Hardwood Demand Underwhelms Expectations, as China WeakensHardwood lumber sales in the first quarter of the year were a bit below industry expectations, as lumber production exceeded demand and caused widespread buildups in inventories, especially in the oaks.

There are signs that lumber price declines have begun to stabilize, but we continue to anticipate that lumber markets will remain slow with prices under pressure until fall.

Hardwood Demand Underwhelms Expectations, as China Weakens

Domestic markets have strengthened a bit in the past month, if government statistics are to be believed, with new home sales rising 7.8% in February and unemployment holding at 5.5% — though it takes a special kind of optimism to see much “improvement” in recent housing and employment data.

Sales reports from distribution yards indicate most of their increased business is to contractors building higher-priced homes. In many U.S. housing markets, in fact, the only strength at all is at the top levels, and in vacation homes.

Hardwood exports improved in February but continue to underwhelm expectations. Year-to-date shipments were off 6.3% from the 2014 pace—the equivalent of 650 fewer containers shipped each month.

Reports indicate China’s economy continues to slow; its March imports were 12% lower than year-ago levels, and exports were off 15%. European lumber demand is slowly improving, but exchange rates remain unfavorable for U.S. shippers.

 

2-Month Outlook for Key Hardwood Items
Item 2-Month Outlook Comments
Northern 4/4 #1 Com Hard Maple q $50 Northeastern prices are now $100 below North Central and falling, so more downward price pressure is inevitable.
Appalachian 4/4 FAS/1F Soft Maple tu   Unselected Soft Maple will continue to benefit from the shift to painted finishes and its cost advantage over other white woods.
Appalachian 4/4 FAS/1F Red Oak q $20 Though upper-grade Red Oak supplies are largely in check, production will edge ahead with China still sitting out.
Appalachian 4/4 #1 Com White Oak q $40 Tighter supplies of FAS/1F lumber and high-quality logs should avert another $100 price decline this period.  Too optimistic?
Appalachian 4/4 FAS/1F Poplar tu   Prices have barely budged since the New Year, and rising exports will prevent any buildup from higher production.
Southern 4/4 #1 Com Red Oak q $80 Demand will gradually improve from China, Mexico and even domestically, but not fast enough to burn off excess supply.

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