"More chaos and the chance of further record-breaking prices" will further roil North America's softwood lumber markets in 2018, a consultancy's new five-year forecast predicts.
Wood Markets, now a unit of Forest Economic Advisors (FEA), bases that outlook primarily on a combination of increased U.S. demand and U.S. duties on Canadian lumber exports. Its 2018 Outlook Report, announced Dec. 15, foresees a drop in Canadian exports to the U.S. as well as a marked ramping up of production capacity in the U.S. But one won't balance out the other.
“Simply put, by restricting incremental Canadian lumber exports via import duties, there may not be enough lumber supplies to adequately balance with projected U.S. demand," Russ Taylor, managing diirector of Wood Markets/FEA Canada. "There will need to [be] major increases in U.S. lumber capacity (which is starting to build), more offshore imports, and/or record-level prices to stimulate more supply. The question that we have seen coming for a number of years is: Where will the U.S. get all of the lumber it needs, and at what price?”
Taylor, based in Vancouver, British Columbia, predicts the first supply gap could occur as early as 2019. "This is when there may not be enough incremental lumber supplies that are readily available to meet overall projected U.S. demand without seeing an increase (versus the forecast decrease) in Canadian lumber imports," he wrote in a news release. “What this all could mean is that ongoing price volatility can be expected again in 2018 and even more so in 2019 and/or 2020 when further record-level lumber prices are forecast in the U.S. market.”
The tariffs and countervailing duties imposed on Canadian softwood lumber amount to a roughly 20% increase in the cost of wood from that nation. Such an import duty will give many U.S. mills a substantial cost advantage, Taylor wrote. He noted that capacity expansions already have started and more are expected. This should allow American mills to increase their market share of its home market
"From near 34 billion board fee in 2017, total U.S. output is forecast to increase by around 10 billion board feet by 2022, depending on the mill capacity increases in the U.S.," Taylor wrote. "This forecast production surge is considered to be a very aggressive and will be difficult to achieve, but it is considered possible given the improved competitive advantage of U.S. mills as lumber prices rise."
Meanwhile, Canadian lumber production will dip slightly in 2018 and potentially in 2019 from the impact of U.S. import duties and tight timber supplies, in part because some companies might choose to export to China.
European structural softwood lumber imports are forecast to "ramp up dramatically" from their current minuscule share of the U.S. market.
All told, "Given the positive outlook for the U.S. housing market over the next five years coupled with the imposition of final U.S. import duties starting imminently, even higher U.S. lumber prices than were achieved in 2017 are forecast--at least at various times," Taylor said.
To get the report, visit http://www.woodmarkets.com/news/
