Jump to Navigation

Wood chip prices in Eastern Canada rise, fall in Western Canada

External Reference/Copyright
Issue date: 
19 February 2011
Publisher Name: 
Calgary Beacon
Publisher-Link: 
http://www.calgarybeacon.com
More like this
Timber Procurement

-----------------

For most of the past 20 years, pulp mills in Western Canada have had lower wood fiber costs than pulp mills in the Eastern provinces. In fact, one year ago, pulp manufacturers in British Columbia paid almost C$60/odmt (Oven Dry Metric Tonne) less for softwood chips than did pulp mills in Ontario and Quebec, and five years ago the difference was almost C$100/odmt, according to the North American Wood Fiber Review.

A competitive disadvantage

Because wood costs account for almost 50 per cent of the production costs for Canadian pulp mills, companies in Eastern Canada have been at a competitive disadvantage to many other mills, not only in other regions of Canada, but throughout North America.

Pulp mills in Ontario and Quebec have consistently had some of the highest wood fiber costs in North America. However, prices have fallen lately; softwood chip prices have declined 10 per cent over the past 12 months and they were 25-per-cent lower in the the 4th quarter of 2010 than five years ago. Prices are currently the lowest they have been in this region in over 10 years.

In U.S. dollar terms, wood costs in Eastern Canada are now lower than most countries in Europe.

In the 3rd quarter of 2010, wood chip prices in Western Canada increased again due to their formulaic tie to market pulp prices. However, they did not go up as dramatically on a quarter-by-quarter basis as they did from 1st to the 2nd quarter earlier last year. The latest uptick resulted in prices at levels not seen since 2001. Pulp mills in the region currently have some of the highest chip prices in North America. With NBSK (Northern-Bleached Softwood Kraft) pulp prices now beginning their descent; softwood chip prices will follow downward in the coming quarters.

Despite a price decline in Eastern Canada and an increase of almost 40 per cent in one year in the West, pulp mills in British Columbia continue to have lower wood fiber costs than mills in the eastern provinces of the country.

U.S. and Canadian log and lumber exports to China up over 150%

China has come to the rescue for many sawmills and timberland owners in the U.S. and Canada the past year. The value of softwood logs and lumber shipped from North America to China is estimated to reach over US$1.6 billion in 2010, which is up dramatically from just a few years ago. In 2008, total exports were valued at US$350 million, while they were only US$125 million five years ago.

The increased demand for both wood raw-material and processed forest products in China has, to a large degree, benefited the forest industry in British Columbia and the states of Washington and Oregon in the U.S.

It is interesting to note that the two countries have chosen different paths over the past few years. In Canada, sawmills historically shipped over 90 per cent of their exports to U.S. markets, but this changed as demand for lumber fell when the housing bubble burst in 2008.

In the 3rd quarter of 2010, less than 70 per cent of exported lumber was destined for the U.S. market. On the other hand, lumber shipments to China have gone up seven-fold the past three years and are expected to reach almost four million m3 (cubic metres) in 2010. This makes Canada the largest softwood lumber supplier to China, having surpassed Russia in the 4th quarter of 2010.

Another factor that has had an impact on the higher Canadian lumber exports to China is the abundant supply of low-cost beetle-killed timber in British Columbia. Sawmills in the Interior of the province have increased their production levels lately, ending up almost 20-per-cent higher in the 3rd quarter of 2010 as compared to the same quarter in 2009. Much of the additional volume has been low-grade lumber targeted for the construction market in China. An estimated 16 per cent of the BC lumber production in 2010 was exported to China.

While Canada has drastically raised lumber shipments to China in recent years, the U.S. has instead expanded the export of logs to Chinese sawmills and plywood manufacturers. In 2007, the U.S. exported less than 100,000 m3; in 2010 an estimated 2.4 million m3 was exported.

The U.S. is now the third largest softwood log supplier to China, after Russia and New Zealand. The strong export market has caused sawlog prices in the U.S. Northwest to go up more than in any other region of North America the past year.

Hakan Ekstrom is the President of Wood Resources International LLC

---------------



Extpub | by Dr. Radut