As I See It
June 2nd, 2009 — By Jeff Meyer
Although we continue to experience a tough lumber market, there have been some signs of optimism recently. Earlier this month, a report came out showing that "builder confidence" for newly built, single family homes improved in May for the second consecutive month, and is now at the highest level since September, 2008. In addition another report showed that the remodeling market is starting to improve. We have not yet seen this translate into an increased demand for business; however, it is encouraging to see some optimistic news for a change.
These are clearly very interesting times. Despite the positive reports mentioned above, demand remains soft in most of the markets that we ship to. Demand in Europe continues to be slow, and the European economies are not seeing the increase in consumer and builder confidence that we are beginning to see in the US. My sense is that they are lagging six to nine months behind the US in terms of recovery. The Asian markets are significantly dependent on the US market, but they do seem to be showing more signs of activity. Although certainly not anything that could be considered strong, we are experiencing some increased sales into these markets. The US markets in general remain quiet; however, there are pockets of activity that remain strong. In particular, commercial activity, specifically work related to schools, seems to remain strong. Budgets for schools were planned 12-18 months ago, so things like gym floors, laboratory furniture, and other products that use wood are still in demand.
Despite this softness in the market, our full expectation is that prices will begin moving up some time in the next several months. We're already seeing this on the green lumber side. As much as demand has dropped, our belief is that supply has dropped even further, such that there is actually less lumber being produced today than is being consumed. There is probably enough kiln dried lumber in the system to prevent shortages for the next couple months, but eventually the lack of production will catch up and prices will begin to rise. This could result in the unusual condition of relatively weak demand, but at the same time shortages of lumber and prices going up because the supply side has reduced so dramatically.
One of the challenges in times such as these is to balance being prudent and cutting expenses with seizing opportunities as they come along. It's probably a mistake to enter into brand new risky ventures today, but it's an equally big mistake to "batten down the hatches." In our view, some of the best opportunities poke their head out in the poor markets. We hope to take advantage of these opportunities as they arise.