June 18, 2021
HERE WE GO… If the lumber markets’ fragility experienced last week needed some confirmation, I think we have found it. After months and months of rising costs, builders battered budgets needed a bit of love. Well, I can thankfully say lumber has stepped up to the plate and is offering up a little hope. YOU ARE WELCOME! Without further adieu, let’s cut to the chase and dive right in and see what transpired this past week in the place I like to call: ‘The Wonderful World of Wood.’ Enjoy…
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Well, that was sort of impressive. This week’s release of May Housing Starts and Permits did little to amaze, as the Wednesday morning data deflated the balloon compared to expected levels. New Home Starts came in at a SAAR of 1.572M, lower than the previous month’s revised mark of 1.517M mark and below consensus levels of 1.630M. Nevertheless, Housing Starts increased 3.6% month-on-month to an annualized rate of 1.572M in May of 2021, following a downwardly revised 1.517 million from April. This was below the forecast of 1.63M, as builders struggled in the wake of elevated material costs and product allocations, combined with a shortage of qualified workers. SFR (Single-Family Residential) starts were up 4.2% to 1.098M, while Multi-Family units (buildings of five units or more) inched 4% higher, coming in at 465K. Regionally, starts were up in three areas, with the Midwest leading the charge, rising month-on-month by 29.9%. The South rose 3.8%, while the West inched up by 1%. The lone soldier to fall month-on-month was the Northeast, as it stumbled by 22.4%.
As we look over the horizon, Building Permits dropped 3.0% from the previous month to a SAAR of 1.681M in May 2021, marking their second straight period of decline and below market consensus expectations of 1.73M. Single-Family permits dropped 1.6 %, coming in at a SAAR of 1.130M, while the volatile Multi-Family segment tumbled 5.8% to a SAAR of 551K. Building permits were down across all regions. The South dropped 2.3%, coming in at 897K, while the West was off 3.1% at 406K. The Midwest was lower by 2.6% at 222K, with the Northeast taking a shot on the chin, faltering by 7.1% to land at 156K.
The tables have turned in a blink of an eye, as buyers are now positioned in the driver’s seat as the market route continues. After suffering sizeable losses last week, 2×4 2/Btr KDHF was hammered again. As a result, 2×4 2/Btr KDHF took a severe blow, dropping an astounding 23-1/3% on the tail of last week’s nearly 10-1/2% stumble. The significant and prompt falter leaves 2×4 2/Btr KDHF now positioned a mere 152.7% below its mid-June 2020 level.
2×6 2/Btr KDHF mirrored the downward spiral, as it too suffered severe losses. Buyers avoided inbound inquiries from producers as the market blood bath unfolded. As a result, 2×6 2/Btr KDHF plummeted by more than 23-1/2%, more than doubling last week’s nearly 10-1/2% drop, as 2×6 2/Btr KDHF closed out the week 170.6% above its mid-June 2020 level
Wide dimensional stock (2×10-2×12) could not escape the carnage, as it too fell victim to the market correction wrath. As a result, 2×10 2/Btr KDHF was pounded, losing nearly 21% for the week, nearly quadrupling last week’s near 5-1/4% dip. Nevertheless, 2×10 finishes the two weeks off significantly and now stands 198.8% above its trading level from one year ago.
2×12 2/Btr KDHF succumbed to the retreating pattern as it closed out the week deep in the red. 2×12 2/Btr KDHF was hammered by nearly 21-1/4%, easily outpacing last week’s more than 5% four-fold. 2×12 2/Btr KDHF closed out the week 195.2% above its mid-June 2020 level.
Green DF Timbers remained their foothold, as prices did not follow the markets retreat. Green DF Timbers took a bold stance closing out the week unchanged, as it hung onto last weeks more than ¾% effort. As a result, Green DF Timbers ends the week just 104.8% above its mid-June 2020 level.
2×4 Western S-P-F 1650fb MSR tanked by more than 16-2/3%, adding to last week’s 11-1/3% downward move. This week’s action marks the third consecutive weekly downward move since late January, as 2×4 Western S-P-F 1650fb MSR is now positioned 119.7% above its mid-June 2020 level.
After 2x4x8′ PET KDHF Solid Studs impressively held their own last week, slipping by a mere 3-3/4% amidst the early turning of the tables. 2x4x8′ PET KDHF Solid Sawn Studs piled on significant losses making up for lost time, dropping more than 21% more than 5x last week’s effort. As we hit the mid-point of June, 2x4x8′ PET KDHF Solid Studs sit 182.4% above their mid-June 2020 level.
2x4x9′ PET KDHF Solid Sawn Studs could not escape the market’s pullback, as buyers were in complete control this week. As a result, 2x4x9′ PET KDHF Solid Sawn Studs were hammered nearly 23-2/3%, a massive increase compared to last week’s 4% downward move. 2x4x9′ PET KDHF Solid Sawn Studs now stand 205.6% higher than where they were precisely one year ago.
The pendulum shift in the lumber market had little to no impact on the panel market for the second week in a row. As order files extended in the 5+ week territory, plywood producers could stand their ground and defend their turf. As a result, 4x8x1/2″ CDX Plywood closed out the week unchanged, as it digested last week’s ¾% move. 4x8x½” CDX closes out the week a solid 325.3% above its mid-June 2020 level.
4x8x3/4″ T&G UDLX Plywood followed suit, as it too ended the week unchanged, as it paused after last week’s nearly 1-2/3% effort. This leaves 4x8x23/32″ T&G UDLX Plywood 232.2% above its mid-June 2020 mark.
Amidst the market’s massive shift, the Commodity King ignored the market chaos as producers fell back on their current orders files for stability. 4x8x7/16″ OSB closed out the week unchanged, hanging tough after last week’s ¼% effort. The COMMODITY KING ended the week at an unfathomable 508.0% above its mid-June 2020 level.
The DISCOUNT of 7/16″ OSB vs. 1/2″ CDX hung tough, matching last week’s 17.1% mark.
4x8x23/32″ T&G OSB offered up a neutral effort, as it came into Friday unchanged, as it paused compared to last week’s more than 2/3% effort. 4x8x23/32″ OSB ends the week 232.2% higher than where it stood precisely one year ago.
Continued firmness in the plywood floor sheathing category helped keep the plywood vs. OSB at a 13.3% DISCOUNT below its plywood counterpart.
The roar of the bears was heard in full force this week, as the bulls were nowhere to be found. Skittishness among buyers allowed the market retreat to gain some serious traction as it searched for a near-term bottom. My composite fell for the third week in a row, plunging by $192.9mbf, off nearly 12% for the week, to close out as at an even $1420.0mbf.
The July lumber futures contract arrived at the 4-week mark before expiration as weakness was seen four of the five trading days this week. Tuesday offered the only hope for a market bottom, but that was merely another dead cat bounce. The July contract crashed but managed to find support Friday near the $850mbf mark before moving higher from its intra-day low. After that, the July contract was pounded, closing out the week at $900.8mbf as it fell by nearly 15% for the week. Once the pummeling was said and done, the July futures-to-cash discount retreated, ending at 10.37% compared to last Friday’s 15.94% mark, as the cash market pullback helped close the gap.
Looking out to September, the futures-to-cash discount grew to 14.66% versus the previous week’s 27.38% mark. The November discount dwindled as the market’s weakness spread across the board, leaving November at 24.93%, down from last week’s 38.33%. The January 2022 contract yielded to the board’s weakness as the discount remained, closing out the week at 27.81%, compared to last Friday’s 41.07% level. The March 2022 contract finished the week at 29.2%, down from the previous week’s 42.83% level. Looking ahead nearly 12-months, the May 2022 contract closed with a 32.24% discount, slipping from last week’s 41.33% discount. Looking out more than a year over the horizon, the July 2022 contract came in with a 32.24% discount, growing from last week’s 41.33% mark, as the board continues favoring lower prices ahead. Until next week… Shoe out!