False springs

ByKen Tennefossn Grow's/Rlsl

((ftwo MAIN REASzNS markets move

I up: a lack of supply or the Per' ception there is a lack of suPPlY."

When I was a boy, mY mother planted a garden everY Year. EverY year she would patiently wait until the days grew warmer, the trees began to bud, and the new grasses began to sprout before she would till the soil and plant her flowers and vegetables.

Some years in late FebruarY the days would get warmer, some of the trees would begin to bud, and the feeling of spring would be in the air. During these times, my mother would wait to plant her garden, and sure enough, in a week or so another heavY frost would come and nip all the early buds from the trees. MY mother would call these events a "false spring."

To stay with my mother's garden metaphor, the economic winter we have been in has been a long one, and we are ready for the business season to improve. Like mY mother, we are anxious to plant new seeds of commerce and begin to grow our business. We must be careful not to let our zeal overcome our caution, lest we get tricked bY a false sPring. In case you're not sure what to look for, we have had a couPle in the Past few years. Here's what they look like.

2010

During the last few months of 2009, lumber and Panel Prices began to creep higher. Each week's market reports showed modest increases in prices. A few announcements of curtailments in production, along with a little better demand than expected, brought some buyers off the fence. By the beginning of the new Year, framing lumber prices had moved uP $20$25 and panel prices were $25-$30 better. January housing starts came out at a seasonally adjusted annual rate (SAAR) of 614,000, the highest number since November of 2008. February's numbers were slightlY lower than January's, but March housing starts came in at 636,000 SAAR and April's numbers made a jump to 687,000 SAAR. Even though it was still early spring, and manY parts of the country were still in the grip of winter weather, the market reacted with what was sometimes described as a "gold rush mentality," pushing mill order files out manY weeks and prices to near all time record highs. Framing lumber prices climbed $125-$150 higher in five months. OSB prices went from the mid $150s to the low $400s.

In May, housing starts droPPed bY 100,000 to 583000 SAAR, and June came off another 47,000 to 536,000 SAAR. Traders dumPed their long positions, building contractors canceled job orders, lumber and Panel markets made a steep decline.

By the first week of June, lumber prices had dropped $75-$100 and OSB prices were $200-$225 lower. Prices continued to drop through the month of August before showing signs of recovery and never got close to the levels seen in the sPring.

2011 And 2012

Spring 2011 saw almost a reversal of events from 2010. Housing starts fluctuated between the mid-550s to the low 600s, while lumber and esPecially panel prices began a decline that lasted well into the third quarter. Many said the market was "overlY cautious" after the events of spring 2010.

Spring 2012 saw markets acting much the same as 20 I l, trading in narrower ranges, much more like traditional trading pattems. This continued through the third quarter before prices began to improve.

2013

In September of 2012, housing starts came out at 854,000 SAAR. The last time starts were above 800,000 was in September of 2008. Market prices were in a general decline and did not show much reaction to the housing news.

When the October starts of 864,000 SAAR came out, the market began to take notice. By the end of 2012,lumber and panel prices had each increased by $100. They continued to increase in 2013.

Housing starts numbers continued to improve and finally broke the one million mark in March of 2013, the first time since June of 2008 that starts had been over one million units. Prices were once again at or near record levels, with SPF 2x4 #2&Btr trading at $485 and7l16" OSB selline for $435 FOB mill.

When the April housing figures of 852,000 units SAAR were released, the market went into a decline that lasted for 60 days. During that time, market prices for framing lumber and OSB lost around 25Vo of their value.

Since July of 2013, framing lumber prices had slowly made gains but had not been able to fully climb to the levels of the spring of 2013. OSB prices have had an even tougher time recovering lost ground and have remained in the low to mid-$200s.

Which brings us to this spring.

Since the first of the year, prices have been slowly eroding, even though housing starts ended last year at over one million for November and

December, and have been over 900,000 for January and February.

Heavy winter weather has closed job sites and stifled demand, as well as slowed transportation to a crawl in some regions.

Most buyers and sellers interviewed are optimistic about the future and feel the year will be a good one. However, buyers time and time again site the lessons learned in 2010 and 2013 as reasons for "guarded optimism." Perhaps this spring will not be a false start and will be the beginning ofa prosperous year for all.

- Ken Tennefoss is executive editor of RISI's Crow's Weekly Market Report. Reach him at ktennefoss@risi .com.

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