VANCOUVER, Wash. — Log markets probably won’t fluctuate as wildly in 2020 as during the past few years, but the Northwest timber industry can expect political volatility, experts say.
The average price for Douglas fir sawmill logs shot up from roughly $650 per thousand board-feet in early 2017 to $850 per thousand board-feet in early 2018.
After maintaining that level for more than half a year, the average price plunged below $650 per thousand board-feet by the summer of 2019 and has since risen slightly, according to the Fastmarkets RISI market intelligence firm.
“We know what goes up must come down,” said Steve Courtney, director of solid wood procurement at Roseburg Forest Products. “Remember how good it was, because the hangover has been hell.”
Log prices were depressed in 2019 due to lower demand for lumber from lagging housing starts and poor weather during the building season, he said at the Western Forestry and Conservation Association’s Jan. 23 “Mapping the Course” conference in Vancouver, Wash.
Uncertainty about rising interest rates and the fears of a looming recession also likely contributed to gloomy markets last year, Courtney said.
Housing construction is expected to strengthen in 2020 but there’s an increased supply of logs from the Southern U.S. and log exports across the Pacific Ocean are expected to be subdued, he said.
“Overall, I think 2020 will be more positive than 2019, but you never know,” Courtney said, adding that turbulence in trade, labor, domestic politics and foreign relations will probably have an uncertain influence.
U.S. housing starts only increased by about 1% in 2019, but the building industry expects them to rise by about 4% in 2020 and 2% in 2021, according to Hamir Patel, an analyst at the Canadian Imperial Bank of Commerce. To compare, housing starts grew by about 3% in 2017 and in 2018.
For sawmills, the decline in lumber prices has eaten deeply into profits, forcing them to cut shifts and production, said Hakan Ekstrom, principal of the Wood Resources International consulting firm.
“We’ve seen some dramatic reductions in prices over the last 18 months,” he said. “For many sawmills, it’s too low to run. Things have changed a lot.”
Meanwhile, log exports to China — an important foreign market — have weakened and probably won’t sharply rebound, since the building market there is being sustained by government spending more than demand, he said.
“They’re building a lot more apartments than they’re actually needing in China,” Ekstrom said. “There are a lot of empty apartments in China.”
Domestic demand for wood products is currently “OK, not super,” which means prices for logs will be more lukewarm than hot, he said. “They will start to move back up but they’re not the prices we saw three years ago.”
On the political front, the timber industry is facing regulatory uncertainty due to a push for stronger environmental protections — particularly in Oregon, said Jason Spadaro, president of the SDS Lumber Co.
“There’s a kind of war brewing in the State of Oregon,” he said. “It’s not going away until there’s some kind of resolution to it.”
Several ballot initiatives have been proposed that would affect logging by expanding no-harvest buffers along streams and restricting pesticide spraying, Spadaro said.
Legislation aimed at reducing carbon emissions will also be resurrected in 2020 after failing last year, which also presents risks for the timber industry.
It’s likely that climate legislation will include incentives to avoid logging and sequester carbon, which would hurt the log supply for manufacturers, he said.
The industry must create a united front, as damage to lumber producers will eventually harm forestland owners as well, Spadaro said.
“We cannot let that divide our industry,” he said. “If we cut the throat of the mills, we don’t have anything.”