Record prices seen in US lumber market

The U.S. market has been red-hot in 2017 on a combination of supply, demand, trade and climate factors that have combined to create a “one-of-a-kind” year. And it isn’t over yet! We have been predicting a timber supply crunch in Canada since 2007, when we first analyzed the impact of a diminishing timber base in the B.C. Interior (mountain pine beetle-related) and Eastern Canada (mainly in Quebec, due to government timber policies). The effects of reduced timber supplies and, by default, lower lumber production, were expected to show up “in the middle of the next decade,” with the timing subject to U.S. lumber demand, key export-market dynamics, and supply from major offshore exporters.

This scenario began to show up in 2016 as rising global demand propelled prices higher in most markets, with many all-time U.S. price records being achieved this year. In its October 6 issue, Random Lengths highlighted that 297 (18%) of its reported 1,674 weekly prices of softwood lumber, panels and veneer “were at or had already touched record highs in 2017.” This is despite only somewhat modest gains in lumber consumption: U.S. “derived demand” volumes for the first seven months of 2017 were near zero (although 4%–5% would be a more realistic gain, ignoring derived demand). Canada shows an 8% gain year-to-date due to its strong housing market.

B.C. Interior lumber production is finally declining, as predicted: year-to-date production is down 3.4% and total Canadian production is lower by almost 1%. This is despite record-level prices in the U.S., and has resulted in significantly reduced Canadian exports south of the border: the Canadian trade data show a decline of 496 million bf (-5.6%), while the U.S. trade data point to a larger decline of 577 million bf (-6.5%).

At the same time, U.S. West production has grown by a mere 45 million bf (0.6%) in the first seven months of 2017 — also despite record-level prices, and also as a function of tight log supplies and a strong log-export market. Only the U.S. South has been able to show any real increase — 380 million bf (+3.7%) so far this year — despite huge availability of low-priced sawlogs amid rather limited sawmill capacity increases. Offshore imports have seen a substantial jump: up 130 million bf in the first seven months of the year (+32.8%), driven by high lumber prices and reduced Canadian supplies.

Throw in massive forest fires in B.C. and the U.S. Pacific Northwest, along with hurricanes in the U.S. South, and we have all the components of a “perfect storm.” With uncertainty around Canadian import duties starting in early January 2018, we are already setting up for another volatile year in North America!

Source: Russ Taylor, Managing Director, International Wood Markets Group (now part of Forest Economic Advisors (FEA))

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