Story by Dan Shell,
Easing into the second half of 2013, lumber markets reflect a housing industry giving off very mixed signals. Lumber producers have enjoyed a surge in prices beginning in fall 2012 that have essentially led to a solid year of pricing gains since that time. Though prices seem to have peaked earlier this spring, as of late August they remain solidly above year-ago levels.
The improved market conditions and jump in prices have definitely boosted bottom lines, reflected in a recent global sawmill financial earnings (EBITDA) report from the International Wood Markets Group (in conjunction with the Beck Group) showing North American mills had better earnings than mills surveyed in Europe, Russia and the Southern Hemisphere. Southern U.S. mills fared best thanks to lower log prices, mainly, but all regions in North America did well.
And they still are, despite prices trending downward the second half of 2013 as many predicted would happen as additional production comes on line and the housing market and the general economy continues to improve very slowly and unevenly across the U.S.
Yet the sawmills that made it through the worst lumber markets in decades the past five years or so have cost structures in place (I know, log costs aside for many West Coast producers) to weather a much lower-priced lumber market. The $355/MBF framing lumber composite price Random Lengths reported in mid August was below the almost $460/MBF peak in early 2013—but that’s still a helluva lot better than the $250/MBF from September 2010.
And that’s a big reason U.S. mills had earnings from 2012 through 1Q 2013 that were five times the global average, according to the report. One region surveyed in the Southern U.S., which hasn’t seen the log price increases that other regions have, reported an astounding EBITDA of more than 50%.
In such an environment, there’s a big incentive to run wide open—to get it while the getting’s good. As one sawmiller I spoke with recently said, “We’re planning on just keeping our feet on the accelerator this year.” He added that in 2013 his company would likely produce more lumber than it has in almost a decade.
Even with mixed signals in the market—housing start estimates pulled back below 1 million, new and existing home sales look good while trends in housing starts and permits not so good—the projections for a solid lumber market floor remain sound. Some analysts are looking for a global softwood lumber supply crunch beginning in 2015 if U.S. housing continues its slow recovery and Asian markets continue to grow.
Another sawmiller I spoke with at the end of last year noted that “everyone would soon decide to add another shift” and kill the price rally. But if you’re not doing all you can to produce all you can in such a market, what are you waiting for? Even in the third quarter of 2013, it’s pedal to the metal time.