With the downturn in lumber markets, producers are trying to find new ways to make a buck while keeping hard-to-find employees busy. Shifting some production to alternative products to fend off red ink is one approach.
Hardwood mills in recent months have temporarily shut down or scaled back production amid depressed prices. In the South, some of those mills over the last few years have turned to producing alternative species. As a result, hardwood producers are cutting more southern pine logs as a bigger part of their mix.
Domestic demand for hardwoods escalated in 2020, and in 2021 it increased and peaked. In the middle of 2022, the market cratered. In 2023, prices are still somewhat depressed.
With the runup in softwood prices early last year, more hardwood mills started to look at pine as a bigger percentage of their overall production, in part due to its availability. Elevated southern pine lumber prices invited hardwood mills not set up optimally to produce Pine products to do so more profitably.
Comparing hardwood and southern pine production
The volumes hardwood mills produce is light when compared to large southern pine producers that have over the last few decades bought up many of the larger mills in the South. One Pine buyer noted, “Running 100,000 board feet a day is a lot for a hardwood mill, in comparison to a large softwood mill running a million feet.”
Hardwood mills with access to a mix of timber will produce softwood as the logs dictate. Those producers, with their mills often set up for larger logs than southern pine mills can handle, frequently pay a relatively low price for the bigger timber.
“Production of southern pine is off and on, depending on log availability. Some might cut hardwoods for a couple weeks and then southern pine for a few weeks,” said Judd Johnson, editor of the Hardwood Market Report. (Note: Fastmarkets acquired the Hardwood Market Report in July.)
A few hardwood mills have switched over entirely to producing southern pine. Others are in the process of making the switch. Some still producing both hardwoods and softwoods will generate a mill-run southern pine product to sell in the rough to remanufacturers. This allows them to cut and sell the species while learning the market and gradually improving profitability.
Although softwoods and hardwoods have their own distinct markets, there is some mingling of the species. One of those markets where both types of wood is utilized is pallets, where in recent years softwoods have made considerable inroads into a market once dominated by hardwood lumber.
Railroad ties and timbers appear to be the best thing going in today’s hardwood market. Both products are selling at a relatively good clip compared to other items. Exports are very limited. With the housing market somewhat depressed, like softwoods, hardwoods are also pinched in that segment.
Southern yellow pine buyers weigh curtailment risks
Meanwhile, speculation about potential mill curtailments in southern pine dimension markets has reached a fever pitch in recent weeks, but so far, no official announcements have emerged.
Anticipation gained momentum in early October as reported prices of random tallies of #2 2×6 in the westside and central zones dipped below $300 for the first time in more than three years. The perception that mill prices had fallen below “break-even” levels set off a wave of murmurs among buyers that production cutbacks could surface.
However, labor constraints could keep those expectations from becoming a reality. Several mills have expressed a reluctance to curtail production because of the possibility of losing workers to other industries during a shutdown. Training new workers would then make resuming production more time consuming and challenging.
Abundant supplies have outpaced modest demand since early August. Changes in housing and shifting consumption patterns have allowed for heavier buildups to develop, and eroded prices to levels not seen since the onset of the COVID-19 pandemic in early 2020.
Most buyers recognize a different approach is needed to realign supplies with demand. “Until something changes, the market is not going to be a whole lot different,” a treater said.
“You know they are going to do something; just don’t know when and how much of it,” a source with a buying group said.
Some traders have noted unconfirmed reports that mills could extend holiday downtime during the weeks of Thanksgiving and Christmas to bring supplies closer in line with demand without causing potential disruptions to their work force.
Price erosion has stabilized in random tallies of 2×6 and 2×8 in the past two weeks, but quiet, moderate discounts have persisted. 2×4, however, has continued to come under steady downward pressure after price levels climbed through August and September.
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