New phase emerging in timber market

Various customers are sharing stories of slower sales and less demand, the media is talking the country into a recession, and house sales and prices appear to be going backwards or sideways.

This is to be expected as all economic environments are cyclical — some admittedly faster than others.

I think by the time we come out of winter we will have returned to a much more balanced timber supply-and-demand situation. So, what will drive this? At some point in the foreseeable future I think we will enter a situation where the price of “commodity products”’ (90x45, 140x45 and 190x45 in particular) starts to fall.

This may be three months away, it may be six, but it will come. As the market slows, the big suppliers will want to hold on to their share of the reducing demand and will look to “buy” sales volume by doing deals.

This may start with volume discounts, but it will happen. Merchants will then pass these discounts on as they see it as an opportunity to “buy” some more custom. The reality is that all players will have to follow, as everyone wants to look after their customers. This is the classic commodity product life cycle. Despite what salesmen and marketers for the various brands may say, most homeowners don’t care what framing is behind their Gib as long as it is verified and meets the code — and it is better if it is cheaper.

Many timber processors have spent millions of dollars upgrading their facilities on the back of the strong demand over the past few years, and their plant needs to run hard and fast because the economics works on volume throughput.

Therefore, they will be loath to slow down when the new level of demand becomes apparent. This cycle will result in price reductions, with the only questions being “how quickly” and “how severely”?

Small manual sawmills with high production and staff costs will find this difficult. My prediction is that the timber market will be much more in balance by the end of the 2022-23 financial year, and the price of timber could begin to fall