August 4, 2022

New phase emerging in timber market

An opinion piece from Northpine general manager BRUCE LARSEN.

It looks like there may be a new phase emerging in thetimber industry economic cycle as we are starting to see the signs of themarket slowing down.

Various customers are sharing stories of slower sales andless demand, the media is talking the country into a recession, and house salesand prices appear to be going backwards or, at best, sideways.

This is to be expected as all economic environments arecyclical — some admittedly faster than others.

I think by the time we come out of winter we will have returnedto a much more balanced timber supply-and-demand situation. So, what will drivethis? At some point in the foreseeable future I think we will enter a situationwhere the price of “commodity products”’ (90x45, 140x45 and 190x45 inparticular) starts to fall.

This may be three months away, it may be six, but it willcome. As the market slows, the big suppliers will want to hold on to theirshare of the reducing demand and will look to “buy” sales volume by doingdeals.

This may start with volume discounts, but it will happen.Merchants will then pass these discounts on as they see it as an opportunity to“buy” some more custom. The reality is that all players will have to follow, aseveryone wants to look after their customers. This is the classic commodityproduct life cycle. Despite what salesmen and marketers for the various brandsmay say, most home-owners don’t care what framing is behind their Gib (assumingthat they have the Gib to put up!), as long as it is verified and meets thecode — and it is better if it is cheaper.

Many timber processors have spent millions of dollarsupgrading their facilities on the back of the strong demand over the past fewyears, and their plant needs to run hard and fast because the economics workson volume throughput.

Therefore, they will be loath to slow down when the newlevel of demand becomes apparent. This cycle will result in price reductions,with the only questions being “how quickly” and “how severely”?

Small manual sawmills with high production and staff costswill find this difficult. My prediction is that the timber market will be muchmore in balance by the end of the 2022-23 financial year, and the price oftimber could begin to fall

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