29th January 2013.
The global balance between supply and demand is forecast to shift over the next few years, moving from an oversupply of lumber to an undersupply. While European lumber consumption continues to struggle, North America’s rapid recovery, Japan’s steady consumption, and China’s economic growth engine will drive overall global consumption higher.
North American mills are forecast to expand their production, but are not expected to completely keep pace with increasing demand in housing and repair/remodeling. The increase in North American lumber prices began in 2012, rising from near-historical lows near the beginning of the year to a six-year high by December. Partly as a result of rising prices in the U.S., U.S. export growth slowed in 2012, and is forecast to decline during 2013–2017 as higher prices attract more wood back into domestic markets.
As Asian importers compete with North American domestic consumption for both logs and lumber, rising prices in North America are forecast to lift prices in China and Japan as well, on a variety of different lumber products. Competition to purchase North American softwood lumber products is expected to drive up prices in China and Japan by 24% and 10%, respectively, in 2013 and by 2% and 5%, respectively, in 2014 for benchmark products. Such price increases will provide opportunities for exporters from Russia, Europe and the Southern Hemisphere, as well as North America.
Due to high log costs in Europe, European lumber producers need to achieve relatively high lumber prices in order for exports to be profitable. With prices again on the increase and forecast to continue their rise over the next two years, some European producers have already started sending the first full vessels of lumber since 2006 into the U.S. marketplace. Specifically, northern and eastern German and Swedish pine producers with favourable cost structures and freight terms have entered contracts with U.S. (and some Asian) customers.
While U.S. prices remain marginal for the average European producer, exporting allows them to find a “sink” for their excess volume, thus removing some of their production from Europe and helping to avert any further downward pressure on European lumber prices. However, U.S. prices will need to rise farther before they attract significant volumes of European wood. This is expected until later in 2013 and throughout all of 2014, when prices are expected to move markedly higher.
WOOD MARKETS’ lumber forecast to 2017 predicts two distinct price spikes. The first, as discussed in this article, will be driven by demand increasing faster than supply through 2013 and 2014 as the supply chain struggles to keep enough production moving to customers. As high prices attract additional production and imports, supply and demand are anticipated to balance out by 2015, putting downward pressure on prices. However, continued demand growth in the U.S. and Asia, coupled with an eventual recovery in Europe and maxed-out production in Canada, will lead to a second supply/demand imbalance as production is once again unable to meet supply. This will lead to a true lumber super-cycle in 2016 and 2017.
Extracted from the recently completed study WOOD MARKETS 2013 • The Five-Year Outlook 2013–2017.
Source: International Wood Markets Group, www.woodmarkets.com