August 2021 Component Manufacturing Advertiser

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Don’t Forget!

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August 2021 #13265 Page #110

Lumber Briefs

By Matt Layman Publisher, Layman’s Lumber Guide

When Everyone Agrees: Don’t! he last couple of years have served up ample opportunities to be reminded of the futility of following the herd. The industry is still reeling from its hypnotic inventory accumulation at the insistence of home builders’ demands to not leave them under supplied. Some of our members took positions contrary to my May recommendation to reduce inventory, and built inventory positions that are still painful.

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The lesson to be learned here is to open the blinds and look beyond the situations and conditions of your local market. Even multiple location operations can get boxed into a myopic vision of circumstances limited to their scope of interest.

The best one-liner ever offered to me was by the president of one of the largest brokerage floors in the U.S. When I asked, “What is the market going to do next?”, his reply was, “Hey, it’s bigger than me!”

In these times of instant mass communication, any information that can impact the market is known in minutes. If there was ever a time to not follow the crowd, this is it. The current expression of the herd is flight from the market.

It is clear that there is no shortage of lumber supply globally. If anything, there is an oversupply. Let me give you the only data points needed to prove the point. In Q1, we were teased with 1.7 mm housing starts and lumber disappeared. Here at the beginning of Q3, we have another 1.7 mm housing starts report and we are choking on lumber supply and prices are down $1000 with no fundamental change in housing. What was the difference? Inventory accumulation was the Q1 strategy. Q3 has no accumulation urgency. Inventory is rebalancing with mills still running at roughly 90% of capacity. Prices are attractive to speculators and investors, however fear of supply shortage does not exist, particularly with half a dozen new mills in the process of joining in the fray over the next 12 months.

Capacity to “start” homes exceeds capacity to “complete” those starts. That is bearish for lumber going forward. Next is an August-September rally that spins our heads again.

Wildfire Impact & Other Confusion Bulls are grasping for straws. It just seems like prices ought to rally after falling $1000, right?

Remember the big picture. Wildfires in Canada are no joke. Timber is being roasted and smoke inhalation is a negative influence on worker productivity. Shipments will also experience delays.

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