What's in store for wood markets in 2014?
What's in store for wood markets in 2014? The outlook for global lumber markets hinge on demand forces in the key consuming regions of the world. More specifically, it will be the lumber demand trends in the U.S., China and Western Europe that will shape global markets in 2014 and beyond. Attached is an analysis for the year ahead by International WOOD MARKETS Group. While the supply dynamics are becoming more constrained in some areas, the ability for sawmill capacity to ramp up production is an all too familiar dynamic that continues to over-shadow the global lumber market. However, if global demand can achieve a 4% (or higher) gain in 2014, the outlook should be very good for lumber and sawn wood prices. For the U.S. it is the pace of U.S. housing starts that will set the tone for the lumber (and panel) markets in 2014. After a strong gain in new U.S. housing starts of 28.5% in 2012 (an increase of 175,000 over 2011), 2013 will end up with a more lackluster gain of only 18.5% (+145,000 units) or about 925,000 new housing starts. In 2013, the North American lumber supply chain became more balanced - starting in the second quarter 2013 - as production started to swamp overall demand. By fourth quarter 2013, a much better balance between supply and demand had developed, setting the stage for a good start to 2014. However, without strong gains in new residential housing starts increases of 20% of more (or 175,000 or more units), it is more likely to just be a “good” year overall, but still could feature some supply chain shocks during the year that could create price spikes both up and down. WOOD MARKETS is predicting a steady growth in housing starts in 2014, but less than the 20% that is needed to support a very strong market. North American lumber production is expected to increase by almost 3 billion bf (+5.4%) in 2014 – an increase over 2013’s estimated gain of 2.6 billion bf (+5.0%). China continues to be a key wildcard in global export markets as log and lumber imports continue to increase. This situation has been exasperated by the fall in total Russian log exports since 2007 (from 52 million m3 to 18 million m3) as the Russian industry has suffered from rising domestic logging and transportation costs despite a reduced log export tax that came into effect in September 2012. Erosion of the competitiveness of the Russian forest industry and its lack of cost control of log exports remains a critical issue. To offset declining log exports, Russian sawn lumber production has increased by about 30% during the last ten years, while lumber exports have increased by over 50% (led by the growing presence of Chinese-owned sawmills in Eastern Russia). Russian lumber exports to China alone have grown from about 500,000 m3 in 2002 to about 7 million m3 (4.4 billion bf – nominal count) in 2013. This has resulted in huge changes in China’s imported log and lumber supply and has also created a number of winners and losers as global trade flows have been radically altered. WOOD MARKETS’ latest monthly China Bulletin outlines how China’s new government has plans to open up China’s economy that will include improved market access for foreign investors. The new plans also include steadily increasing urbanization as part of China’s development strategy and that means further direct or related investments in the housing market. Although China’s housing market sizzled for most of 2013, despite the government’s attempts to rein it in, it looks like the market is stabilizing and avoiding a boom/bust scenario - that is good news for exporters of softwood logs and lumber. China continues to influence global log prices as well as prices in many domestic log markets, especially where logs can be easily exported. China’s ability to outbid sawmills for sawlogs along the U.S. west coast (as well as the B.C. Coast and in New Zealand) has been strongly evidenced since 2010. China has a huge and widening fibre supply gap but also has the world’s lowest cost sawmills. Consequently, China can afford to pay some of the highest prices in the world for saw logs (and, at times, for softwood lumber). The analysis shows that with reduced Russian log supplies, China will remain a competitive threat to many domestic sawmills in countries that can export saw logs to China. International WOOD Markets Group, www.woodmarkets.com