MINNEAPOLIS, Minnesota — A panel of four people with ties to the sawmill and pallet industry discussed lumber supply trends at the recent Interpal meeting.
Interpal, the leading international conference for the global wood pallet and packaging industry held every four years, concluded Sept. 18-20 in Minneapolis. Over 620 people came from six continents to network, tour pallet plants and engage in the education sessions.
In addition to the panel on lumber supply trends, Interpal featured additional remarks and presentations about value selling, industry marketing and global issues.
The panel on lumber supply trends featured remarks from four speakers:
Dean Alanko, vice president of sales and marketing for Allegheny Wood Products, which has extensive sawmill operations in West Virginia
Doug O’Rourke, vice president of Biewer Lumber, which operates pine sawmills in Wisconsin, Michigan, and Mississippi
Rocky Goodnow, vice president of the North American Timber Service for Forest Economic Advisors (FEA)
and John Dye product development manager for Scott Pallets in the United Kingdom and also president of the Timber Packaging and Pallet Confederation, the pallet industry trade group of the U.K.
Market Trends & Outlook
Near-term supply conditions have improved, and another surge in softwood lumber prices is unlikely, according to Rocky Goodnow of FEA, but recovering demand and limited supply will keep markets strong. North American softwood lumber production continues to shift to the U.S. South and will lead to a greater supply of Southern Yellow Pine lumber.
The U.S.-China trade dispute will reverse recent growth in log and lumber exports to that country, which will strengthen supplies in North America.
Challenges related to labor and trucking are unlikely to be resolved quickly, and they will continue to impede supply growth and put upward pressure on lumber prices.
Shipments of softwood lumber in both the U.S. and Canada are above 2017 levels. “Overall production is going to remain strong in 2019,” said Goodnow. The forecast for U.S. softwood lumber demand will keep climbing in 2019-2020, fueled by the continued recovery in the homebuilding industry and growth in home repairs and remodeling. Also, industrial softwood lumber consumption is expected to increase 10% in the next five years.
“Where’s that supply coming from? That’s where we see a lot of issues,” said Goodnow. There are obstacles facing major softwood lumber producing regions in the U.S. as well as Eastern Canada and British Columbia.
Producers in Eastern Canada are being hurt by the decline of the paper industry in the United States, whose mills provided markets for residuals. The U.S. West has experienced increases in the timber harvest in recent years, but not necessarily softwood lumber production; production is beginning to escalate, but there are limits to how much the region can increase production.
Portions of British Columbia have seen forests devastated by the mountain pine beetle. In some cases, 90% of forests have been killed by infestation, said Goodnow. “And that’s where the industry is.” Over 50% of sawmill production capacity is located where over 50% of the forests have been killed. Some mills have already closed salvage logging operations or are winding them down because the dead trees have deteriorated. “This is going to impact softwood lumber production.”
“Where do we see production coming online?” he asked. “The U.S. South.” The standing timber inventory in the South has been increasing 20% over the past decade. The biggest increase is coming from pine plantations, whose volume has increased by one-third and is still growing.
In addition, sawmill capacity in the South is increasing with ongoing expansion and construction of new plants, notably in states like Arkansas, Mississippi, Alabama and Georgia.
China accounted for about 80% of hardwood logs exported from North America in 2017. Going forward, they will be subject to tariffs. “That trade is going to drop,” said Goodnow, “very sharply.”
Similarly, about 60% of U.S. hardwood lumber exports went to China in 2017. That lumber, too, will be subject to tariffs, and the volume will drop accordingly. “That will mean more lumber for the U.S. market,” noted Goodnow.
The shortage of truck drivers, at nearly 120,000 this year, is forecast to continue to climb and reach 160,000 in 2022 and will cause significant problems in supply chains.
Goodnow also noted a correlation between increased rates of opioid prescriptions and an increase in the decline of participation in the labor force for people ages 25-54. “This is impacting communities where wood is grown and sawn…impacting lumber supply.” The problem “will not easily be solved,” he said.
Eastern Hardwood Update
Dean Alanko of Allegheny Wood Products gave an overview of the Eastern hardwood industry. The timber resource is in good shape, but a paradigm shift in hardwood lumber consumption has occurred since the Great Recession. Because of shrinking grade lumber use — attributed to the collapse of the housing industry, which is slowly recovering — markets for industrial lumber now comprise the dominant sector. When grade prices fell after the housing industry collapse, hardwood sawmills had to realign to produce more industrial lumber, a trend that has continued. Based on 2018 data, industrial markets will use 53.1% of hardwood lumber and grade markets, 46.9%.
Among the industrial markets, the pallet industry dominates, consuming 69% of industrial hardwood lumber. The railroad tie industry takes 23%, and the remaining 8% goes for board road and crane mats.
Southern Softwood Developments
Doug O’Rourke of Biewer Lumber commented that the Great Recession has had a similar impact on the softwood lumber industry. “We lost a lot of mills in the Great Recession,” he said.
To give some gauge of the collapse of the housing industry, in 2004 2.1 million new homes were built; in 2009 the number was 370,000. The current level is about 1.3 million, according to O’Rourke.
The good news for softwood lumber producers is that prices are at record levels. In the next two or three years, prices will stay above average and remain stable, according to O’Rourke, as demand increases. “We think we’re going to see some pretty stable markets.
New technology and efficiencies in sawmill equipment are reducing the volume of low-grade material that is being produced, he added.
The crunch in transportation, particularly the trucking industry, also is affecting the lumber industry, he said. “Transportation is a huge issue. It’s one thing to make a lot of wood. It’s another thing to get it out of your mills and get it to your customers.”
Across the Pond – U.K. and Europe
Addressing trends and challenges in the United Kingdom, John Dye of Scott Pallets said the number of new pallets manufactured and the number of pallets repaired both increased in 2016, and spending on pallet repairs increased, but spending on new pallets dropped. He attributed the decline in spending on new pallets to design changes reducing the volume of wood in new pallets, pools being replenished by pallets coming under load into the United Kingdom from Europe, and the tardiness of pallet manufacturers in passing along cost increases.
The U.K. pallet industry faces challenges that include high global demand for wood products, particularly from China; an unfavorable currency exchange rate following Brexit; a decline in lumber supplies from the Baltics; adverse weather in the United Kingdom; a subsidized biomass industry; and regulations regarding packaging waste.
No one seems to know what the full impact will be when the United Kingdom formally exits the European Union at the end of March 2019, he said.
Key Points about the Lumber Market
• The tight market conditions in softwood lumber markets during 2018 are unlikely to repeat in 2019.
• North American softwood lumber production is undergoing a dramatic shift based on timber supply – huge growth in the U.S. South region.
• The US/China trade dispute will reverse recent growth in both log and lumber exports.
• Softwood lumber prices are at record levels. In the next two or three years, prices likely will stay above average and remain stable.
• Transportation shortages abound and are making it difficult to ship material and finished products.
