Lumber Industry Perspective 2nd Quarter 2015
Lumber prices fall, rebound in Q2
By Jesse Marzouk
Lumber prices continued their first quarter fall into the second quarter, before rebounding toward the end of the quarter. The Random Lengths Framing Lumber Composite Price (FLCP), which includes prices from a variety of softwood framing species, began the second quarter at $337 per thousand board feet (MBF), declined to $310 per MBF in the beginning of May, and rebounded to $348 per MBF at the end of the quarter. While lumber prices ended on an upward trend, they still remain lower than where they stood at the beginning of 2015 and throughout most of the last few years.
During the second quarter, Canadian sawmills were subject to duties and/or quotas on shipments of softwood lumber into the U.S. under the current Softwood Lumber Agreement
(SLA) between the U.S. and Canada. There are three different price levels of the FLCP under which Canadian mills are taxed, with average prices over a four-week period determining he taxes/quotas. The most punitive level occurs with prices below $316 per MBF, the middle level between $316 and $335 per MBF, and the least punitive level between $336 and $355 per MBF. There are no duties/quotas when the FLCP is above $355 per MBF.
April 2015 was the first month that Canadian mills were penalized under the SLA since October 2013. The duties/quotas vary by province depending upon what each province agreed to under the SLA. With the current SLA set to expire in October 2015, taxes endured by Canadian mills under the SLA over the last few months could prove to be a blessing in disguise in the long-term. Over the last few years, there has been increasing talk that the levels at which Canadian mills would be subject to restrictions under the SLA would be lowered. With Canadian sawmills being penalized for five months (including August) in 2015 so far, the mills may have gained leverage in terms of negotiating the appropriate price levels under any future agreement.
Jesse 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.