North American lumber prices forecast to soar in 2013

New five-year outlook shows that supply and demand conditions in wood products for the long-awaited ‘super-cycle’ are now taking hold, with the full impact still some 3+ years away! With the return of a demand-driven wood products market in 2012 – due to rapidly increasing housing starts in the U.S. – it is now forecast that lumber and panel prices will move to new highs in 2013 and record highs for lumber in 2014.

A North American “super-cycle” has been predicted by WOOD MARKETS since 2008 as a result of emerging supply-side constraints (mainly on forests and logs) as well as changing demand dynamics, but the global financial crisis that started in late 2008 and an unusually slow U.S. housing market recovery have delayed this event until 2012.

With the expectation of strong growth in U.S. housing starts over the next five years, combined with a better balance in the housing inventory and a recovering economy, the U.S. supply chain is expected to become overwhelmed at times during the next five years, allowing wood products prices to soar. While there are a number of assumptions that are required to maintain steady economic growth, a strong wood products recovery amidst a tightening timber and mill supply base is still expected.

These and other findings on U.S. and Canadian lumber markets as well as forecasts for all engineered panels have just been released by WOOD MARKETS in its 8th edition report: WOOD Markets 2013 • The Solid Wood Products Outlook • 2013 to 2017.

The report examines an overall tightening of the global timber supply base, but forecasts that it is mainly in North America where scarcities will be felt. With China now importing more and more logs and lumber from North America and with U.S. demand now rebounding, some key structural constraints are expected to keep log and lumber supplies tight relative to demand growth, including:

• A collapse of the Russian logging sector in 2009 from the global financial crisis where log exports are now less than 40% of their 2007 level as they continue to decline in 2012.

• Changes to the Russian log export tax that continues to leave Russian log exports less available and expensive.

• After a “cooling-off” period in 2012, China’s requirement to feed its growing wood deficit will see a return to steady demand growth for imported logs and lumber from North America and other sources.

• The mountain pine beetle epidemic in the B.C. Interior will, by the end of the decade, kill about 60% of all the pine trees in the BC Interior. This will permanently reduce Western SPF lumber production starting in about 2014 or 2015.

• The Quebec government (which controls 90% of the forests in the province) will have reduced the timber harvest by at least 30% between 2004 and 2013, permanently reducing lumber production.

• Consequently, Canada’s lumber production will plateau by about 2015, allowing for essentially no increases in exports to the U.S. and will, therefore, see its’ U.S. lumber import market share plummet to two-thirds of its historical level. By the end of the decade, B.C. and Quebec lumber shipments will collectively be lower by some 10 billion bf as compared to peak shipments in 2004.

• The role of Timber Investment Management Organizations (TIMOs) will play out as log markets strengthen. As many large U.S. corporate forest companies with sawmills have sold their private timberlands to TIMOs, timber prices are eventually forecast to rise and be sold more on the margin, tightening the economics of sawmilling in the U.S. and potentially limiting incremental lumber production.

Source: WOOD MARKETS