Despite continued demand, less wood shortages are being reported

Packnet is seeing some potential good news on wood material prices.  There are some indications that wood prices across the board have stabilized and are potentially dropping.  While there may be tight supplies reported in some local areas of the country, thus creating news headlines that lumber is in short supply, most mills are reporting product on-hand and ready to ship.   Many are even electing to close over the 4th of July holiday.  If building materials were in short supply that would never happen.

Trying to understand the dynamics of supply and demand in this industry is not always easy.  For the most part the demand does not appear to have waned, US housing starts were strong in May, but a few percentage points down from April.   See chart below:

 

The chart above paints a picture of steady increasing demand in the residential housing market, but we do see a leveling off in May-(one month does not a trend make).  It should also be noted that China consumption of wood and lumber is still stronger than last year.  From a demand standpoint, it appears that it may be flattening, but still strong.

The supply side is where the difference is.  We have reported in a previous blog in early May that we were seeing lumber producers starting to re-open mills.  This aggressive increase in capacity may be the main reason why the supply side is starting to report no major shortages. 

The degree to which supply has started to increase may be somewhat of a surprise in the industry, but recently the lumber mills have been reporting record profits, it appears some of that profit is going back into capacity investments.

The exact effect on wood prices in the packaging industry is still a little murky; Packnet is encouraged by the trend and will be reviewing its supply chain situation in July.