Outlook Mixed

My takeaways from industry connections at the lively LMC Expo in Philadelphia last week suggest year end reviews from analysts point to a mixed outlook for 2016.

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Analyst Paul Jannke, Principal of Forest Economic Advisors (FEA) presented at Friday’s breakfast session. I arrived early, having heard Jannke speak back in 2012 at the NAWLA Regional Meeting in Vancouver. A bull in a Bruins jersey back then (see post here), his presentation was decidedly more bearish on Friday. The four factors explaining this year’s lumber price collapse were familiar (lower than forecast U.S. housing starts, lower export volumes to China, rising production capacity, foreign exchange rates). Of greater interest were the reasons why FEA projects that “markets will likely remain weak through next year”:

  • Mills are anticipating higher levels of consumption (“investing in efficiency”)
  • U.S. dollar to remain strong
  • Domestic consumption growth will be slow
  • Exports to China will continue to be weak
  • Entering a period of seasonal weakness
  • Expiration of the SLA.

At the same time, Jannke cited a number of reasons suggesting minimal downside risk (“the longer the time horizon the better we feel”):

  • Near cost of production for Western SPF
  • Dealer inventories are low
  • Limits to Russia’s ability to supply China
  • Consumption will increase
  • BC will see supply limitations
  • Mills will be more cautious with their planning.

When gauging homebuilding activity (FEA forecasts 1.26 million U.S. housing starts in 2016), Jannke said that sales data is the key stat to watch going forward (“new home sales are presently consistent with just over one million starts”).

Later that morning, I appreciated the opportunity to speak with Jannke at our Dakeryn table on the exhibit floor.  It was interesting to hear him say that lumber market conditions might play a role in the timing of any cross-border trade negotiations (“to help in proving injury”). When I asked how Canadian sawmill expansion in the Southeastern U.S. might play into those negotiations, Jannke downplayed the impact while noting that members of the U.S. Coalition for Fair Lumber Imports include a number of private timber owners. I also asked how so many forest analysts “got it wrong” in their 2015 forecasts for significantly higher lumber prices. Jannke said that while he couldn’t speak for other analysts, FEA had one of the more tempered price forecasts this year ($300-320/M).

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