Russ Taylor, Präsident von Russ Taylor Global, Vancouver/CA; www.russtaylorglobal.com
In the US, poor weather, slowing sales and high interest rates have stalled the housing and lumber markets. North American lumber prices remain subdued, with the benchmark W-SPF 2x4 #2&Better, random lengths (FOB BC mill) back to its exceptionally low levels achieved in early January at US$335/Mbf (US$470/Mbf delivered US East Coast; euro 279/m3, net). These price levels are well below the breakeven levels of all BC sawmills and many European mills!
The only good news is that Southern Yellow Pine (West) #2&Better (FOB mill) lumber prices have been inching higher and were sitting at US$515/Mbf (US$305/m3, net) in early April 2023, or US$150/Mbf higher than their early January low. Normally, there is a US$50-70/Mbf (euro 35/m3, net) premium for SYP vs W-SPF on an FOB mill basis (some analysts have been forecasting an FOB mill discount for SYP over W-SPF in 2023, so price forecasters are still getting it wrong). Relative to the current SYP FOB mill premium of US$180/Mbf (euro 107/m3, net) over W-SPF, this means is that either W-SPF prices will rise, SYP prices will decline, or a combination of both, to narrow the current spread. I anticipate that W-SPF prices will rise a lot more than SYP will drop, but market forces will decide. At the least the current W-SPF Lumber Futures contracts are factoring in a US$50/Mbf increase from current levels for the mid-May contract, although this is not normally reliable as a forecast.
BC lumber prices are so low that exports to China could start to pick up, as the returns are looking closer to US market returns. However, the China market is flooded with lumber high inventories, as the February 2023 levels were 33% higher than during any month in 2022. With the slow take-aways at ocean ports, this situation will likely cause Chinese prices to ease further. This is unwelcome news for some European countries, as lumber exports from Sweden and Germany to China had already increased 114% and 40%, respectively, over the first two months of 2023 (as reported by Timber-Online).
Total US lumber imports from Europe were higher by 64% (+171 million bf; +270,000 m3, net) in the first two months of 2023 vs. 2022, but volumes were much lower in February 2023, or -43% (-120 million bf; -190,000 m3) as compared to January. The declines from Europe in February 2023 were led by Germany (-36%), Sweden (-61%) and Latvia (-97%); these were most likely a result of eroding US lumber prices in February coupled with improving opportunities in other markets for Europeans. Current reports indicate that there are lower US port inventories of European lumber and reduced exports volumes to the US are expected in second quarter, or at least until prices improve.
In 2022, North American lumber output declined by 3.1% (-1.78 billion bf; -2.8 million m3, net) as compared to 2021. Increased production in the US South (+5.9%; +1.23 billion bf; +1,95 million m3, net) was not enough to offset declines in all other major producing regions. The largest reduction occurred in BC – drop of 14.6% (-1.35 billion bf; -2.15 million m3, net). In January 2023, BC output was down by another 30% (-223 million bf) – a poor start to the year as BC mills were curtailing due to high costs and low lumber prices. BC mills accounted for about 70% of North America’s 400+ million bf (640,000 m3) of curtailments in 2023-Q1 plus there was an additional 1 billion bf (1.6 million m3, net) of permanent BC mill closures announced in the quarter. The rest of Canada’s production was flat in January (+38 million bf). Even with all the other curtailments and closures, there appears to an excess of lumber mill capacity/production and European volumes in North America relative to market demand.
What does all this mean? It is going to be a tough second quarter in 2023, and probably a tough year.
Russ Taylor, Russ Taylor Global
