Total starts reached a seasonally adjusted annual rate (SAAR) of 1.372 million units, according to the US Census Bureau. Single-family starts were virtually unchanged at 970,000 units, while the multifamily sector increased 6.3% month over month to 402,000 units.

Multifamily starts trend downwards, in contrast to single-family

Despite October’s readings, the plunge in multifamily starts year over year has contrasted with a growing single-family sector. Total starts have fallen 4.2% from the year-ago pace, with single-family climbing 13.1% and multifamily declining 30.0%.

On a regional basis, total starts fell month over month in the Northeast and South, while the Midwest and West increased. That pattern has held true on an annual basis as well.

The solid increase in single-family starts in 2023 has run counter to builder sentiment, which has declined for four consecutive months to its lowest level in nearly a year. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index was reported at 34 in November, a six-point drop from the October reading.

“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” said Alicia Huey, chairman of the NAHB.

Housing permits in November inched up 1.1% from October to 1.487 million units (SAAR). Permits have declined 4.4% from the year-ago level.

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KD spruce (Euro) 2 1×4 US Gulf/EC: $990

KD spruce (Euro) 2 1×6 US Gulf/EC: $1,075

KD spruce (Euro) 2 1×8 US Gulf/EC: $1,245

KD spruce (Euro) 2 1×10 US Gulf/EC: $1,365

KD spruce (Euro) 2 1x12US Gulf/EC: $1,520

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• European shipments to the US hit 292 million board feet (mmbf) in January this year, by far the highest single-month total on record.
• US imports from Canada declined to 2.808 billion board feet (bbf). This decline created space for European exports to prosper.
• The sustained influx of European lumber led to decline of Southern Yellow Pine domestic prices, in all three producing zones.
• Europe’s share of the total Chinese import market has increased this year to 26%, compared to 20% through April a year ago.

A record pace in European softwood lumber exports to the US through April spearheaded a worldwide expansion in overseas shipments from the continent that may be unprecedented.

US imports from the European Union soared to 772 million board feet through the first four months of 2023, according to statistics from the US Foreign Agricultural Service. That’s up 28% from last year’s pace, when shipments for the full year climbed to a record 2.03 billion board feet, surpassing the previous high set in 2005.

The record pace, however, is somewhat skewed. The chart shows that European shipments to the US hit 292 mmbf in January, by far the highest single-month total on record. The pace cooled in February and April shipments lagged the last two years.

European lumber exports filled the void left by Canada

We can conclude that this development is partly down to the reduction of lumber available to the US market through the first quarter of 2023, as it edged lower from the same period of 2022. This was driven by a decline in Canadian shipments.

US imports from Canada declined to 2.808 bbf compared to the like period a year ago. That level is the lowest since 2014.

This decline created space for European exports to prosper. Non-Canadian imports to the US surged 26.1% to 753 million board feet (mmbf), led by shipments from Germany and Sweden.

Despite an 8.9% decline in western US production, total US output ticked up 0.1% from the like period of 2022. This was due to a 2.7% increase in Southern Pine (SYP) production from the first quarter of last year. Southern Pine production is up 8.4% through the first quarter from the same period in 2022.

The influx has impacted US Southern Pine prices

The sustained influx of European lumber has inevitably had an impact on domestic prices. The unusually abundant availability of European Spruce and Canadian Western S-P-F contributed heavily to a triple-digit plunge in reported prices of Southern Pine #2 2×4 this year.

Random loads of SYP #2 2×4 peaked in April at averages ranging from $543 on the eastside, $514 on the westside, and $498 in the central zone. Averages in all three producing zones have plummeted $105 to $114 through mid-June.

1-inch boards and narrower widths of 2-inch dimension account for much of the volume the US imports from Europe. Southern Pine dimension lumber traders have frequently noted heavy build-ups of European Spruce at ports along the East Coast and in Houston.

European mills have shipped Spruce to the US for decades and, historically, the volumes are too minimal compared to US production to alter price trends significantly. However, some veteran SYP traders have noted they cannot remember the last time European Spruce figured so prominently in the supply-demand equation across the South.

European lumber exports expand into east Asia

This year’s surge in European exports is not limited to the US. China appears just as remarkable as the trends in the US Statistics from Trade Data Monitor show European mills shipped 1.57 million cubic meters, or 665 mmbf, to China through April.

That volume represents a 44% jump compared to shipments through the first four months of 2022. Further, Europe’s share of the total Chinese import market has increased this year to 26% compared to 20% through April a year ago.

Europe’s expansion in the Chinese market has come amid fierce competition from Russia, North America, and other suppliers around the globe. Russia in particular has targeted China as a critical destination for its softwood lumber imports ever since its invasion of Ukraine in February 2022.

An ailing construction sector and other economic headwinds in China have weighed on overall demand in that country for imported lumber. Some observers note that those trends make the growth in European shipments to China even more remarkable.

Data from Global Trade Atlas shows that some larger European exporting nations sharply increased shipments in the first quarter to other common Pacific Rim destinations such at Taiwan and India. Other European exporters have expanded deliveries into parts of the Middle East and North Africa.

European economic headwinds drove global expansion

Some veteran traders based in Europe have noted they cannot remember the region expanding its exports to overseas destinations to the degree evident so far in 2023. Tepid demand within the European Union is likely a contributing factor.

Global Trade Atlas data through March indicates most of Europe’s largest producers have reduced exports within Europe sharply in 2023 compared to 2022. Difficult economic conditions in many European countries have undermined demand. As a result, producers have leaned more heavily on overseas markets to compensate for weak domestic sales.

Germany was the primary driver with shipments to the US soaring to 348 mmbf, up 55% from the 2022 first-quarter pace. Imports from Romania surged 83%, shipments from Finland more than doubled, reaching nearly 20 mmbf.

The historic European lumber export run appears to be ending

European supply finally seems to be pulling back after a historic run, however. Shipments of European spruce lumber to the US market are finally weakening, contributing to tightening of the broader lumber market.

Anecdotal data suggests truckload deliveries from ports to inland distributors and end-users is slowing notably, indicating the accumulation of inventory in places like Port Canaveral and Houston is starting to normalize. The trade data also shows that flows into ports have come off dramatically from January 2023’s peak.

The inertia of shifting production runs from dimensions specified for the North American market is obviously very real, as we have observed over the last 12 months, resulting in a major overshoot of European supply, but it seems that European production is finally pivoting away from the US.

Europe’s industrial economy remains weak, but that should change in the coming quarters. The reconstruction effort in Ukraine – which current estimates put at being in the hundreds of billions of dollars – should also stimulate European wood demand in construction.

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Total starts in May climbed 21.7% on a monthly basis to a seasonally adjusted annual rate (SAAR) of 1.631 million units. The jump was the largest by percentage since 2016, and the largest month-over-month increase on a per-unit basis since 1990.

Gains were spread across sectors, with single-family starts climbing 18.5% to 997,000 units, and multifamily starts jumping 27.1% to 634,000 units. While single-family construction remained below the year-ago level, multifamily starts were 33.2% higher than May 2022.

“Part of what is supporting the new (construction) side of the market, despite unfavorable mortgage rates, is still the real lack of existing inventory,” said Jennifer Coskren, Fastmarkets senior economist.

Existing home inventories rose modestly in April according to the National Association of Realtors, but remained well below the pre-pandemic levels of 2019 and early 2020.

Housing Market Index turns positive

Despite 30-year mortgage rates hovering above 6.25% since February, as reported by Freddie Mac, builder confidence in the single-family construction sector has grown through the year. The National Association of Home Builders reported the Housing Market Index turning positive for the first time in 11 months this week, rising five points in June to 55. That’s the sixth straight monthly gain in builder confidence.

“The May housing starts data and our latest builder confidence survey both point to a bottom forming for single-family residential construction earlier this year,” said NAHB Chief Economist Robert Dietz.

On a regional basis, starts increased both month over month and year over year in all regions except the Northeast, where they fell 18.7% from April and 21.9% from May 2022. Gains were most notable in the Midwest, with a 66.9% surge from April and 24.2% jump from a year ago.

Housing permits also increased in May, up 5.2% month over month to 1.491 million units (SAAR). Permits have fallen 12.7% from the year-ago level.

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Single-family starts climbed 1.6% to their highest level of 2023 at 846,000 units. However, that reading lagged the year-ago pace of single-family starts by 28.1%.

Multifamily starts also ticked up, gaining 3.2% to 555,000 units. On an annual basis, that level lags the 2022 pace by 11.5%.

The rate of US housing starts is divided by region

April housing starts were divided sharply by region, gaining in the Midwest and West while falling in the Northeast and South. Total starts in the West boasted a 34.6% increase month over month, driven by a 59.5% surge in single-family starts. In the Midwest, total starts jumped 32.6% but featured a 20.5% drop in single family.

Starts in the Northeast and South fell 23.4% and 6.3% on a monthly basis, respectively. Drops in those regions were spread across both single and multifamily segments. Both single-family and multifamily starts declined on an annual basis in all regions.

Builder confidence in the single-family sector as measured by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) climbed five points in May to a reading of 50. It’s the fifth straight monthly gain and the highest level since July 2022.

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said Alicia Huey, NAHB chairman.

Building permits in April edged lower to 1.416 million units (SAAR), a 1.5% drop from the revised March level. Permits were down 21.1% from the April 2022 reading.

“Multifamily permits are down 23% year-over-year, and this indicates a slowdown for apartment construction is underway due to a tighter lending environment,” said Robert Dietz, NAHB chief economist.

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In addition to the open consultation, we proposed several changes to various parts of the lumber and panel price guides. Industry feedback voiced strong support for the creation of a Vancouver assessed price in Canadian plywood, and for the elimination of three moulding prices in the S2S moulding and shop market assessment group.

Feedback regarding other proposed changes, including to Southern Pine low-grade boards, veneer, and the shakes and shingles market, was mixed or inadequate, and the decision was made to table those changes until industry response proves more conclusive.

The annual open consultation allowed for industry feedback from February 13 through March 13. This annual review seeks to ensure that our methodologies reflect the physical market, in compliance with the International Organization of Securities Commission (IOSCO) principles for price reporting agencies. This includes all elements of our pricing process, our price specifications, and publication frequency.

Respondents overwhelmingly favored the proposed changes to Canadian plywood. Beginning in May, Random Lengths will begin assessing a base Vancouver price that will be used to drive reported prices in the four westernmost Canadian markets of Vancouver, Calgary/Edmonton, Regina, and Winnipeg. “I think that by utilizing two base points, Vancouver for Western Canada and Toronto for Eastern Canada, plywood pricing in Canada may be more reflective of markets,” wrote one respondent. Added another, “I’m happy to see the changes you proposed. As a western Canadian buyer, having plywood prices based on a western base would be helpful.”

Random Lengths will also add the price for Canadian Spruce Plywood 3/8-inch delivered Vancouver to the Canadian Spruce Plywood section of Midweek. The first assessment will be published on May 2, 2023.

Likewise, feedback regarding the elimination of three moulding prices in the industrial lumber section of the price guide was near-unanimous among both producers and buyers who responded to the consultation. The last assessments for these items will be published on April 27, 2023. The discontinued prices are:

• LBME Inland kiln-dried ponderosa pine shop mldg 4/4 std s2s fob mill
• LCSD Inland kiln-dried ponderosa pine shop mldg 1-5/16-inch s2s fob mill
• LCSE Inland kiln-dried ponderosa pine shop mldg 1-9/16-inch s2s fob mill

Random Lengths will also be tweaking several footnotes in the price guide when changes take effect. These include:

• Replacing the current Moulding&Btr footnote with “Includes some C&Btr.”
• Removing the “TOFC shipments to Midwest and East” footnote from the shingles section.
• Adjusting a portion of the Canadian Panel Price Methodology explainer to reflect the addition of a new base Vancouver assessment.

Random Lengths received mixed or minimal feedback regarding other proposed changes in the price guide, including to Southern Pine #3 boards and the shakes and shingles markets. While initial input suggested several changes that would clarify or update reporting in those markets, consensus was elusive following the open consultation.

Additionally, Random Lengths will not be adding dried veneer to the price guide this cycle. While several respondents were in favor of adding a dried price, the sentiment was not universal. “The proposal to add a dried veneer price to (Random Lengths) is not required and unwarranted, as all veneer peelers and drying facilities will have different drying adders due to each operation’s manufacturing costs,” said one respondent. “Different grades of dry veneer require different adders based on the quality of the grade, so one collective dry adder price doesn’t make sense.”

General feedback regarding the western veneer market sector varied widely, from adding new assessed prices to ceasing reporting of veneer altogether. Veneer continues to be a source of various complaints among the industry, and Random Lengths remains committed to working with stakeholders to best report this vital piece of the market.

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A notable drop in shipments from Canada and a decrease in US production were responsible for the overall decline. However, a surge in offshore imports coupled with a sizable slide in US exports nearly offset the difference.

Lumber available to the US is calculated by adding domestic production and imports and subtracting exports.

Factors that reduced softwood lumber demand

Rising mortgage interest rates through much of 2022, combined with a slowdown in the repair and remodel sector, dampened softwood lumber demand compared to a year ago. The slowdown and subsequent price deterioration led to a spate of production curtailments and closures in Western Canada. Furthermore, some producers in Canada focused sales within their own country or offshore, citing breakeven costs and the potential duty ramifications of selling at or near them.

However, returns in the US dwarfed those of other consuming nations, leading to a 20.7% jump in non-Canadian imports. Shipments from Germany – the second leading supplier to the US behind Canada – climbed 18%, while deliveries from Sweden –
the third leading supplier – surged 51%. Despite the surge in US offshore imports, Canadian shipments were roughly 10 times the volume of the two next largest suppliers.

The 2.5% dip in total US production was due entirely to a decline in US West production. The Southern Pine industry produced a record 22.161 bbf in 2022, up 5.5% from the previous year’s then-record of 20.932 bbf.

US lumber exports plunged 11.9% to 1.082 bbf – the second lowest total in the past 13 years. Mexico surpassed Canada as the most common destination for US lumber exports for only the second time since 1993.

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The potential daily price would represent a standard 8-20-foot random tally, consistent with the price reported in the Random Lengths lumber and midweek reports.

Initial feedback in favor of the change resulted in Fastmarkets piloting a daily price internally. In accordance with published methodologies, price reporters have compiled daily price data for this item since early January 2023.

Fastmarkets invites additional feedback on the proposed daily price until Monday, April 10. Fastmarkets will notify the market of its decision regarding the daily price and any proposed timeframe for the rollout on April 17.

Should market feedback prove supportive of a daily price for this item, an implementation date will be determined at that time. If the daily price moves forward, Fastmarkets will publish a price history for the item dating back to the start of the internal pilot period.

The price under consideration for a daily assessment is:

• SYP #2 2×4 (eastside)

To provide feedback on this proposal or if you would like to provide price information by becoming a data submitter, please email pricing@fastmarkets.com. Please add the subject heading ‘FAO: Joe Pruski, re: SYP daily price.’

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