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Global lumber markets benefit from rising prices

Lumber prices have increased worldwide in the second half of 2020 with US prices almost doubling

Lumber Markets – Europe

Lumber trade fell slightly in Europe in 2020. During the first eight months, shipments from the major exporting countries were down 1.2% – the first y-o-y decline in eight years. Countries that have reduced exports the most so far this year include Finland, Latvia, and Austria.

There have been mixed developments in the Nordic countries, with Finland shipping substantially less lumber this year, while Sweden actually increased shipments. Sweden is on track to reach an all-time high in export sales this year.

The markets where Swedish exporters have expanded the most since 2019 include the US, China, Germany, Denmark, and Egypt.

Lumber prices in Finland and Sweden have moved up during much of 2020, as reported in the WRQ. The increases followed a low point in late 2019 when prices were at their lowest in over ten years (in US dollar terms).

Lumber Markets – North America

The US lumber market was red hot in the 3Q/20, with prices surging to levels never seen before. Southern pine prices increased by 160% from the year’s low in April, to September. In Western US, Douglas-fir lumber prices almost doubled during the same period. High domestic demand for lumber in the US and a trade dispute with China reduced US softwood exports in 2019 and 2020, with y-o-y reductions of 17% recorded in the first nine months of 2020.

Total shipments for 2020 are on track to be their lowest in over ten years. Canadian lumber exports have also declined in 2020. During the first nine months of the year, shipments were 10% lower than in the same period in 2019, with most of the decline occurring from January to June.

In the 3Q/20, total export sales picked up from the previous two quarters, equaling the 3Q/19 shipment volume. The price surge in the US domestic market directly impacted Canadian export prices in 2020. Average prices for US-bound lumber in September 2020 were 94% higher than in September 2019.

Lumber Markets – the United Kingdom

The United Kingdom is the largest importer and the second-largest consumer of softwood lumber in Europe. In 2019, the country imported 6.7 million m3, which was a y-o-y decline for the second consecutive year. Although lumber imports showed a substantial increase in the 3Q this year, the first nine months’ total volume was still 22% below the same period in 2019.

Shipments from Sweden, the largest lumber supplier to the UK, have fallen less than imports from other countries, including Latvia, Finland, Russia, and Germany. Import prices were generally higher in the fall than earlier in the year.

Lumber Markets – China

Lumber imports to China slowed in the 3Q/20, with total volumes falling 2% from the previous quarter and 4% from the 3Q/19. Total imports for the first nine months were 10% below the same period in 2019. China’s two largest supplying countries, Russia and Canada, collectively account for roughly two-thirds of total imported softwood lumber.

They both lost market share in 2020. Predominantly European suppliers, including Ukraine, Sweden, Germany, Finland, and Belarus, have been increasing their presence in China to fill the need for wood in the world’s second-largest market this year.Despite the reduced demand for lumber, import prices have moved up this year and in the third quarter were the highest they have been in two years.

Russian prices were close to a record high. Russian lumber is also the supply source that has increased the most in price the past year.

Lumber Markets – Japan

Lumber imports to Japan fell by almost 10% during the first nine months of 2020 compared to the same period in 2019. The y-o-y changes were mixed for the four leading suppliers, with Canada, Finland, and Russia reducing shipments to Japan, while Sweden increased export volumes by 19% this year.

Importation from smaller suppliers such as Austria, Chile, the United States, the Czech Republic, and Germany have fallen by 10-35% in 2020.

Import prices have slowly trended downward the past two years, with the average price in the 3Q/20 being 13% lower than in the 3Q/18. According to the Japan Lumber Journal, the most significant changes from September 2019 to September 2020 were an increase of Canadian hemlock prices by 15% (in Yen terms) and the decrease in European whitewood prices by about 13%.

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U.S. hardwood sector faces multiple issues

U.S. hardwood sector faces multiple issues

The biggest issue the hardwood industry faces is loss in domestic consumption. International hardwood export, Michael Snow, comments on key issues in China, Vietnam from tariffs and trade wars to changing consumption patterns.

Assuming that Joe Biden is inaugurated as president in January 2021, what would a Biden presidency mean in terms of U.S./China trade relations? How would this be good or even bad for the U.S. hardwood sector?

Snow: I think the short answer is we just don’t know. I’m not sure we’re going to see any significant changes, at least initially.

China is not close to meeting their obligations under phase one of the trade agreement that was signed in early 2020. They’ve purchased far less U.S. goods than they agreed to purchase. So, it all depends on how the United States responds. If we reimpose tariffs on Chinese goods, I think we can assume China will reimpose tariffs on U.S. goods, including hardwoods.

A lot has been made in the press about how the China trade war has decimated the U.S. hardwood sector. What else besides tariffs is behind the ups and serious downs of Chinese demand for U.S. hardwoods?

Snow: China’s growth is slowing dramatically. China imports from all sources have dropped by almost 30%. We now have a smaller piece of a smaller pie.

The Chinese government is starting to consolidate economic power. State-owned enterprises are being favored, particularly when it comes to credit availability, which is largely determined by the Chinese government. Private companies that bought U.S. hardwood to make flooring, millwork, and other products are being starved for capital.

China’s housing market is also changing. There are growing concerns of a housing bubble, and there have been threats of price caps on housing. To keep delivered home prices in check, we are seeing developers finish new construction as inexpensively as possible. Essentially, we’re seeing a race to the bottom. Builders and developers are turning to vinyl floors, particle board doors, and other non-wood materials in order to keep costs down.

What can solid hardwoods do to compete against composite and alternative products?

Snow: The biggest issue the hardwood industry faces is loss in domestic consumption. We’re not making as much domestic flooring, furniture, cabinets, millwork and so on. If we want to change that, we need to change our domestic consumption habits.

We need to make the most of our environmental credentials. Wood is a renewable natural resource. Add to that the fact that solid wood products sequester carbon, which mitigates climate change. We have a tremendous story to tell.

How do you see foreign demand impact U.S. domestic production for hardwoods over the next five years?

Snow: The U.S. trade representative has launched an investigation of the use of illegal timber in Vietnam, which is the second biggest market for American hardwood after China. The Vietnam government has started a program to ensure that timber is sourced legally. Let’s give that initiative a chance to work before we begin to implement policies that could be extremely disruptive and do irreparable harm to a U.S. hardwood industry that already is reeling from the trade war with China.

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N. American lumber pricing surge expected to persist in 2021

An unexpected rebound in wood product prices in December was boosting profits for Canadian forestry companies but leaving homeowners and buyers with the prospect of higher home and renovation costs in 2021.

Prices for lumber and wood panels were up in December due to strong housing markets and limited capacity to increase North American production following a seasonal softening of prices in October and November, said RBC Capital Markets analyst Paul Quinn.

“With demand likely to get stronger as dealers get ready for what should be a very strong spring building season, we expect that prices will remain at a high level during the first half of the year,” said Quinn

2021 could be even brighter for producers than 2020, he said, adding that record high prices set last summer as COVID-19 forced people to work from home — thus sparking interest in renovations or buying a bigger house — will likely continue or be eclipsed in 2021.

The price volatility and shortage of supply of some wood products means headaches for homebuilders trying to take advantage of the current strong market for new houses that is expected to continue in 2021, said Kevin Lee, CEO of the Canadian Home Builders’ Association.

“Our members price houses based on expected near-term prices for lumber and then, when they go up, it becomes very hard to operate,” he said.

“They went down a little bit through October but you’re still talking about lumber prices three or four times the prices from a year ago. And now they’ve escalated right back up again.”

He says higher lumber prices this year have added as much as $30,000 to the construction cost of a typical 2,500-square-foot (232-square-metre) house in Canada.

Higher wood product costs haven’t affected the work volume for Shamrock Mountain Building Ltd., a home and renovation contractor that employs 14 staff split between Calgary and the ski resort community of Golden, B.C., according to owner Dale Higgins.

“All you can do is pass it along. Obviously prices are going up, you just have to be honest about it,” he said on Wednesday.

“Some people complain a little bit more about it … (but) if they’re getting multiple quotes, everyone’s saying the same thing. It’s not like just one person is charging 20 per cent more for lumber.”

Higher prices are encouraging Western Forest Products Inc. of Vancouver to redirect logs harvested on the West Coast that might have previously been exported to Asia into its Canadian mills to make value-added products, said CEO Don Demens.

“The opportunity we have is to really move up the product value chain and increase our production,” he said in a recent interview.

“Some of the logs on the coast were being exported into China. We can repatriate those logs into our sawmills and manufacture lumber products for customers in North America.”

He said the company remains cautious about increasing spending, however, because of unknowns posed by the ongoing COVID-19 pandemic.

In a report, RBC cited strong wood product demand and the lower U.S. lumber import duties for its bullish rating.

In a new forecast, RBC raised its composite price estimate for lumber in 2021 to an average of US$575 per thousand board feet, up from US$475. Its average price is US$560 for this year.

It says western Canadian oriented strandboard, a type of panelling often used to clad new houses, is expected to average US$430 per thousand square feet in 2021, up from a previous estimate of US$305 and an average of US$420 in 2020.

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Facing Chinese trade ban, Australia looks to India as a new market for its timber

With the embargo imposed by China on the importation of Australian logs still in effect, it is becoming a race against time to find a home for the thousands and thousands of logs that are sitting at the dock at Bunbury Port awaiting shipment.

Australia has the processing capabilities to keep and use those logs domestically, however, the price difference between internal usage and exported whole logs is significant.

Gary Addison owns one of the companies that has been negatively impacted by the ban. His company’s output was 100% in the export of logs to China.

Mr. Addison has been working diligently to find a new customer for his and others logs. After many overtures to countries in Asia, Mr. Addison is reporting that India has showed great interest in securing logs from Australia and he is hoping that their demand will make India the new China for his Australia.

“India seems to be stepping up as perhaps an alternative. We have tried a few other Asian countries but that hasn’t been successful,” he said.

A stronger partnership between Australia and India was backed by the Federal Government this week.

Trade Minister Dan Tehan said there were big opportunities for Australia to bolster its relationship with India.

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North American Softwood Lumber Annual Price Cycle Explained

North America construction framing dimension softwood lumber and panel prices used in Canadian and US home building. Explanation of the seasonal cycle for softwood lumber buying as well as investment the sawmills need to make for their feedstock — log supply and inventory.