Russ Taylor, Präsident von Russ Taylor Global, Vancouver/CA; www.russtaylorglobal.com
This huge 70% drop of almost $1,150/Mbf (€630/m3) now moves some North American mills from stellar financial results to perhaps breakeven levels for some of high log-cost regions (like the BC Interior, Oregon and Washington). Southern yellow pine cash prices have also plunged by 65% from their all-time peak and prices are currently sitting at US$488/Mbf (US$315/m3; €267/m3). Nevertheless, prices of both species are still high compared to pre-pandemic levels, but sawmill margins may be more challenging now in high log cost regions.
US & Canada Lumber Supply
The lumber supply in North America along with rising imports to North America finally caught up to runaway demand at the end of second quarter, 2021. Sawmills and panel plants have been operating at near effective capacity for much of the last year with month-over-month record lumber production increases in US and Canada occurring in both March and April 2021. Summer maintenance and vacation curtailments are being scheduled, however, and that should ease output somewhat in third quarter.
Following the start of the pandemic, North American lumber inventories (stocks) bottomed out in December 2020 (10% below pre-pandemic levels) and by April 2021 they were getting close to levels before the pandemic.
A current issue facing western North America is the early forest fire season because of record heat and no rain. In normal years, most fires occur later in July and in August, but this year it has started in June and there is no weather change expected for some time. Forest fires cause logging to curtail but normally sawmills and logistics operations keep operating until it gets too dangerous.
BC mills are not only facing forest fires, but the Canada-wide export tax (9%) on US shipments as well as stumpage price increases (payments made to the BC government for standing publicly owned timber) that increased on July 1 by about Cdn$15/m3 (US$12/m3) after a Cdn$25-30/m3 increase on January 1. And further increases are expected in September – all because of the record lumber prices that have occurred during the pandemic. BC SPF sawmills were making exceptionally good margins, but now the nemesis of the lumber industry - rising government stumpage rates that lag lumber prices by three or more months. This development is now back in play as it did after the price correction in the second half of 2018 - that situation resulted in many BC sawmills curtailing due to negative margins.
US Lumber Imports
Rising lumber prices in Europe coupled with container shortages for export markets have caused European lumber exports to the US to slow – exports slipped 6.5% in May from April despite record level prices at over US$1,750/Mbf (US$1,130/m3; €960/m3) delivered to the US east coast. Slight export declines were recorded in May from Germany, Sweden, Austria and Finland, while Romanian exports surged +33 million bf (51,000 m3). Canadian exports to the US also accelerated and increased by 7% (85 million bf; (132,000 m3) in May as compared to April. Overall, US imports increased by almost 6% in May vs. April and were 25% higher on a year-over-year basis.
US Lumber Demand
The good news is that US lumber and panel consumption continues to be strong in new residential construction. As compared to the second half of 2020 new residential housing starts have increased a further 4.6% in the first half of 2021 to an annualized 1.58 million units and with single-family housing starts representing a strong 71% share.
US home repair and renovation spending soared at the start of the pandemic, leading to a massive increase in lumber demand for all kinds of do-it-yourself projects. However, with most Americans now vaccinated, consumers now have options for their disposal income. After getting bombarded for months with news stories about the soaring prices of building materials, US consumers have decided to spend their money elsewhere, at least for now. As a result, R&R demand faltered in second quarter 2021 and big box stores generally became overstocked, and especially in treated southern yellow pine lumber. This situation will improve, but not likely until fourth quarter when larger home renovation projects are expected to be scheduled following the drop in building product prices.
US Lumber Price Trends
Lumber prices in the US may be close to bottoming out, although no one knows with any certainty if there will be further downward movement on prices or if they will bounce back. So far, the price decent continues but it is expected that they will probably rebound shortly. As demand is still strong and the DIY sector may be closer to resetting, it is equally possible that prices could move higher in August through to mid-September before a seasonal slowdown occurs. And some are predicting, believe it or not, a price surge later in the year that could see prices increase by 50% or more if 2022 spring buying starts earlier. As usual, wild times in the U.S. lumber market.
Meanwhile, US OSB and plywood prices peaked in early July and already are lower by 18% in two weeks. How far or quickly these prices fall is another bet that many traders are playing right now, especially after what has happened with lumber!
Russ Taylor, President, RUSS TAYLOR GLOBAL, Vancouver BC Canada www.russtaylorglobal.com
