Article by Rich Donnell,
Editor-In-Chief
The majority of this issue—nearly 30 pages in fact—is devoted to the results of our annual Sawmill Capital Expenditure Survey. Again we’ve broken it down into two sections—softwood lumber and hardwood lumber.
I’m not sure if any of the results catches us by surprise. Softwood lumbermen are showing some concern about their markets and housing, and hardwood lumbermen are showing even more concern than softwood lumbermen. The first wave of capital expenditure projects since the recession is nearing an end, and the lumbermen definitely have their eyes set on specific, additional projects at their mills—the second wave if you will. The question many are asking themselves—if you read between the lines of the survey—is when should they commit to the next wave of projects with the implementation of real capital expenditure?
Interestingly, as many lumbermen were souring on the meandering housing market when they completed the survey in early April, actual housing starts in April showed a significant gain. My favorite housing prognosticator is APA—The Engineered Wood Assn. APA said: “Housing starts ran at an annual rate of 1.135 million units in April, well above the consensus expectations of 1.02 million units. It appears that the consensus was not taking into account the impacts of weather that hampered residential construction in the first quarter. In addition, the build-up of multifamily units permitted, but not started, was signaling a likely spike in starts and that occurred in April.”
That April housing starts figure was the highest since November 2007.
APA was forecasting 2015 single family starts of 735,000 (compared to nearly 648,000 in 2014) and 405,000 multifamily starts (compared to 355,000 in 2014), for total 2015 U.S. starts of 1,140,000 (compared to 1,003,300 in 2014). APA is expecting 2016 housing to reach 1,330,000. APA’s forecast puts it on par with many other forecasting groups.
Funny though how I can put a negative spin on when 67% (TWO-THIRDS!) of softwood lumbermen expect their lumber business situation to be good or excellent for the remainder of 2015 and into 2016, and only 9% expect it to be poor. Dare I recall our 2011 survey, when 32% of softwood lumbermen said things were good or excellent and 25% said poor, and that was optimistic, coming off the recession.
Still, a year ago, 88% of softwood lumbermen had said it was good or excellent and zero percent had said poor. So that’s about 20% more softwood lumbermen not feeling quite as good as they did a year ago.
Hardwood lumbermen follow the same pattern, even less optimistically so with 45% saying business will be good or excellent into 2016, while 14% said poor; compared to a year ago when it was 78% good or excellent and 4% poor.
Something happened in the interim to cool at least somewhat their expectations. I think it was the modest housing starts combined with another concern that arises especially out of the softwood survey—the fear of too much production. But if the improved April housing figures bear witness, everybody is on pace; and if 2016 housing projections bear fruit, maybe the next capital expenditure projects will commence, if they haven’t already.