In 2018, overseas supply of softwood lumber to the US reached a 11-year high

With forest product imports from the US deteriorating and American wood product exporters losing market shares in the Chinese market, imports from other countries, including Canada and Russia, have fallen less or even expanded the past year.

With the tight wood fiber supply in the US South, wood chip and pulplog prices in the 1Q/19 reached their highest levels in almost seven years in both in the South Central and Southeastern states.

Demand for imported pellets in Japan and South Korea continued a three-year growth trend to reach record highs in the 4Q/18.

In late 2018, gross margins for sawmills in North America fell while they were fairly stable in Europe and Russia.

Pulpmills in some of the major hardwood pulp-producing regions in the world, including China, Finland, Indonesia and Spain, have seen their fiber costs go up between 10-30% the past two years.

New Zealand has increased its market share from 30% to 44% of the total softwood log imports to China in just three years. While Canada and Russia have reduced log shipments the past few years, other smaller log suppliers including Japan, Poland, Chile and South Africa have expanded shipments.

US lumber prices have gone through a historical roller-coaster ride over the past 12 months, falling 33% from June 2018 to January 2018.

The limited price improvements over the past few years, oversupply of pine pulplogs, and potentially more attractive land-use alternatives in the agricultural sector, have led some landowners in Brazil to choose to plant agricultural crops rather than trees

A gloomier outlook by Chinese consumers and a shortage of credits for many provincial governments and state-run firms have contributed to reduced demand for forest products

Shipments of hardwood chips from Australia, the second largest chip supplier to China, have also increased over the past year but at a much more modest pace than shipments from Vietnam.

Wood chip prices in western Canada and western US have gone up 25% from 3Q/17 to 3Q/18, the biggest in crease in North America.

The timber harvests on public lands in British Columbia are set to decline over the next decade and uncertainty surrounds log availability in the eastern provinces.

Sawlog prices in Russia and Eastern Europe have fallen in 2018 following a year of increases.

The Global Softwood Fiber Price Index fell in the 2Q/18 but was still almost 8% higher the in the 2Q/17.

Chinese importers have gradually shifted their historical preference for logs away from the Russian Federation towards New Zealand and instead are importing softwood lumber from their forest-rich neighbor in the north.

• Softwood lumber prices were substantially higher in North America, Europe and China in the 2Q/18 as compared to the same quarter in 2017.

Gross margins for sawmills in the Nordic countries were close to the highest they have been in over four years in the 2Q/18, while they reached levels not seen in more than a decade in other parts of Europe

Softwood and hardwood log imports to Sweden up 25% and 70%, respectively in early 2018 as compared to early 2017.

The US Pellet Feedstock Price Index fell 3.0% from 1Q/17 to 1Q/18 because of lower usage of costly roundwood

The Global Hardwood Fiber Price Index reached the highest level in three years in the 1Q/18

It is expected that US softwood lumber supply sources will shift to meet future increase in US lumber demand. Factors influencing these shifts include changes in availability of timber supply, prices of sawlogs, competitiveness of lumber producers, exchange rates and developments in alternative markets for lumber producers in Canada and overseas.

• After softwood lumber consumption in the US reached a ten-year high in 2017, demand fell in early 2018. Despite the reduced consumption, lumber production on the US west coast jumped by over nine percent y-o-y in the 1Q/18 thanks to strong demand for lumber from China during the past year.

Tights fiber supply in British Columbia and the US Northwest pushed chip prices up over 12% in the 1Q/18

Lumber imports from Russia to China has doubled the past five years, while North American supply has been in decline.

Changes in availability of timber supply, prices of sawlogs, competitiveness of lumber producers are some factors that are likely to shift future lumber supply sources to meet higher demand in the US.

By far the biggest sawlog price increases in Europe in 2017 (in Euro-terms), was in Eastern Europe, where demand for sawlogs increased as lumber production rose.

Strong demand and tight supply of wood fiber in Sweden resulted in increased wood chip imports in late 2017

The Global Softwood Fiber Price Index (SFPI) increased 4.0% during 2017 mainly because of higher pulpwood prices in Western North America, Europe, Russia and Australia

US softwood lumber consumption likely to reach record high by 2030 resulting in higher imports from Europe and Latin America

Global softwood lumber trade reached an all-time high in 2017 during the 1H/17 and lumber prices have continued to move upward in most men markets around the world.

Changes in availability of timber resources and forecasted increases in wood raw-material costs for sawmills around the world are likely to impact the trade of softwood lumber to the US in the future.

The Global Sawlog Price Index (GSPI) has gone up for three consecutive quarter to reach a three-year high in the 3Q/17

The Russian sawmilling sector continues to add capacity in Siberia and the Far East, targeting the expanding demand for lumber in China. Just during the first eight months of this year, Russia increased shipments to China by 23% as compared to the same period in 2016. Although Russian lumber prices have not changed much in Ruble terms over the past two years, there has been a steady increase in export prices as measured in US dollars.

The increased competition for small-diameter logs has resulted in a dwindling supply of traditional pulplogs normally available for pulpmills

The biggest increases in chip supply to Japan and China year-over-year have been from Chile and Indonesia.

With price premiums surging in the export market, Australia's log exports reach record levels in 2017.

Production cost margin for sawmills in the US South increased during much of 2016 and 2017 and reached its second highest level in 13 years in the 2Q/17.

Hakan Ekstrom

Lumber prices in both the US and Canada have trended upward for almost two years and reached 13-year highs in July. One exception has been pine lumber prices in the US South, which have fallen the past few months to the lowest level seen in almost a year.

Hakan Ekstrom

There are expectations that sawlog prices may continue to go up in the coming months because of improved opportunities for Brazilian exporters of lumber, plywood and value-added products.

Lower log and sawdust prices in the US South have resulted in a 15% decline of the Pellet Feedstock Price Index since 2013

Although lumber production in New Zealand has increased the past three years, export volumes have fallen 15%.

Lumber shipments from New Zealand to the US have gone up 37% the past four years and can be expected to increase in the future.

The wood cost is often the major factor determining a pulp mill's competitiveness. In 2016 and early 2017, these costs fell in the US, with prices for wood chips and pulplogs declining more in the West than in the South.

Consumption of pellets in Japan and South Korea has increased quite rapidly the past four years because of new government requirements which favor reducing carbon emissions and increasing the usage of renewable energy.

Prices for imported softwood lumber to China have been in a steady upward trend during 2016 and 2017 with the average import price in March 2017 being 13% higher than 18 months earlier.

High import tariffs on Canadian softwood lumber will increase overseas imports but Canada will remain the largest and most important supplier of lumber to the US housing market

High supply of sawmills chips in Quebec and Ontario may force lumber companies to export chips outside the country