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market analysis

China & US Market Updates – Slow Going!

Article by Russ Taylor, President of Russ Taylor Global | 08.11.2023 - 11:09

Russ Taylor, President of Russ Taylor Global, Vancouver/CA;

Inventories of logs and lumber at ocean ports are low in China, as the reported port statistics suggest. They also appear low at various distribution yards across China. This situation has certainly not gone unnoticed, as several Scandinavian and Russian lumber exporters thought that October was a suitable time to raise prices in China. In travelling around China in the second half of October, about two-thirds of the lumber prices increase for sawfalling grades from Europe and Russia will likely stick, at least in the short term. Relative to the new price quote of US$260/m3 C&F China, prices were holding in $240 to $245 range, a considerable increase from about $220/m3.

These inventory levels, however, could be misleading, as the inventory data is not picking up a lot of the new Russian container shipments from St. Petersburg that will be arriving in China over the next few months. These volumes have accelerated since the start of third quarter as container ships with exceptionally low back haul rates have started up and significantly more containers will be arriving before Chinese New Year.

The low-grade market is particularly weak in China, as much of this lumber ends up in concrete forming. Over 15 days in China, I counted hundreds of building cranes on new construction projects, but only saw two working! There is a real freeze on new construction in China due to the financial instability and huge debt loads of many construction firms across the entire property market.

The higher grade of saw-falling lumber is used in the decoration and furniture segments and these end uses seem to more stable now, but it is certainly not growing. The higher lumber prices may squeeze some of these operations as the buyers cannot raise their prices to their customers, but the squeeze will not likely be enough to force any significant curtailments in the short term.

Of course, Chinese importers would welcome increased lumber prices if they were sustainable. However, most importers in China are worried about what happens after Chinese New Year. They remember very clearly what happened in 2023, as everyone thought there would be rising demand and higher prices after the COVID lockdowns were removed. The opposite occurred, and many overbought high-priced lumber in first quarter 2023 and have been licking their wounds ever since.

This all means that European and Russian lumber sellers to China should be also careful on pricing and volumes, as their future business in China could be negatively impacted if prices decline from weaker demand after Chinese New Year – despite “low” inventories.

US Market

Aside from the unstable ME-NA markets, these leaves that last big export market for Europeans: the US. It is the most balanced market right now, although the fourth quarter is always slow and there is currently slowing demand against surplus production.

US lumber prices had been slipping for many weeks and some have bottomed out (for now). W-SPF 2x4 #2&Better random length was trading as low as US$370/Mbf (US$240/m3; €225/m3), FOB BC mill, after a nine-week slide and a 10% lower price. As of November 7, it is now higher at US$395/Mbf (€238/m3). SYP-West 2x4 #2&Better random length is still collapsing and was trading at US$363/Mbf , (€219/m3) FOB mill and is down over US$110/Mbf (-23%) in just five weeks and is trading below W-SPF. This is never a good situation, as the normal spread of SYP over SPF is US$50-$60/Mbf and it is currently negative US$32/Mbf. And even more shocking are the prices for SYP 2x6 and 2x8 – they are trading at US$80/Mbf (€47/m3) lower than SYP 2x4!

Mills are aware that if they curtail, they risk losing some key sawmill and logging employees as well as some existing customers. So, most curtailments are being postponed, and this strategy, in turns, puts too much lumber into a fragile market and further price reductions are likely until a more balance can return to the currently over-supplied market.

Some of the US price weakness is attributed to the large volumes of imported European lumber that is scattered all along the US east coast and gulf regions. Export volumes to the US have been slowing over the last few months, so that is helping the market situation. However, this also means that European lumber exporters may not be successful in selling more lumber to the US market for the rest of the year until US prices gain at least 10-15%. Those German mills with access to cheap beetle-killed logs (around €50/m3) and extremely low container rates to the US may be better able to maintain some business and at least keep some exports coming.