Softwood lumber in 2022 and 2023 outlook

Friday 11 Nov 2022

 
Eroding Markets Point to Sawmill Curtailments in Europe. (First published in: Spar Tree Group’s October newsletter, View from the Stump)

The mood at the 70th International Softwood Conference (ISC) held this year in Copenhagen was one of caution and concern. With global markets cooling off and many producing countries in Europe struggling with exceedingly high log and energy costs, some sawmillers expect losses – and increasing losses – for the rest of fourth quarter as well as first quarter in 2023.

With too much production already evident in the market, European mills are not yet slowing down enough despite all the red flags of shrinking demand already evident. This means that more European sawmill curtailments will occur in the short-term.

Russ Taylor has been a regular attendee to the ISC since its move to an international event starting in 2006 and he is normally the only representative from Western Canada (aside from Don Kayne, CEO, Canfor, who presents each year by ZOOM with some in-person presentations).

Europe is seeing the highest interest rates in 30 years, and for the US, it is 40 years. The so-called “yield curve” is now running negative and increasing – always a sign of a pending recession. Most economists are now forecasting a global recession in 2023 with Europe starting earlier with the potential of a hard landing.

Soaring energy costs, rising inflation and interest rates caused by the Russia-Ukraine war are creating difficult conditions for consumers and producers. While high interest rates and inflation are all over the world, it is anticipated that the US recession could result more in a soft landing. However, the US Federal Reserve is expected to further raise interest rates and that could prolong the time before any economic recovery.

Softwood lumber consumption in European ISC countries was a healthy 82.9 million m3 in 2021 and is estimated to ease to 78.9 million m3 in 2022. The official forecast for 2023 is for a small reduction to 77.5 million m3, but this outlook seems overly optimistic when speaking with many of the 200 delegates. With the expectation of rising unemployment, high interest rates, high energy costs and so much uncertainty with geo-politics, the outlook for 2023 is not looking good at all for European sawmills.

European sawmills have been facing soaring delivered log costs due to the surging prices for fire and pulp logs – up to €95/m3 (~US$95/m3) – which had pushed sawlog prices in some countries to €150/m3 (~US$150/m3). With lumber prices now falling, sawmills in some countries are being squeezed into negative sawmilling margins. Fortunately, fire and pulp wood prices have peaked and should ease, so that may provide some much-needed relief on sawlog prices in fourth quarter.

In the short term, however, lumber consumption and consumer confidence are falling, and consumers’ disposable income is being redirected towards paying higher energy, food and, in more and more cases, mortgage payments. This makes business in Europe very unpredictable going forward. European lumber production in the ISC member countries is likely to drop from 97.2 million m3 achieved in 2021 to an estimated 94.7 million m3 in 2022 and a forecasted 93.5 million m3 for 2023 (although this seems very bullish given the tone of the conference).

European lumber producers are also facing a potential nightmare scenario from the proposed EU Deforestation Regulation. Once it has come into effect in the next 1-2 years, all business activities must be “deforestation-free” – which requires extensive documentation. If implemented, it could seriously restrict the harvesting of some forests, reducing the log supply in various countries in Europe.

More >>

Source: russtaylorglobal



Share |



Copyright 2004-2023 © Innovatek Ltd. All rights reserved.