What Happened?

Evidently the “fractured supply chain” we heard about at so many industry conferences earlier this year works just fine when it’s chock-full of wood. Mark Kennedy, Executive Director, Equity Research at CIBC World Markets, cites a combination of four market factors which created an oversupplied North American supply chain:

  1. The over extension of prices (caused by momentum, with little fundamental demand support)
  2. Construction delays caused by poor weather
  3. The ramping up of production at sawmills in the U.S. and Canada in the face of strong market pricing
  4. Push back from China.

‘Push back from China’ is explained as follows:
“Lumber prices (on North American lumber) in China hit an all-time high in Q1/2013 of about US$280 per m3 on utility grade SPF (equivalent to about US$370/M mill net). China’s response to this record level of lumber pricing was to push back on several fronts. They picked up more lumber volume from other countries. In addition, some Chinese lumber buyers switched back to buying logs and then doing the product conversion in China. The combination of these two events was to reduce Chinese purchasing of North American lumber – particularly in the recent months of March, April, and May.” Mark was on BNN earlier today to talk about the ‘lumber tumble’ here.

Meanwhile, some lumber wholesalers point to the lumber market having plummeted ever since Tom Davis was announced this year’s recipient of the BCWLA Lumberman of the Year Award (click image for larger size).
Tom Davis vs CME Chart May 2013-page-0 (1)

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