In Chinese philosophy, the concept of yin-yang, which is often called yin and yang, is used to describe how seemingly opposite or contrary forces are interconnected and interdependent in the natural world; and, how they give rise to each other as they interrelate to one another.
In this year of the Horse, the usual supply/demand factors that shape lumber markets are seemingly in pause mode. But! Traders are casting a wary eye over the slow simmer that presently characterizes lumber market activity. In the face of a harsh winter, opposing tensions are brewing. Is the market “loading the slingshot” for a significant spring rally or, is the stage being set for a significant correction? Here at Dakeryn the trading floor weighs in with some arguments in support of either scenario.
Lumber prices will collapse this spring because:
- When lumber prices climb, global fibre supply increases, capping the price ascent
- Customers have been buying from sources outside B.C. Pent up demand is not what it seems.
- Sawmill output is increasing. There will be ample supply to meet demand.
- The recent tumble in U.S. housing starts and permits will continue. In a compressed building season, starts cannot catch up to projections (for a 20% increase over last year).
- The market has so far been propped up by lack of car supply. Lumber supply will overwhelm the market when rail cars return.
- Offshore demand will falter.
Lumber prices will erupt this spring because:
- The gradual recovery in the U.S. housing market will continue. Forest stock analysts forecast higher highs and higher lows in lumber prices through 2015 – the trend is your friend.
- Rail car supply will continue to squeeze shipments. April wood will not arrive until May. Look out.
- A major announcement concerning sawmill shutdown/curtailment due to dwindling fibre supply/fractured supply chain will ignite a feeding frenzy
- Hand-to-mouth buying patterns = lean field inventories; dealers and wholesale distributors are under-bought.
- A demand surge will see freight costs skyrocket.
- Offshore demand will shatter the record volumes of softwood lumber and log shipments achieved in 2013.
“Winter weather, late rail cars, high prices relative to the last 6 years, and accountants calling the shots on inventories have the market myopic and unable to look past tomorrow’s needs.”
– a Midwest lumber wholesaler this week.