Lumber Industry Perspective 4th Quarter 2015

Lumber market endures difficult 2015

By Jesse Marzouk

Q4 Lumber Perspectives Graph 012716Lumber prices fell steadily throughout 2015, with the Random Lengths Framing Lumber Composite Price, which includes prices from a variety of softwood framing species, dropping from $385 per thousand board feet (MBF) at the start of 2015 to $320 per MBF at the end of the year. Prices never traded above $385 per MBF at any point in the year and fell as low as $297 per MBF at the end of September.

A few primary factors drove the price declines. China, which had been a major source of growth in demand for North American lumber since 2009, scaled back purchases of lumber in 2015 amid a slowdown in its economy. Exchange rates also had a negative impact on lumber prices from both the demand and supply sides. With the strength of the U.S. dollar over the last 18 months, foreign buyers began sourcing logs and lumber from alternative countries with weaker currencies, such as Russia, New Zealand, and Australia. As demand from overseas buyers, including China, dried up, mills in the U.S. and Canada began directing more supply into the U.S. market, depressing prices. On the supply side, the strength of the U.S. dollar against the Canadian dollar incentivized Canadian sawmills to produce and ship more lumber.

Looking forward into 2016 it does not appear that China will step up purchases nor is the Canadian dollar projected to strengthen significantly. If anything, China likely will continue to weaken its currency to boost exports, making imports such as lumber more expensive. Recently, the Canadian dollar fell to its lowest level in 15 years, trading at an exchange rate near $.70 U.S. dollars. Although the U.S. housing market continues to recover and provide a source of demand for lumber, the question remains of how long this can continue amid a clearly weakening U.S. economy. For the first time in more than four years, it will likely take capacity curtailments from sawmills to help balance the market.

Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.