese individuals.  US and European firms have a few tens of billions in exposure.  Not much compared to the chinese population that has caused the value of housing in Beijing to exceed the value of all houses in Germany.  Shanghai being worth more than all of TX, etc.  The prices have inflated beyond any reasonable expectation of worth.  How they walk that back is going to be interesting and will require coordination with international banking systems.  

In short I don't see any potential for flip of switch changes to log purchases and sales or that China will be sending back subsidized lumber.  They can't get logs in volume and alternative supplies of logs really are not deep pools, to the extent they were good sources they were illegal harvest or in Ukraine which will now be sanctioned and embargoed or in areas that have been over harvested (far eastern russia temperate zones) for 30 years now.  If it was valuable and low hanging..it's stripped.  This leaves the USA, Australia, tropical plantations, and Northern Europe birch beech and aspen.  Supply chain logistics and the housing issues in China are going to constrain supply chain dumping.  

As for demand for housing domestically, it is unmet.  We failed to build an adequate supply of housing stock for years.  The number of young families living with parents is soaring.  Demand for housing is sky high, there are no houses.  My wife is a real estate agent now  and ...they are knocking on doors trying to find homes.  For every 10 buyer agreements they have 1 sales agreement.  Lots of people want homes and this is a fundamental need, not second home wannabe buyers.  It is young families that want to get out of the house.  Interest rate changes may reduce things but our rates are historically low low low.  Even with 2% increase we'd be low.  Far lower than when I bought my first home or second home or third home.  

Overall I feel stavebuyer is on target.  We've peaked on a hardwood cycle.  Prices will likely drop on  weaker commodity hardwood lumber.   On softwoods though supply issues abound. @Quilbilly1  has been seeing price increases in quality export logs even now, softwood lumber prices are still high. How high?  

Lumber Trading Is So Hot That It Almost Never Happens - WSJ

There is an non zero chance that we see softwood lumber at highs that exceed anything ever seen, all the way back and adjusted for inflation.  That's almost all domestically driven and constrained by supply.  There are pulp mills trying to truck pine 300 miles today due to supply chain issues. 

I don't disagree that China would like to dump processed hardwood products.  I don't think they can.  If they can get the logs than they need the products domestically.  They need houses with furniture and floors and doors and cabinets.  They've built million of high end large apartments that are unfinished.  These houses are not all cheap industrial worker houses.  Several million units are high end, larger than what you'd see in NYC or San Fran or Berlin.  When finished, they'll be nice.  But they need to finish 64 million apartments.  5 million are "luxury".  Large high end 2-5k sqft shells with nothing.  Nothing in them.  Just the lux homes equal 5 years of USA production.  Much less the 49 million which still need something.  It's a lot of wood.  It has to come from somewhere because China almost none.  

[Southside]

$4.00 diesel, adjusted from 2008 to whatever that is today. When that shows up at the pump the music will stop. 

[customsawyer]

I've been in the wood business since 1990 in some form or fashion. I've seen booms and bust on different ends of the business. I have never seen anything like what is going on now. All I know to do is make hay while the sun shines and have some put back for when the rains start. As to how soon that is going to be I don't know but I feel like it will the opposite of what we are in now. Meaning it will be worse than I have ever seen it. I'm getting customers driving over 6 hours one way for 5 boards or driving 5 hours round trip to have me saw 9 2x boards into 1x boards. I think part of it is they can't find it anywhere else and part of it is it gives them an excuse to get out and go somewhere. Folks are tired of being stuck at home. Just sawed a semi load of some of the prettiest pine logs I have ever seen with lots of heart in them into 7/8" lumber as the logger refused to buy OSB at the current price. I would have bought the OSB for him if he would have sold me the logs.

[nativewolf]

$4.00 diesel, adjusted from 2008 to whatever that is today. When that shows up at the pump the music will stop.

you made me look,  2008 it ranged from 2.44 to 4.70.  In march it was 3.88.  So adjusted for inflation diesel is a bit cheaper today.  3.88/gallon in march adjusted at inflation of 1.92% (between 2008 to today) to today would give you $5.08 / gallon.  
 https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emd_epd2d_pte_nus_dpg&f=m

[th]Year[/th] [th]Jan[/th] [th]Feb[/th] [th]Mar[/th] [th]Apr[/th] [th]May[/th] [th]Jun[/th] [th]Jul[/th] [th]Aug[/th] [th]Sep[/th] [th]Oct[/th] [th]Nov[/th] [th]Dec[/th]
1994			NA	1.107	1.100	1.103	1.110	1.123	1.125	1.122	1.131	1.113
1995	1.098	1.088	1.088	1.104	1.126	1.120	1.100	1.105	1.119	1.115	1.120	1.130
1996	1.145	1.145	1.183	1.275	1.273	1.201	1.176	1.201	1.265	1.323	1.323	1.309
1997	1.291	1.280	1.229	1.212	1.196	1.173	1.151	1.165	1.160	1.183	1.192	1.166
1998	1.120	1.084	1.063	1.067	1.069	1.041	1.029	1.007	1.024	1.039	1.022	0.973
1999	0.967	0.959	0.997	1.079	1.073	1.074	1.122	1.172	1.215	1.228	1.263	1.292
2000	1.356	1.461	1.479	1.422	1.420	1.421	1.434	1.466	1.637	1.637	1.621	1.565
2001	1.524	1.492	1.399	1.422	1.496	1.482	1.375	1.390	1.495	1.348	1.259	1.167
2002	1.153	1.152	1.230	1.309	1.305	1.286	1.299	1.328	1.411	1.462	1.420	1.429
2003	1.488	1.654	1.708	1.533	1.451	1.424	1.435	1.487	1.467	1.481	1.482	1.490
2004	1.551	1.582	1.629	1.692	1.746	1.711	1.739	1.833	1.917	2.134	2.147	2.009
2005	1.959	2.027	2.214	2.292	2.199	2.290	2.373	2.500	2.819	3.095	2.573	2.443
2006	2.467	2.475	2.559	2.728	2.897	2.898	2.934	3.045	2.783	2.519	2.545	2.610
2007	2.485	2.488	2.667	2.834	2.796	2.808	2.868	2.869	2.953	3.075	3.396	3.341
2008	3.308	3.377	3.881	4.084	4.425	4.677	4.703	4.302	4.024	3.576	2.876	2.449

[nativewolf]

I've been in the wood business since 1990 in some form or fashion. I've seen booms and bust on different ends of the business. I have never seen anything like what is going on now. All I know to do is make hay while the sun shines and have some put back for when the rains start. As to how soon that is going to be I don't know but I feel like it will the opposite of what we are in now. Meaning it will be worse than I have ever seen it. I'm getting customers driving over 6 hours one way for 5 boards or driving 5 hours round trip to have me saw 9 2x boards into 1x boards. I think part of it is they can't find it anywhere else and part of it is it gives them an excuse to get out and go somewhere. Folks are tired of being stuck at home. Just sawed a semi load of some of the prettiest pine logs I have ever seen with lots of heart in them into 7/8" lumber as the logger refused to buy OSB at the current price. I would have bought the OSB for him if he would have sold me the logs.

Must have been nice pine!

[stavebuyer]

Since the housing bust began in 2006, China has been the majority of the hardwood grade lumber market and at times a major player in raw logs. Covid/truck/ports as well as Chinas own Evergrande downturn are all factors. US covid, escape the city house boom all at the same time.

We have a hardwood industry that lost 75% of its market(China). A hot domestic housing market stimulated by ultra low interest rates and government bonus checks indeed fueled a domestic construction boom that replaced some of the China usage. Production has been hindered because of Covid shortages and lack of labor etc.,
Now we have Ukraine. Who knows where that leads but what we do know is:

Inflation is high
Interest rates are rising to try to tame inflation
Food, Fuel, Energy costs are rising dramatically as has lumber
People have less money available for housing because they are spending more on food and utilities.
Housing will be less affordable due increasing interest rates.
Export is not an option. The ports are blocked.
No Covid bonus checks or supplemental checks to families with children.
Higher cost of living reduces new housing demand and no export market.
Sawmill labor troubles start to ease because people like to eat and there is no government check in the mailbox.

Lumber inventory starts to build and at the first sign of a softening market nobody wants to be stuck with inventory losing value so they quit buying. Production immediately swamps demand and prices drop faster than Peloton stock.

During normal economic times domestic use of hardwood was only 25% of the market. This boom is on the way out.

[customsawyer]

nativewolf how do these rate?

Yes I'm using a 5 gallon bucket for a reference.

 

[TimW]

Late last summer, my daughter moved back here and bought her second house.  She is renting her first house to Tesla employees that moved into Austin.
From Jan. to July, we looked at houses around here.  She put bids accepting the asking price of the sellers.  Only to have her bid not win.  She kept hearing you have to say you will pay more than asking price.  The house she finally bought, she paid $2500 over asking price.
"For sale" signs in yards gave way to yard signs that stated..............."Soon on the market" or something like that.
If you saw a for sale sign and called, there were already contracts on it.  It was crazy house hunting.  We drove around the area she wanted to buy for months looking for soon on the market signs.

[Peter Drouin]

I'm getting good W Pine in. I buy all the winter cut I can get.


 

[moodnacreek]

We are lucky that softwood lumber is staying high priced with fuel going up. It doesn't always work this way.

[longtime lurker]

Diesel price here was at $1.82 a litre today, it's gone up 14 cents in as many days. That works out at $4.98 USD a gallon.
12 months ago I was paying $1.31 a litre, worked out at $3.85 US/gal
Not only has the price of oil gone up but the AUD has dropped against the greenback so it bites me that way too.

The dollar amounts don't really matter because wood prices are higher here too so it all balances out, but that's near enough to a 30% increase in the price of diesel over 12 months.
CPI increase for the state (and my state log sale royalty is CPI indexed) for the 12 months to December was about 4.3%, but it's about to skyrocket because of fuel price hikes.

I'm old enough to remember paying 20% + interest rates in the late 80's when I first kicked off in business for myself. And I've ridden out booms and busts in the housing cycle, managed the fallout of category 5 cyclones, commodity crises, exchange rate fluctuations from one end of the scale to the other, the GFC, and whatever other business pitfalls over the last 30 years. But the spiralling inflation issue is not something I've had to deal with before and I've got no playbook for it beyond work hard, make hay while the sun shines, and spend wisely.

As I said demand is still strong, but even if the price of wood stays right where it is cost increases are eating into it quick. In terms of nett margin rather than gross earnings I think the peak of the boom is behind us already.

[YellowHammer]

You are correct, my retail prices have hit a pain threshold (still lower than average retail hardwood suppliers) and we have had to reduce out net profit on some species to compensate for the higher prices I'm paying.

So we have a "make money price" and "I lose money if it sell it for that" price.  I consult these analysis every time I get a new shipment of lumber in, to decide if, or how much I will have to raise my price to compensate for what I'm paying for the lumber.

As far as logs go, it's pretty digital.  I just can't get clear hard maple, big cedar, clear soft maple, paulownia, and white oak logs from my usual sources, as some mills are paying absolutely outrageous amounts for them.

So I hope the cost of wholesale lumber goes down and I can actually hold my price steady and get back into the make money price on some species.