Lumber Industry Perspective 3rd Quarter 2015
Lumber prices continue to fall in Q3
By Jesse Marzouk
Lumber prices continued their first-half 2015 fall into the third quarter. The Random Lengths Framing Lumber Composite Price, which includes prices from a variety of softwood framing species, began the third quarter at $348 per thousand board feet (MBF) and steadily declined to $297 per MBF by the end of the quarter. Consequently, lumber prices in U.S. dollars are 25% to 30% below where they started 2015.
The lumber market is in an oversupply situation for the first time since 2011. The current supply/demand imbalance is primarily due to a lack of buying in China, which is in the process of transitioning its economy away from one based on infrastructure and construction to one based on consumer demand. With more than 90% of lumber utilized for concrete forming in China, this transition negatively impacts lumber demand. Furthermore, with the strength of the U.S. dollar, China is sourcing logs and lumber from alternative countries with weakening currencies, such as Russia, New Zealand, and Australia. As demand from China has dried up, mills in the U.S. and Canada began directing more supply into the U.S. market, depressing prices.
Canadian sawmills have been partially protected from falling lumber prices because of the weakening of the Canadian dollar against the U.S. dollar. Because lumber prices are quoted in U.S. dollars, a weakening of the Canadian dollar against the U.S. dollar raises net selling prices for Canadian mills, all else being equal. Furthermore, Canadian mills are no longer subject to duties and/or quotas on shipments of softwood lumber into the U.S., as the Softwood Lumber Agreement between the U.S. and Canada expired in early October 2015. While this was a welcome change for Canadian mills, which had been subject to duties and/or quotas for the majority of 2015, the lumber market is still difficult for the majority of sawmills in both Canada and the U.S.
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.