Selective Cuttings

Where are panels prices headed?

February 8, 2013

The Random Lengths composite panels price has increased substantially since October 2011, and is now higher than prices earned during the U.S. housing market bubble (mid-2003 to mid-2005) (Figure 1).  However, currency changes have impacted Canadian producers, who haven't benefited quite so much as this would suggest (Figure 2).  Still, current (C$) prices are 51% higher than the post-bubble level of $293 in October 2006.

Panels price in US dollars

 This graph shows the Canadian dollar panels composite price from January 2000 through December 2012. The (C$) December 2012 panels price is far below the average panels prices received during the U.S. housing bubble period (mid-2003 to mid-2005). Still, this price is 51% higher than what existed during the post-bubble period in October 2006.

Panels price in Canadian dollars

 This graph shows the US dollar Random Lengths composite panels price from January 2000 through December 2012. The (US$) December 2012 panels price is greater than the average panels prices received during the U.S. housing bubble period (mid-2003 to mid-2005).

Previous experience has shown that rapid price increases (akin to the last 14 months) can be followed by acute declines. Given such volatility could impact panels producers significantly, we examine where panel prices are headed in 2013. Private sector analysts are expecting panel prices to continue to increase in the first quarter of 2013. Thereafter, prices are expected to slide downward gradually through 2013.

 Two key factors support the first quarter price increase forecast:

  • Demand will increase as dealers build back their panel inventories (Figure 3, brown line), which are currently low, both from a seasonal and historical perspective (over the past 6 years).
  • Most operating mills are already producing near full capacity. Their inability to increase production much higher is supporting market tightness. A good indicator of market tightness is the ratio of demand to capacity (excluding idled mills) (green line). During the 3rd quarter, this ratio reached its highest level (87%) in over 5 years.

Panels market tightens

 From the 1st quarter of 2007 through the 3rd quarter of 2012, this graph shows (a) the North American industry demand-to-capacity ratio (minus idled mills) and (b) North American industry dealer inventory levels. In recent months, the ratio has been rising while dealer inventory levels have been falling, contributing to tightness in the North American panels market.

 

Factors that will support a gradual price decline after the 1st quarter:

  • Idled mills are expected to begin re-opening, given stronger prices. As supply from these re-starts ramp up, prices will begin to slide.
  • However, price declines due to restarts will be tempered by a stronger U.S. housing market, softening this price decline somewhat.

There is always a risk that prices will fall sharply if producers become too optimistic about demand prospects, and flood the market with re-starts. However, most experts believe this is unlikely, as producers will probably favour a wait-and-see approach when making capacity additions. This is because while U.S. single-family housing demand is encouraging (600,000 to 700,000 single-family starts are expected), it remains distant from average U.S. single-family starts of 1.1 million (1990 - 2012). This should help keep producer response in check and support a soft price landing in 2013.