Views: 0 Author: Cynthia Tian Publish Time: 2024-07-19 Origin: Site
The global supply chain for wood products is being squeezed, with low lumber prices, reduced log supplies and rising costs causing the largest manufacturers in Europe and North America to cut production. This does not include traders dealing with rising transportation costs, which stem from the Red Sea crisis, which is now in its ninth month with no solution in sight, leading to pressure on merchants and end-users.
Currently, sawmillers in the EU, North America and even Russia are at risk of being squeezed out of the market as stagnant timber prices continue to erode profit margins across the industry chain.
In recent months, experts have reported that the United States is the world's "best bet for global lumber." However, despite hopes that a long-awaited rebound in the real estate market would stimulate sluggish global markets, the "on-again, off-again" North American construction market has remained weak, and the continued closure of sawmills has failed to stem the decline in lumber prices to pre-epidemic levels.
At this stage, although it is the peak construction season, the decline in lumber prices suggests that the residential construction and home improvement markets are struggling due to high borrowing costs, and the U.S. market for wood building materials (including lumber, MDF, and engineered wood products) remains subdued due to the failure of the Federal Reserve's expected interest rate cuts to materialize.
By the end of June, North American lumber futures prices had fallen another 2.5% to $384 per 1,000 board feet, down nearly $100 since the beginning of the year, while at the same time, the framing lumber composite price had fallen to $366, its lowest level since May 2020. In addition, southern yellow pine prices fell to their lowest level since the new crown outbreak, and southern pine composite prices fell to $335 last week.
Expenses for sawmillers have risen sharply since 2020, and production costs from labor to logs have risen dramatically while demand and selling prices have stagnated, causing many mills to operate at a loss.
As lumber prices fell below the break-even point in some regions in 2023, higher-cost sawmills were closed. nine sawmills closed permanently in 2023. As of March 2024, three new sawmills have begun operations in the southern U.S., while nine more sawmill closures have been announced in all regions of North America except eastern Canada.
West Fraser, North America's largest lumber producer, has been exiting high-volume, low-value pulp and lumber assets in places like British Columbia and Florida, and has cut production in Arkansas According to the Wall Street Journal (WSJ), Canada's Teal-Jones Group, which has filed for bankruptcy protection due to high costs and low lumber prices, is selling off its assets, including several mills. Many producers are currently below break-even in cash flow and cannot sustain this indefinitely.
U. S. sawmill capacity declined by 2% in 2023 as mill closures outpaced new starts and expansions. Despite market hopes that the U.S. housing market would rebound, the reality was that new starts fell 17% between February and May, while residential building permits fell to their lowest level since June 2020 in May.
