14 Pallets West
SEPTEMBER 2018
“That’s why going forward, we don’t anticipate those same issues in 2019,” Goodnow stated. “We think that overall, production is going to remain strong. Sawmills are still making money, so we don’t anticipate any mills pulling back, at this point.”
He is projecting strong demand for softwood lumber, driven by recovery and residential construction. He sees the U.S. as being “significantly under-built in housing,” noting a pent up demand for new homes. He believes that recovery efforts will be slow, but will continue to be positive.
While demand will remain strong, he sees a significant shift underway in the supply base.
“When we look at major softwood supply areas, there are obstacles to increasing softwood lumber supply,” he said, “most notable in British Columbia.” Damage inflicted by the pine beetle epidemic will impede future production in BC. Over 50% of BC mill capacity is located in areas where over 50% of lodgepole pine has been killed. Salvage operations on beetle killed wood are winding down as the material starts to deteriorate.
And while Eastern Canada has seen strong increases, further increases will be more difficult to achieve. Mills in that region are facing strong cost headwinds due to lack of market for their residual fiber. He noted that softwood mills in Eastern Canada were built not only to produce lumber, but for wood chips for the pulp and paper industry. Without a market for their residuals, it is effectively raising the cost of producing lumber, and will limit their ability to increase production in coming years. And in the U.S. West, he anticipates limited increases of softwood going forward.
The U.S. South is poised to generate the most new production. “That’s where the timber is, and it is cost effective,” Goodnow said. Supply has grown by about 20% over the past decade, with the largest increases coming from plantations. Plantation volume has increased by one-third over the last decade and is still increasing. Plantation operations benefit from advanced silviculture, intense management and fertilization. He believes a number of new mill projects will help the region achieve roughly a 20% increase in lumber capacity over the next four to five years.
As for exports to China, Goodnow expects to see some big changes. Earlier in the year, phytosanitary issues disrupted Chinese exports. More recently, tariff problems have taken center stage. Southern yellow pine log imports to China have dropped to almost zero because of uncertainty about tariffs going forward. In the case of hardwood exports to China, there will also be a degree of "turmoil and caution." He anticipates that near term trade will drop sharply.
Other ongoing challenges for lumber producers include transportation and labor. “There is a severe trucking shortage,” he said, noting the difficulty in finding drivers. “It is causing problems in the supply chain. Across the board when we talk to clients, this comes out as a major issue.”