Third quarter falls in wood prices
Sawlog prices fell 5-12% worldwide in the third quarter of 2008 as lumber markets weakened. Reduced consumption of lumber in North America and Europe in the 3Q/08 resulted in lower demand for sawlogs and declining prices for softwood timber, according to the Wood Resource Quarterly (WRQ). Because wood costs account for 65-75% of the production costs when producing softwood lumber, they are the key factor determining a regions or company’s competitiveness. Equally, wood fibre costs, the cost component that often determines a pulp manufacturer’s competitiveness, fell for the first time in many years in practically all major pulp-producing regions around the world. This drop was the result of two main factors: a strengthening US dollar against most major currencies combined with a reduced demand for pulpwood.
The WRQ Global Conifer Sawlog Price, based on sawlog prices in 19 key regions worldwide, fell 5.8% to $85.92/m3 in the 3Q/08, the lowest level since the 1Q/07. The recent price decrease is one of the biggest quarterly declines seen since the Index was first published in 1995. The major reason for the lower log costs was the weakening of lumber markets in most regions around the world. The biggest declines in log prices occurred in Western Canada, Sweden, Germany, the Baltic States and New Zealand. In the US, prices were down about 5% from the 2Q/08, while log costs in Brazil and Chile were practically unchanged.
The sawmill sector has been hit hard in Canada as a result of a sharp decline in housing constructions in the important US market. Housing starts in the US have fallen from 1.5 million units in early 2007 to 625,000 units in November 2008. The biggest decline in sawlog prices came in coastal British Columbia, where Douglas-fir and hemlock log prices fell about 10% from the previous quarter (in US dollar terms) and were more than 20% lower than a year ago. Most sawmills have reduced production temporarily and there have also been permanent closures. Lumber production in BC was 24% lower in the 3Q/08 compared the same quarter in 2007.
Sawlog prices fell in most regions of Europe in the 3Q as the demand for lumber declined not only in Europe but also in the US and Japan, both important overseas markets for sawmills particularly in the Nordic countries and Germany. Log prices fell the most in the Nordic countries where average costs were between 5-10% lower than in the 2Q.
Despite this decline, wood costs for sawmills in Sweden and Finland are still among the highest in the world and substantially higher than they were two years ago.
Global pulpwood and sawlog market updates are included in the 50-page publication Wood Resource Quarterly. The report tracks wood prices in most regions around the world and also includes regular updates of international timber, pulp, lumber and biomass markets.
The average global softwood pulpwood price fell 2% to $110.43/odmt (ovendry metric ton) in the 3Q/08. This was the biggest quarter-to-quarter decline since 2001. The average price was up 11% from 2007 and was 26% higher than two years ago.
Despite the fall, the price was still the second highest ever recorded since 1988 when WRQ started tracking global wood markets. Softwood fibre costs were lower in practically all 16 regions covered by the WRQ in the 3Q (in US $ terms). The only exceptions were in the US South, France and Norway, where prices were higher because of tight supply. With the global decline in paper demand and many pulpmills cutting back production, it is likely that wood cost will continue down in early 2009.
The Global Average Wood Fiber Price is a weighted average of delivered wood fibre prices for the pulp industry in 17 regions tracked by the publication Wood Resource Quarterly. These regions together account for 85-90% of the world’s wood-based pulp production capacity.
The average hardwood wood fibre cost was up almost $2 in the 3Q, reaching a new record-high of S$110.71/odmt. The increase was mainly a result of higher costs in the US South and Japan since most other regions had lower costs this quarter. This was only the third time in 20 years that the global average hardwood price was higher than the softwood price. During the past five years, wood fibre costs have gone up in practically all major regions that produce hardwood pulp, including Brazil, Indonesia, Australia, the US South, Finland, Russia and Japan. www.woodprices.com