U.S. hardwood market update: Supply is conforming to demand, a lesson from history

At the time of this writing, buyers of U.S. hardwood grade lumber have seen no real evidence of supply contraction. Not in China. Not in Vietnam. Not even in the U.S.. If anything, U.S. hardwood supplies seem abundant, if not excessive. Sporadic off erings of lumber at deeply discounted prices are all the proof buyers need to form this opinion.

Indeed, U.S. hardwood grade lumber inventories have been available, especially the species and grade combinations that are most reliant on the Chinese marketplace. However, those inventories are working down, despite the intermittent distressed sales that suggest otherwise. Also, less lumber volume will be introduced into the market behind the lumber inventories that are currently available. By: Judd Johnson Managing Editor, HMR

The reason? Supply is conforming to demand, as it always does.

The following developments have taken place to date: • Chinese distributors and secondary manufacturers have lowered inventories. They feel that less volume is needed because U.S. suppliers can quickly ship more lumber when necessary. Furthermore, and likely most importantly, Chinese distributors and secondary manufacturers simply do not need as much volume as before because demand is down. • U.S. hardwood sawmills have reduced production. (See Figure 1) • U.S. hardwood sawmills have altered the species of lumber produced by turning away from those that are most reliant

Figure 1: This graph demonstrates overall decrease in U.S. hardwood lumber output. It cannot show volume redirected to species other than Oak, Ash, or Cherry. Nor does this graph show how much sawn material is processed into industrial timbers rather than grade lumber. on the Chinese marketplace to species that are readily salable in other markets. • U.S. hardwood sawmills have altered production further by making less grade lumber and more industrial lumber and timber products. • Private hardwood timberland owners in the U.S. are suspending sales during this market downturn. Importantly, all sales are not postponed, nor are all timber harvests stopped. However, enough timber is being held back that sawmills could have diffi culty increasing production rapidly once demand for U.S. hardwood lumber rebounds again. • U.S. hardwood concentration lumber yards have recalibrated inventories to be less dependent on the Chinese market and focus more on other markets. As with sawmills, concentration lumber yards have changed the quantities and types of products processed through their facilities.

These moves by mills and yards have been helpful to minimise the eff ects of a contracted Chinese market, but results develop slowly. In the interim, there are instances when mills and yards simply cannot avoid processing Red Oak, Ash, or Cherry, for example. It takes time for supply to conform to demand.

Progress can be diffi cult to see. In fact, progress in supply correction can easily be dismissed entirely. This is where buyers tend to make mistakes. They are confi dent with supply based on the number and types of offers currently received. Sometimes they ignore, reject, or are simply indiff erent to the fact that circumstances change … that supplies

are changing. They are content when they should be conscious of change.

Buyers have been caught off guard in the past by what they thought was a sudden drop in supply. For many of those buyers who either misjudged or were simply unaware of changing supply circumstances, history has shown that purchasing the items and quantities needed for ongoing business can be diffi cult and costly. Undoubtedly, there will be buyers caught off guard by this latest correction. ℗

HMR is the leading source of pricing and market information for North American hardwoods. It has provided reliable, expert analysis of pricing and market trends to hardwood companies throughout the world since 1922. Sample copies and subscription services for Hardwood Market Report® and all other HMR publications are available online at www.hmr.com. Figure 2 footnotes: 1. The term “Supply” includes Eastern and Western U.S. hardwood sawmill production plus imports of hardwood lumber. 2. Data for Supply and Demand are comprehensive of 12 months for each respective year. 3. Demand data for year-to-date 2019 are uneven aged. This is due to diff ering reporting periods by the various sources used. 4. The Supply graph line does not include inventory. 5. Inventory is represented by the space between the Supply and Demand graph lines. It is representative only for each year and is not cumulative over periods of inventory contraction or expansion.