Softwood Timber Sales on the rise as Structural Prices Get a Lift

Sales of domestic sawn softwood products lifted 4.3% year-ended June 2020, rising to 3.025 million m3. The result, the first time in 16 months the annualised total has been above 3.0 million m3 requires some close consideration because it defies some expectations and appears driven by a number of factors, some short and others longer term.

The orthodox logic is that in a recession that has no genuinely observable end in sight, consumption of all products will decline. However, the chart below demonstrates that simply has not occurred for sawn softwood products.

But why is it so?

Fig 3

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There are, we observe, several obvious factors playing into the solid sales numbers.

First, as has been considered in prior editions of Statistics Count, many sales are supplying houses that were approved and even commenced, prior to the pandemic. That is, there is an existing pipeline of work.

Second, it is clear that many builders accelerated their building program to make starts and advance projects in the early days of the pandemic, concerned to ensure they secured progress payments and to keep their employees and contractors moving.

Third, as outlined in the opening item of this edition, the HomeBuilder program is having an impact, providing stimulus for new work that seems to be delivering additional demand/backfilling the housing pipeline, including for sawn softwood products.

On those three factors alone, we would expect to see sales of the structural grades – used for framing – being solid, if not growing across this most strange of times.

The chart here shows sales of all softwood grades on a year-on-year comparative basis. It shows that over the year-ended June, sales of some of the structural grades were higher, but not all.

Fig 4

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The table sets out the details that show sales of the Structural <120mm grade lifted 4.4% over the year, but its Treated counterpart declined 6.6%, with both the larger grades (>120mm) seeing sales down around 10%.

Stable or modestly lower sales of structural softwood grades can in part be explained by the declining sales in the second half of 2019. It is a long time and another economy ago, in many respects, but we should recall that Australia’s economy was in decline and there were mutterings of an imminent recession even before the pandemic wrought its blows.

So, to examine this further, we can drill into the two major structural grades. The chart here shows the Structural <120 mm grade, with the monthly bars perfectly explained by the annualised red line. Annualised sales growth has not been some flash-in-the-pan. Rather, growth has been stable, consistent and even modest.

Fig 5

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Although down over the year by varying degrees (-4.0% to -13.5%), weighted average prices for Structural <120mm rose in most jurisdictions in the June quarter. Most of the increases were in the 0.1% to 0.2% range and no region is receiving prices higher than for the corresponding quarter in 2019, as the chart shows. What this means is that sales volumes have not come at the expense of price.

Fig 6

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For a short time, the Treated rival of the Structural <120mm grade was the annualised sales leader. More recently, as we can see below, it has charted the downturn along the same trajectory as its cousin, but has not recovered in the same way. Recent months have seen great sales stability at around 51,000 m3 per month.

Fig 7

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Somewhat similar to the experience with the <120mm grade, the Treated grade saw modest upswings in price in the June quarter. In most cases, these were just below the 2% mark and again, in no case are prices higher than a year earlier, as the chart shows.

Fig 8

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Comparisons aside, the charts for the two main structural grades serve to show that by the end of 2019, there was a modest recovery in sales underway. The housing economy was starting to respond to signals and underlying demand. We can recall that the industry had expectations of modest but sustained growth in 2020. That may be reflected in the subtle improvements in prices in the June quarter.

Much of that is still being experienced, such is the nature of the pipeline of building works.

Of course, pipelines of building activity must end at some point in time, unless they are replenished. It does appear that the HomeBuilder program is creating sufficient demand for new dwellings for pipeline gaps to be plugged, more or less as they arise. As with the other forms of stimulus related to income support, the big question will be what happens when the stimulus ends?

The crystal ball is pretty murky on this front, but there are some other indicators in the sawn softwood sales data that provide some pointers.

As new dwellings get completed, the emphasis shifts from structural to aesthetic and from indoors to outdoors. We see that reflected at the end of building cycles in rising sales of outdoor, fencing and landscape grades. Here, we can see the relevant grades.

We can note first that their decline was similar (in aggregate) but more pronounced than that for the structural grades. In doing so, we also note that they have recovered very strongly, with Outdoor Domestic up 11.2% year-on-year and Fencing grades up 8.6%. That is suggestive of housing work coming to an end, and we should not discount that it may also include a few recent months of accelerated activity for the ‘brought forward’ element of the pipeline, as well as some emphasis from home-owners on their own projects in periods of lockdown.

Fig 9

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Again, what we cannot easily determine is how much of this work has been dragged forward, how large the hole in the future pipeline is going to be, and whether the economy will have the grunt in it to sustain these sometimes counter-intuitive sales numbers.

For the meantime, sales at least translate into cash. That could be all important if the pipeline dries up as much as might be expected towards the end of the year.