Smoother sailing for lumber prices?

After nearly three months of weak pricing in North American lumber markets, there is evidence that many of those prices have reached a bottom. Structural panel prices are also showing greater resilience and increasing in some instances. The ride down took a lot longer than most traders had anticipated. This proved costly to many wholesalers who, back in April and May, believed a short-lived decline followed by a bounce in prices was a more likely scenario.

Now, after an extended price downturn, expectations among those in the industry are much more restrained. "I think we're going to bump along during the summer without any big ups or downs," was one trader's assessment of future price direction and a popular opinion among market participants. Certainly, the willingness of producers to adjust output to balance with summertime demand will play a large part in prices over the next few months. "It feels like we're producing for over 1 million housing starts when it doesn't appear as though we're quite there yet," noted another trader recently.

Lumber inventories owned by the wholesale segment of the industry began to decline in May, dropping 2% from April, according to figures released by the U.S. Census Bureau. This was the first month-over-month drop in wholesale lumber inventory since November of last year. Then in June, more distributors reported purging their inventories of high-priced stock, declining to purchase those volumes that would average their inventory costs lower. In essence, they took it on the chin in preparation for a better buying opportunity.

Now, that opportunity appears to be here. Wholesalers are clearly more open to purchasing, although not with the same vigor as the first four months of this year. So far, it has been, at the very least, enough to stop the heavy bleeding.

This article was provided by Crow's Market and Price Service/RISI. For a free trial of this service, visit RISI.com/crowsfree.