2023 starts stronger than expected for the US lumber market

Reasons for optimism at the start of the year as the market shows signs of recovery

There wasn’t a whole lot of near-term optimism in the framing lumber and structural panel markets as 2022 limped to a close.

While at the NAWLA Traders Market in Phoenix last November, several sources queried about 2023 and felt the year would turn out to be a positive one, once we moved past a tough start to the year. Roughly half of the people thought markets would get on track after a harsh opening quarter to the year, while the other half figured it would take half a year to see a more positive picture.

Home mortgage rates and inflationary levels both at the highest in decades had completely sapped momentum out of the housing market in the second half of the year. Trading in many lumber and panel markets in December was agonizingly quiet.

To that end, the Random Lengths framing lumber composite price ended 2022 on a down note, posting weekly drops the last nine weeks of the year. On a monthly basis, the FLCP only posted one gain in 2022 after March, when a $26 uptick was posted in July. Otherwise, the FLCP dropped an average of nearly $97 a month over the last nine months of 2022.

Given that context, January 2023 did not turn out too badly. Yes, the FLCP did drop for a sixth consecutive month. However, the drop of $17 was the smallest monthly movement – in either direction – for the FLCP since a $4 drop in March 2020, the month when the mass uncertainties of the Covid-19 pandemic put a temporary freeze over the world economy.

In addition, after posting a $7 drop in the first week of 2023, the FLCP reversed course and posted three straight gains the rest of the month, with the momentum carrying over into a $26 gain in the first week of February.

That four-week positive streak was the longest since a five-week streak last summer that marked a return to more normal week-to-week variances that had been largely absent since the start of the pandemic.

The $17 drop for the month of January stands out in contrast to the $312 gain posted in January 2022 and the $178 upward surge in January 2021, both of which set the tone for wild volatility. The current year is more in line with January 2020, when the FLCP gained $9. The FLCP held flat in both January 2019 and 2015. Between 2011 and 2020, the average January movement was a gain of $9.30. In the span of that decade, the FLCP only posted two January drops: a $4 drop in 2016 and a $3 slip in 2017.

Of course, the better-than-expected start to 2023 comes with one rather major caveat: it was spurred largely by a plethora of mill curtailments, which in most cases were brought on by poor market conditions. More than a few traders have wondered if the run ignited by the curtailments will be just a short-lived market flicker or an enduring flame that will carry through.

Other signs have given traders at least a reason for optimism. After the 30-year home mortgage rate jumped from 3.10% in December 2021 to 6.90% in October 2022, the rate dropped for three months in a row, down to 6.27% in January 2023. The Federal Reserve’s interest rate gains have slowed to .25%, with Fed chairman Jerome Powell saying that “the disinflationary process has started.”

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