The Wood Market – Today....Tomorrow – For You and For Me - West Wind Hardwood

4-woodmarketwebAbout a month ago, we received an email from a supplier commenting on the strengthening US dollar and it’s affects on the increasing cost of lumber.  This is an upward trend that is a double-edged sword for Canada; a country reliant on exports and a robust trading partner with the US.

“The Hardwood Review Weekly has had two recent articles that offer an explanation as to why lumber has been in tight supply and prices have been on an increase.  Here is a condensed version covering their basic content:

“Overproduction No Longer Inevitable – Several Reasons Why Supply Won’t Overtake Demand Anytime Soon” by Andy Johnson, Editor

Source:  Hardwood Review Weekly, November 29, 2013 (Vol. 30, Issue 11)
Source:  Hardwood Review Weekly, December 6, 2013 (Vol. 30, Issue 12)

Supply Side Constraints to Increasing Production:

  • Fewer sawmills (many grade and tie mills  have closed and were dismantled)
  • Limited capital availability (credit requirements have tightened considerably for hardwood companies)
  •  Labour shortage (pool of qualified loggers, sawyers, graders and machine operators is quite low)
  • Highly competitive timber/log markets (rapidly rising lumber prices have mills eager to buy as much raw material as they can afford)
  • US Government policy (laws and regulations that end up discouraging small businesses from growing… compliance costs; differential applications based on company size – for example Obamacare)
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photo by Kimberlee Kessler Design

Primary Demand Drivers for North American Hardwood Lumber:

  • Robust industrial markets (pallet stock, railroad ties, crane mats)
  • Additional homebuilding and remodeling bumps (remained strong on a year-over-year basis from 2012)
  • Harwood lumber exports (2013 saw the six strongest months of exports in our industry’s history)

With many more hardwood lumber companies now exporting 60-70% of their production to the growing demand from export markets (China in particular), price increases are being seen on many items in all regions of the US…..most notably Red Oak, White Oak, Poplar and Ash.”

And more recently I received this report from “WOOD MARKETS” newsletter of January 7.  This is a consulting firm of experts specializing in research, analysis and assessments within the timber and solid wood products industry.  They publish leading edge market research and analysis in the form of monthly newsletters and client reports.

While a little drier reading, I have condensed this report and found it a fascinating critique of the global conditions.  Full details of “WOOD MARKETS” various strategic reports can be found here.

2-woodmarketweb“The outlook for global lumber markets hinge on demand forces in the key consuming regions of the world. More specifically, it will be the lumber demand trends in the U.S., China and Western Europe that will shape global markets in 2014 and beyond. The following analysis by International WOOD MARKETS Group is derived from its consultants’ extensive travels and market investigations that, in turn, are the basis of six of its strategic outlook reports and analyses that were produced in the second half of 2013.

While the supply dynamics are becoming more constrained in some areas, the ability for sawmill capacity to ramp up production is an all too familiar dynamic that continues to over-shadow the global lumber market. However, if global demand can achieve a 4% (or higher) gain in 2014, the outlook should be very good for lumber and sawn wood prices.

In the November issue of the WOOD MARKETS Monthly International Report, a 3.4% gain is forecast for 2014 by WOOD MARKETS, which will result in favourable – but not spectacular – lumber prices.

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…..it is the pace of U.S. housing starts that will set the tone for the lumber (and panel) markets in 2014. After a strong gain in new U.S. housing starts of 28.5% in 2012 (an increase over 2011), 2013 will end up with a more lackluster gain of only 18.5% new housing starts…..WOOD MARKETS is predicting a steady growth in housing starts in 2014, but less than the 20% that is needed to support a very strong market.

North American lumber production is expected to increase by almost +5.4% in 2014 – an increase over 2013’s estimated gain of +5.0%…..From the detailed analysis covered in WOOD MARKETS’ North American Stud Industry & Market – Outlook to 2017, North American stud lumber capacity has been essentially unchanged since 2009 as some mills have closed while others have restarted…..Over the next five years, total North American stud demand is forecast to experience an annual compounded growth rate of almost 10% – much higher than dimension lumber. And the prospects of lumber “super-cycle” coupled with record high lumber prices are very possible by 2016…..

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China continues to be a key wildcard in global export markets as log and lumber imports continue to increase. This situation has been exasperated by the fall in total Russian log exports since 2007 as the Russian industry has suffered from rising domestic logging and transportation costs despite a reduced log export tax that came into effect in September 2012…..To offset declining log exports, Russian sawn lumber production has increased by about 30% during the last ten years, while lumber exports have increased by over 50% (led by the growing presence of Chinese-owned sawmills in Eastern Russia).

Russian lumber exports to China alone have seen continual growth from 2002. This has resulted in huge changes in China’s imported log and lumber supply and has also created a number of winners and losers as global trade flows have been radically altered…..Although China’s housing market sizzled for most of 2013…..it looks like the market is stabilizing and avoiding a boom/bust scenario – that is good news for exporters of softwood logs and lumber.

China continues to influence global log prices as well as prices in many domestic log markets, especially where logs can be easily exported. China’s ability to outbid sawmills for saw logs along the U.S. west coast, as well as the B.C. coast and in New Zealand, has been strongly evidenced since 2010……………..China has a huge and widening fibre supply gap but also has the world’s lowest cost sawmills. Consequently, China can afford to pay some of the highest prices in the world for saw logs (and, at times, for softwood lumber). The analysis shows that with reduced Russian log supplies, China will remain a competitive threat to many domestic sawmills in countries that can export saw logs to China.”

WOOD MARKETS’ 4TH Annual Global Log and Lumber Conference – May 7 in Vancouver, BC – will discuss the industry and market dynamics.  This purports to yield an insightful synopsis on the future direction of global markets, trade and prices.

This is the BIG BOY world of commodity lumber in a global market.  West Wind is a bridge between you and these global players.  We try to bring sense and order to rising costs; and the constant struggle of supply and demand.

A little closer to home and the Canadian Trade Commissioner Service reports optimism in terms of the performance of Canadian exporters.  “What we see over the next year or two will be much more healthy growth in terms of exports,” says André Downs, Chief Economist at Foreign Affairs, Trade and Development Canada (now in his fourth year). “We see investment coming back; we see consumption continuing to increase at a more sustainable pace, with all of that leading to a more balanced pattern of growth in Canada as well.”

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A conversation with André Downs, Chief Economist at Foreign Affairs, Trade and Development Canada (DFATD)

What do you see happening ahead in global trade?

We’re going to get more balanced growth for the world economy, with the developed economies picking up starting this year and next year, and emerging countries still leading in terms of growth, but at a less robust pace than we experienced before the global financial crisis.

How will Canadian exporters benefit?

We will continue to diversify gradually toward emerging countries where growth rates are a bit higher, but we’ll continue to export as well to other, developed countries.

Is world demand the only thing that influences Canadian export numbers?

There are several other factors. For example, Canada’s productivity performance has been poor for about 20 years, so it reduces our competitiveness year after year. Our lack of productivity growth erodes our competitiveness gradually in world markets. That’s a fundamental structural problem.

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The Bank of Canada report notes that better trade numbers expected last year didn’t materialize. The world economy has been slow to recover; are we there yet? 

It’s been taking longer, let’s face it. The financial crisis was in 2008 and 2009; it’s been almost five years. Most observers are expecting that we’ve turned the corner and that growth will be back, but there are still a lot of risks and uncertainties in the world economy. A lot of emerging countries are in need of some important structural changes. Europe has made some positive steps but still has some fiscal and financial issues to address. We expect that business investment will pick up in North America, but business people may remain more cautious.

I’m very optimistic about the future of Canada. We’ve always been a trading nation, and we’re increasingly a nation of traders. The efforts toward diversification didn’t stop during the financial crisis, and they will continue over the next couple of years.

1 Comment

  1. Great videos!!! I am new to turning, my new obsession. I have a basic set up and am very frugal with the wood I use. I use your hot glue technique as I only have a face plate to turn the miniatures I like to do. I use the waste block over several times before I change it out. One of the issues I had was centering the piece, I discovered if I turned concentric circles at random intervals it was easier to find the center. I just finished my first lidded box!!!! Thanks, it turned out great!!!!!!!

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