North American Lumber Market

North American Lumber Market

1-15th January 2006

Upbeat export market for US lumber
Even though international markets are competitive, most US exporters of hardwood lumber are enjoying good orders. The last quarter of 2005 witnessed a noticeable improvement compared to the previous quarter. However, the strengthening of the US dollar in the last quarter of 2005 against main currencies was of some concern to the industry. Nevertheless, the US dollar lost ground in early 2006 as the US Fed hinted that interest rates would not be raised. The Canadian dollar is standing at a historical high, thereby benefiting US lumber exporters involved in cross-border trade.

Apart from exchange rates, freight costs are worrisome for North American hardwood lumber exporters. In addition to the rapid rise in ocean shipping rates, the industry is suffering under the spike in fuel prices across North America. As international sales contracts are usually booked well in advance of the shipment dates, many suppliers to offshore markets have to absorb the subsequent cost increases associated with fuel surcharges and ocean freight rates.

International market conditions are not uniform. Some species and some grades, as well as some specific marketplaces, are booming while others are dull. Generally, lumber suppliers selling to Europe experienced a solid demand for North American hardwoods in 2005, particularly where both quality and reliability are valued. Europe's interest lies on all dimensions and thicknesses of the upper grades of North American white oak, maple and walnut. Demand for these woods is likely to remain high during the next few months. Not surprisingly, prices of top quality lumber are firming.

The export demand is less vibrant for common lumber grades as overseas inventories are still plentiful. Most buyers are taking a "wait and see " approach, since they are confident to secure all the volumes they need on short notice. Sales for common white oak are particularly weak, leading to growing stock.

The competitive pressure within the European marketplace is fierce for the common grades of temperate hardwoods. Suppliers from Central and Eastern Europe continue to make inroads, often offering dimension and cut-stock at discount prices in order to gain market share. In particular, end-users in Southern Europe are moving away from North American common white oak lumber towards European oak that is usually already cut into dimension. There are a few exceptions. A number of US wood suppliers are successfully exporting species that are less popular in the domestic market, such as hackberry, willow, cottonwood and gum. Also, brisk offshore demand has absorbed considerable portions of poplar lumber, mainly of the common grades.

The Chinese market continues to consume vast quantities of North American hardwoods of several species and grades. High interest for common poplar has brought about a brisk pace of sales and shipments, leading to sporadic delivery bottlenecks. However, due to stiff competition from alternative species, this has not been reflected in significant price gains. Some analysts think that the rate of growth of China’s poplar imports will slow down in the first quarter of 2006.

Business in China is also very competitive. A key concern for suppliers dealing in the Asian market is the fact that lumber is viewed as a pure commodity. Buyers shift species without hesitation over relatively minor price variations. Nevertheless, US suppliers cannot afford to ste p back from the Asian market. The quantity of North American hardwoods consumed by the Chinese industry is too large to ignore.

Robust US panel production

The American Engineered Wood Association (APA) estimated the 2005 N. American production of structural plywood and OSB at a record 43.25 billion ft2, up 570 million ft2 from 2004. Production in 2006 is forecast to be almost as high, at 43.23 billion ft2. Residential construction is expected to consume 24.7 billion ft2, compared with 25.12 billion ft2 in 2005. Production of OSB in 2006 is anticipated to rise by some 500 million ft2 to 26.73 billion ft2, while plywood output is expected to decline from 17 billion ft2 to about 16.5 billion ft2.

These predictions are based on the expectation that net residential construction will decline only moderately this year to 1.945 million units of single and multifamily housing starts, compared with 2.055 million in 2005. During the next few years, the replacement of dwellings damaged by the hurricanes Katrina and Rita will provide additional stimulus to housing construction.

Plans for about 12 new panel mills, or new production lines in existing mills, in the US and Canada have been announced by several companies, according to APA. About 1 billion ft2 of new capacity is expected to be added in 2006 and around 6 billion ft2 in 2007 and 2008. The structural wood panel industry as a whole is forecast to operate at 96% of capacity in 2006, down from 98% in 2005, but still very high historically. However, the new capacity additions will depress operating ratios back to, or perhaps even below, the historical average.
Exports of structural plywood and OSB in 2006 are forecast to total 607 million ft2, down from 619 million ft2 in 2005. Imports are projected to decline from 2.52 to 2.47 billion ft2 in 2006, following a 33% rise in 2005.

Abbreviations

LM Loyale Merchant, a grade of log parcel	Cu.m Cubic Metre
QS Qualite Superieure	Koku 0.278 Cu.m or 120BF
CI Choix Industriel	FFR French Franc
CE Choix Economique	SQ Sawmill Quality
CS Choix Supplimentaire	SSQ Select Sawmill Quality
FOB Free-on-Board	FAS Sawnwood Grade First and
KD Kiln Dry	Second
AD Air Dry	WBP Water and Boil Proof
Boule A Log Sawn Through and Through	MR Moisture Resistant
the boards from one log are bundled	pc per piece
together	ea each
BB/CC Grade B faced and Grade C backed	MBF 1000 Board Feet
Plywood	MDF Medium Density Fibreboard
BF Board Foot	F.CFA CFA Franc
Sq.Ft Square Foot	Price has moved up or down

Source: ITTO' Tropical Timber Market Report