North American western sheathing production puts pressure on prices

With supply outpacing demand, western sheathing prices are beginning to drop

In early August, 2022, signs that western sheathing supplies were beginning to outpace demand began to emerge. Since then and despite steady liquidity, those prices have softened and dropped to levels where producers have started to dig their heels in, trying to slow the descent.

Since western sheathing prices began to fall, CD plywood has dropped an average of $19 per week, steadily grinding lower as buyers approach the market carefully, practicing ample restraint amid economic concerns.

Another factor in the decline of sheathing prices is output. Third-quarter sheathing production in the West (including Inland) increased 2.7% over the prior quarter and 7.7% year-over-year, according to APA - The Engineered Wood Association.

Sheathing also made up more of the overall third-quarter production in the West, rising to 68% from 66% last year. Increased Southern Pine sheathing production in the third quarter, amounting to a 3.8% uptick year-over- year, added even more to the overall supply.

So, while buyers refuse to purchase speculative volumes, helping to stall any upward price potential, an increase in sheathing production also placed more downward pressure on those prices.

A scarcity of workers has contributed to the added sheathing production, as some producers are forced to manufacture fewer labor-intensive products and more sheathing.

Current prices, still much higher than historical averages, have severely narrowed the gap with inflation-heightened production costs, forcing producers to try to apply the brakes to falling prices.

In addition, there is no optimism in the market that buyers will suddenly change their current buying habits, especially with the onset of winter promising to slow down consumption in some regions.

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