Looking Forward Through 2012
By Russell E.Taylor
North American lumber demand and supply trends are based on excerpts from the “Softwood Lumber” chapter of WOOD MARKETS 2011. U.S. lumber consumption continues to be constrained by the ongoing turmoil associated with the U.S. housing market and global economic crisis. Numerous factors needed for the U.S. market recovery remain absent:
- A stabilization in U.S. housing prices and inventory levels for new and existing homes;
- A solution to the “shadow inventory” of existing homes foreclosed by banks that are not yet on the market;
- A reduction in future levels of mortgage defaults and housing foreclosures;
- Improved U.S. economy and unemployment rates; and
- Improved investor and consumer confidence.
All of these economic and housing issues need to be reconciled before a stable U.S. housing market and lumber cycle can resume. However, U.S. housing starts have moved off the bottom from Q2/2009 and have been inching higher in 2010. A return to a more normalized housing market, and new residential starts of 1.5 million housing starts by 2015, appear to be long shots in the 2011–2015 outlook presented in WOOD MARKETS 2011.
Based on U.S. total single and multi-family starts of 630,000 to 680,000 units in 2011 and 750,000 to 835,000 units in 2012 (still considered optimistic), as well as a robust repair and remodelling sector, the trends in U.S. lumber consumption are forecast. Total U.S. consumption is forecast to rise from close to 33.1 billion bf in 2010 to exceed 39 billion bf in 2012.
Without the associated housing-market issues facing the U.S., Canadian lumber consumption has been more resilient. Total Canadian lumber demand bottomed in 2009 at 8.7 billion bf and is forecast to reach 9.3 billion bf in 2010 and 10 billion bf in 2012.
U.S. softwood lumber production peaked in 2005 at 40.55 billion bf (nominal) and bottomed out at 23.6 billion bf in 2009 — a 42% decline of 17 billion bf. Total U.S. shipments are forecast to rebound slowly to 24.7 billion bf in 2010 before moving higher to 29 billion bf by 2012. This should occur more quickly in the South given its plentiful timber supply and the abundance of mills that could start up reasonably quickly (as opposed to the more timber-constrained West).
Canada’s softwood lumber production peaked at 35.2 billion bf in 2004 and has since plummeted to 19.4 billion bf in 2009 – a total drop of 15.8 billion bf (-45%). Canada’s lumber output will rebound over the next four to five years, until the full impact of the mountain pine beetle epidemic in B.C. finally reduces timber harvest and lumber production. Other timber-supply constraints, including the drop in the annual allowable harvest in Quebec and the pending impact of the mountain pine beetle in the Prairie provinces, will assist in lowering Canadian lumber output in the current decade.
Consequently, the market share of Canadian lumber in the U.S. will start to drop slightly over the forecast period and more dramatically in the second half of the decade. Factoring in the strengthening Canadian dollar, the current export taxes on softwood lumber and new disputes over the Softwood Lumber Agreement for B.C., Canadian lumber exports to the U.S. appear to be under growing pressure. However, exports to China are soaring for B.C. coastal and Interior sawmills, providing a new supply channel and causing W-SPF prices to surge despite lacklustre U.S. demand.
Canadian lumber production is forecast to increase from 22.1 billion bf in 2010 to 25.7 billion bf in 2012.
Chinese lumber imports continue to soar to record levels. Total lumber imports in 2006 were 6.1 million m3 and are estimated at 14.5 million m3 (9 billion bf – nominal) in 2010 (+138%). Russia holds the largest market share of China’s lumber imports (31%), but much of this is from Chinese sawmills that have moved to the Russian side of the border. Russia is followed closely by Canada (25%), and other suppliers include Thailand (10%), the U.S. (10%) and New Zealand (3%).
Softwood lumber exports to China should continue to grow given that total log exports to China can only rise at the current rate of some 5% per year, i.e., not enough logs to meet China’s needs! The main beneficiaries of growing Chinese softwood lumber importers will continue to be Russia, Canada and the U.S., along with Southern Hemisphere radiata pine producers. Even with the potential of the Russian log export tax declining from its application to the WTO, no significant change to lumber’s fortunes in China is expected.
NORTH AMERICAN OSB
& PLYWOOD OUTLOOK
The outlook from the “OSB and Plywood Chapter” is presented as follows.
The collapse in U.S. housing starting in 2006 has gutted the OSB industry and left many plywood mills hanging on for dear life as the market cycle finally starts to right itself and move upward. OSB demand shrank during 2007–2009 to just over 50% of its 2006 volume, with a corresponding drop in output. This resulted in an unprecedented level of OSB mill curtailments and permanent closures (beginning in 2006 and quickly accelerating through 2009). The main drivers that continue to influence the fortunes of OSB and plywood include the recovery of the U.S. economy and housing markets, along with the return to a healthy U.S. financial and credit sector. The WOOD MARKETS 2011 forecast predicts a modest recovery in 2011 as a result of some improvements in housing foreclosure rates and home-inventory levels that have held back new-home starts.
Since the peak year of 2005, massive declines in demand for structural panels have occurred for plywood and OSB through to 2009 (-43.5% and -49% respectively). OSB consumption remains heavily correlated to housing demand, with new residential construction normally accounting for more than two-thirds (to three-quarters) of all OSB usage (but only 30% in 2009 due to reduced housing starts). Plywood continues to be impacted by a decreasing market share of sheathing panels in floors, walls and roofing as lower-cost OSB increases its market share in all three segments. However, plywood is more diversified in other end-use segments, e.g., industrial and remodelling, and is less dependent on sheathing products.
U.S. structural panel consumption reached 41.7 billion sf in 2005, an all-time high and well above the previous cycle’s peak in 2000 of 36.5 billion sf. This contrasts with the bottom in U.S. structural panel demand in 2009 at 20.9 billion sf. WOOD MARKETS 2011 forecasts steady increases for U.S. structural panels, with demand in 2010 expected to be near 22.1 billion sf, rising to 23.9 billion sf in 2011 and higher in 2012 (to 27 billion sf, led mainly by growth in OSB). However, the forecast indicates that the highs achieved in the first half of the 2000s will not be seen until the end of the current decade. Canadian structural panel consumption should recover from a low of 3.2 billion sf in 2009 to 3.6 billion sf in 2012.
Based on the consumption forecasts, U.S. OSB production peaked in 2005 and 2006 at over 14.9 billion sf, and bottomed out at 9.6 billion sf in 2009. This 36% decline (5.3 billion sf) is equivalent to the full production of 10 modern OSB mills (or a higher number of smaller ones).
U.S. OSB output will be heavily reliant on the residential housing rebound and will rise from an estimated 10.3 billion sf in 2010 to 11.1 billion sf in 2011 and 12.7 billion sf in 2012. From just 4.5 billion sf in 2009, production is forecast to rise slowly, reaching 4.9 billion sf in 2010, 5.3 billion sf in 2011 and 6.4 billion sf in 2012. Canadian OSB exports to the U.S. bottomed out at 2.75 billion sf in 2009; they are forecast to reach 3.3 billion sf in 2010 and 4.75 billion sf in 2012.
U.S. plywood production will be tied directly to the rebound in housing and R&R. Output is projected to bounce back from 8.6 billion sf in 2009 to 9.1 billion sf in 2010 and to 9.9 billion sf in 2012. The U.S. South is projected to grow its market share of domestic plywood at a faster rate than the West. Canada’s plywood sector remains small and somewhat “nichey” (based mainly in B.C.); output at remaining mills should move up slightly, rising from 1.6 billion sf in 2009 to over 1.8 billion sf in 2012.
Quarterly price forecasts to 2012 are available in WOOD MARKETS’ Monthly International Report and annual forecasts to 2015 can be found in WOOD MARKETS 2011 – Outlook to 2015.
For more information, visit the website for International WOOD MARKETS Group - www.woodmarkets.com.
Editor’s Note: The information in this report was released by International Wood Markets Group in late 2010 so some of the numbers for 2010 are shown as “forecasts”. The final numbers for 2010 are expected after the publication date of this issue.