With the recent — and relatively unexpected — surge in Southern Pine lumber prices heavily supply driven, many traders have concluded that production trends will govern the market’s direction for the balance of 2024.
Gauging those trends may prove challenging. Traders struggle to quantify recent production cutbacks and compare reduced volume with capacity growth since 2023.
Lumber price trends in 2024
Prior to the fall run, Southern Pine prices shifted mildly throughout the summer, with weekly gains or losses rarely reaching double digits.
Since midsummer, traders throughout the distribution pipeline approached the market under a widespread perception that the unusual lack of volatility would linger throughout the fourth quarter.
In August, mills quietly and limitedly cut back production as prices of many items fell below breakeven levels. The prices for #2 2×6 were especially weak. Companies followed with more substantial and publicly announced curtailments and closures.
Fastmarkets/RISI estimates Southern Pine lumber mills reduced capacity by 1.1 billion board feet. This is due to indefinite and permanent closures in 2024. Temporary downtime and quiet, unannounced cutbacks likely add to the total, Fastmarkets/RISI economist Dustin Jalbert noted.
Despite production cutbacks, Fastmarkets/RISI projections show net growth in Southern Pine capacity through 2025. This is partly due to new mills set to begin operations and plant expansions due to be completed. Recent curtailments and closures have mitigated the growth projections for the region.
Tightening supplies pulled a growing number of buyers into the market over the last month or more. Many filled immediate needs with more confidence while a few padded inventories for the first time this year.
Sales to treaters gained momentum during the recent run. This was significant because that segment remained unusually quiet for most of 2024. This year, treaters conspicuously missed the traditional spring surge.
The recent price run has proven a welcome respite for Southern Pine producers. Overall demand shifted modestly, if at all, since mid-September. Most traders note job site activity and overall consumption are unlikely to change significantly. This is true even in areas recently hit by hurricanes through the holiday season.
As a result, traders will monitor production trends again. They see it as the most reliable indicator of supply-demand balance in the months ahead.
Many buyers gauge mill supplies through anecdotal evidence. They consider how many calls it takes to cover customer inquiries and how quickly new orders ship. “I think production and demand are pretty close now,” one buyer noted.
Traders lament it is difficult to measure how much supply is removed from the market when older mills quietly trim hours or cut a shift. Buyers historically offset the uncertain extent of holiday season downtime by seeking to trim inventories before the start of the new year and other year-end distractions.
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