As the chart below from Foreign Affairs, Trade and Development Canada shows, the lackluster shipments by the B.C. industry in Q1 were offset by strong shipments in Q2 – with the Q2 surplus roughly equalling the Q1 deficit.
This suggests mills were able to deal with excess inventory built up earlier in the year. This was certainly true at Canfor where our transportation team found creative solutions to make sure our customers had the stock they needed as efficiently as possible. As noted in the last Update, we are working hard to develop contingency plans to avoid a repeat next winter.
The 2014 YTD average volume is 2% higher than the 2013 average, and basically in line with the demand change. North American customers appear to be making cautious purchasing decisions, with steady consumption rather than demand surges. As a result, there was less volatility in Q2 2014 than in Q2 2013, and while there was a seasonal price correction, it was much less than in 2013.
Based on the above inventory information, it appears the market has found a trading range. Using W-SPF 2x4 #2 RL as a benchmark there’s good support, including from offshore markets, when the market dips below $325.00, and strong resistance when it spikes over $375.00.
We expect it to remain at about $350.00 on average for the balance of 2014. This will actually end up slightly lower than 2013, mainly due to the slower-than-expected U.S. housing recovery.
There are a number of things offsetting the sluggish housing market, such as more R&R activity, especially since May when long-awaited spring weather finally started to arrive. There is more wood being used in multi-family housing – it was cited as a bright spot in the U.S. Federal Reserve Board’s semi-annual Monetary Policy Report and the FEA says multi-family lumber consumption was 21% higher in Q2 versus Q1. There is also more lumber consumption in Canada, especially in the West with rebuilding after last year’s floods.
This allows us to be cautiously optimistic despite the slower-than-expected recovery in the U.S. housing market. We will continue to watch head-wind issues such as the lack of developed land, a shortage of skilled labour, and a tight financial system that makes it harder for buyers to qualify for mortgages.
We had record offshore volumes after the strike by container truck drivers at the Port of Vancouver ended in March. Log inventory in China remains high, which may mute price increases, but the SPF inventory is quite low so volume should remain stable for the balance of the year.