In comparison to this time in 2018 — when all lumber markets were active and supply was the constraint — the situation in 2019 is quite the opposite. When we look at the key global producing and consuming markets, there is a consistent theme: too much supply chasing markets amid slowing demand in most major markets. Whether this is temporary or not is a big question that will be answered shortly by the fast-approaching spring buying season. A quick look at the key countries, gained through recent travels by the FEA team, offers the perspectives summarized below.
China: As reported in this month’s China Bulletin, log and lumber inventories are soaring and getting close to the levels achieved in early 2015 that set the stage for a price collapse both in China and around the world. All exporters need China to take either the low- or furniture-grade lumber that is incremental to other markets. For example, when U.S. markets for SPF #2&Better lumber collapsed in the fourth quarter of last year, B.C. mills diverted volumes to China. The consequence of that action has been a glut of SPF lumber at Chinese ports.
Finland: High cost logs are an overriding issue. Among other challenges, exports to China have slumped by one-third, and other markets are not as robust as last year.
Sweden: Despite some favourable operating and logistics costs, Sweden may see lower sawnwood prices in Q2 versus Q1, for only the second time in 20 years. Export opportunities to the U.S. and China have slowed, with margins much thinner than in 2018.
Germany: With a huge spruce bark beetle outbreak and vast areas of storm-felled timber, German sawmills in the affected areas (as well as Czech and Austrian mills) have low-cost logs; however, they need markets that will accept blue-stained lumber.
Australia: A slight slowdown in the housing market has combined with rising lumber inventories to keep lumber prices holding for now. European imports have surged, but this is not well timed to the current market situation. Australia’s acceptance of blue-stained lumber has led to an increase in import volumes from Germany.
U.S.: So far in 2019, winter and/or rainy weather have slowed homebuilding activity, leading to some inventory buildup at mills. However, while dealers’ inventories are reported as high in weather-constrained areas, they are low in most other regions. This situation could result in a surprise price spike in Q2/2019 given the number of sawmill curtailments witnessed in Q1.
All in all, 2019 should continue to be a volatile and unpredictable year in many regions.
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