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Market Lumber Prices for Japanese Hemlock Products

Volume 50 No. 40 – October6, 2000

The Plight of B.C.’s Hemlock

It’s an easy quest these days, to dig up depressing information on the state of the B.C. forest industry. In the years I’ve been in this business, I haven’t seen the industry facing a more unpredictable future. It’s important to maintain a positive attitude throughout any turmoil, but I’m frequently torn between this necessity and the need for people to know where the industry stands. It’s usually the need to know that wins out, because it’s that information which enables people to develop survival strategies. With this thought in mind, I decided to review the following document.

The document is titled Outlook for Hemlock Prices & Volumes in Japan and Western Red Cedar Prices & Volumes in the U.S.A.

This paper quantifies supply and demand trends and price trends and provides an overview of the Japanese hemlock market and the U.S. cedar market. Produced by Russell Taylor and Gerry van Leeuwen of R.E. Taylor & Associates Ltd., for the Coast Forest & Lumber Association (CFLA), the publication is available on their website at www.cfla.org. It is also available on the Forest Industrial Relations (FIR) website, www.forestindrel.com and it’s a publication everyone in the lumber business should read.

As the title indicates, the report deals with both western red cedar and hemlock, but the hemlock part is the most interesting and the one I want to summarize. Red cedar is an important species for B.C., but in essence, red cedar is tied to the U.S. market and as those fortunes go, so go the fortunes of that species. Hemlock, however, is firmly anchored in the Japanese market and since that market is currently undergoing major changes, major changes are also ahead for hemlock.

The report predicts that while there have been small improvements in the Japanese market, the “…log and lumber import business is weakening further and is not going to return to a pre-recession ‘business as usual’ mode for North American log and lumber exporters”. Japanese housing starts are weaker so demand for Douglas fir and hembal log and lumber imports is weaker. This applies particularly to hembal, which reached its peak in 1989 at about five million m3. In 1999, total hembal imports into Japan were around two million m3—a reduction of 60 per cent over 10 years.

One of the main reasons for this trend is declining use of green hembal and Douglas fir in traditional Japanese post and beam housing construction. This has been going on since 1983. From an average consumption of 7.5 m3 (3,180 bf) of hembal structural lumber per traditional Japanese house in 1990-92, average usage has decreased 45 per cent to about 4.2 m3 (1,709 bf) per house. This decrease has reduced Japanese demand by about 1.7 million m3 per year (725 million bf).

Having established that demand for green lumber is declining, the report details products that show potential. A category that promises continued high growth for both domestic and import markets is engineered (kiln dried and laminated) vertical post and horizontal beams. Not only are these acceptable products in Japan, but the Japanese prefer them because of their superior strength and performance.

The Taylor report says the laminated post and beam sector has doubled in size since 1993, while traditional solid green hemlock and Douglas fir structural lumber imports have decreased by 35-50 per cent. Growth of this market is expected to be exceptional over the next three to five years because the products provide predictable quality and guaranteed performance based on grading.

The laminated lumber market is also on the increase. Over the last 10 years, demand for laminated and glue-lam lumber has more than doubled. Consumption has increased from approximately 470,000m3 in 1990, to over a million m3 in 1997 (200 million bf to over 425 million bf). Imports during the same period have increased 10 times for glu-lam lumber to 271,000m3, and by 1999, almost 100,000m3 for laminated lumber. Unfortunately, both the U.S. and Canada have lost market share in this product. The U.S. volume has dropped about 50 per cent, while Canadian volume has decreased about 30 per cent. Who’s been deking us out? Austria (now one of the largest suppliers), Sweden, Finland, New Zealand, and Russia. All have pulled their chairs up to the trade table over the last two years.

Other products showing increased market demand include posts and beams. Over the last five to eight years, the 5-ply laminated vertical post has gained approximately 60 per cent of the post market for traditional post and beam houses. My spies tell me there are about 80 posts in a traditional Japanese post and beam house and that post and beam components represent about half the total amount of lumber in those structures. With 1999 Japanese housing starts at 1.2 million, of which approximately 40 per cent is traditional post and beam construction, the volume of lumber consumed by this sector will be about 11 million m3 or approximately five billion bf. Potential market size for post and beam components is approximately five million to six million m3 (2.5 billion bf).

The beam market consumes about 2.5 to 2.7 million m3 per year (1-1.2 billion bf). Currently, kiln dried and glue-lam beams have about 40 per cent of market share of the horizontal beam market. The glue-lam beam market share is expected to increase by 500,000 m3 per year (from 600,000 m3 to 1.1 million m3 per year) over the next two years, while the kiln dried solid wood beam market will increase by 100,000 to 200,000 m3 per year from its current volume of about 400,000 m3. By 2002, demand for glue-lam beams and kiln dried beams is expected to represent 65 per cent of the market.

B.C. hemlock lumber shipments to Japan, especially green products, peaked in the mid 1990s and have been declining ever since. Demand for engineered wood and kiln dried products, on the other hand, has expanded. Both trends are expected to continue and by 2001 – 2002, about half of all hemlock shipment are expected to be kiln dried products. Market share, however, will surely be limited by kiln capacity and development of new products.

Because of space limitations, I can discuss this paper only briefly, but you can get the entire 22 page report from the websites above. This is an important paper because it quantifies the reality of the situation for the B.C. coastal industry. I’m sure some like to think the present poor market situation is temporary and given sufficient time, things will go back to the way they were, but that doesn’t seem likely. Major changes are ahead for B.C. coastal operators and they must either rise to meet the challenges or ride off into the sunset. The choice is theirs.

New Particleboard Mill

Sino-Forest Corporation http://www.sinoforest.com/  announces it has opened its new US$24 million particleboard mill in the Guangdong province in southern China, an area known for its furniture manufacturing. One ofthe largest such facilities in China, the new plant has a production capacity of 100,000 cubic meters of international quality particleboard per year. Furnish for the plant will all come from plantation wood. The company expects to earn an average margin of 35 per cent on products produced in the mill. Sino-Forest Corporation, a Canadian publicly traded company with operations in Hong Kong and China, is the first foreign owned integrated forest products company in the People’s Republic of China.

Structural Demand Down

In a joint five year market forecast, APA—The Engineered Wood Association and the Southern Forest Products Association predict North American lumber and structural wood panel production will decline slightly next year, while wood I-joists and laminated veneer lumber output will continue to rise. The study predicts economic growth will be curtailed by the Federal Reserve’s efforts to keep inflation under control, and continuation of relatively high oil prices. The resulting higher interest rates and lower job demand is expected to keep housing starts and remodeling activities, as well as nonresi-dential and industrial construction, below the rapid pace of 1998 and 1999.

The forecast further predicts single family and multifamily housing activity will be reduced from 1.58 million starts this year, to 1.45 million starts in 2002. Current levels are not expected to return until 2005. According to the report, single family units consume an average of 11,600 square feet of structural panels (3/8-inch basis) and 14,200 board feet of lumber, while multifamily units use about 4,000 square feet of structural panels and 5,540 board feet of lumber.

The forecast points out, however, that declines in housing starts will likely be partially offset by gains in export markets, as the U.S. dollar weakens and world economies recover. Areas singled out for market gains include Europe and eastern Asia. Three quarters of all North American lumber and structural wood panel exports are presently shipped to the Caribbean, Mexico, Japan, and Europe.

WSPF Sideways

Not much of note happened in the western spruce market this week. It was a week of waiting and watching while prices slipped and slid into a side pocket. One trader described it as “better than the pit we were in last week”. Inquiry was minimal. The flow of orders felt like an undertow—pulling out more than rushing in. Selling prices in KD R/L Std&Btr 2×4 drifted back down toward that ephemeral $200 barrier. Customers were not willing to take mill prices around $210 at face value. Counter offers were approximately $5-10 with the bulk of sales happening around $205—down $10 from the previous week. In KD R/L #2&Btr, 2×6 remained pegged at $220 with minimal support; 2×8 succumbed to unrelenting downward pressure with an $8 discount to $232. Wides continued to be strong as 2×10 held at $280; 2×12 was the only gainer with a $20 pop to $360.

Studs Cooling Heels

Stud producers are stoical in the face of would-be bargain hunters. Odds and ends sold throughout the week, but volumes were decidedly down, even from the minimal totals of last week. Business on the Canadian side, circumventing quota, was decent. Customers local to the mills enjoyed substantial discounts. Shorts and trims sold across the border in small lots, but 2×4-92-5/8” studs cooled their heels in the mill yards. Order files were approximately 1-2 weeks on commodity studs. Fingerjoint studs were scarce because of a material shortage. Order files are growing beyond the one month mark.

MSR Bumping

Traders are pleased MSR is not following  western spruce dimension into  the tank. The market for machine stress  rated products was brisk this week. Customers  price shopped and bought when  offered a decent deal. Prices remained  relatively stable with minor adjustments.  Order files were as much as two weeks at  some mills.

Cedar Moving Out

Customers are comparing value for  money this week. Traders report improved  movement in #2&Btr commons is  a result of the price difference with comparable  appearance grade products.  Buyers are going for a slight reduction in  quality to get that considerable reduction  in the bill. Mixed and specified loads  are increasing the work that makers are  putting into each delivery order. As a  result of the complexity of orders, traders  are not budging on prices.

Cedar Shakes All Over

Sales to repair storm damage in the  Amarillo, Texas area are winding down  after a flurry of several weeks. Consumption  of cedar roofing products remains  strong in the east. Transportation  equipment is giving shippers fits if they want to run by CN/CP. Trucks and piggy backs are temporarily in short supply.

Fir Bumping Bottom

There’s not much more room to go  lower in fir, particularly in KD R/L Coastal  Hem/Fir. Prices can’t do much more to  attract buyers. Now is the time to snag  those premium straight lengths in all  white wood species, while the supply is  good and prices are attached to lead sinkers.

OSB & Plywood

East or west, it doesn’t matter, there  is no real market in Canadian OSB this  week. In eastern Canada, the weather  has cooled along with  the market. How  cool? At least one OSB manufacturer is  phoning wholesalers and trying to sell  some thicker sizes. As one trader put it, “I  thought it was the other way around; I  can’t remember when a mill phoned trying  to sell us their OSB.” Order files are  shrinking and are now generally less  than a week. Prompt delivery is easy to  get, say traders. This week 7/16” Toronto  is selling for C$230, off $10 from a week  ago.  In western Canada, the market  remains tough. There is some business,  say traders, but it is a real fight to get an  order. There is little demand from the  Vancouver market; most business is from  California, Arizona, and Nevada. U.S.  buying is still running well behind  production and it is difficult to build order  files, according to one manufacturer. 7/16”  Vancouver sells for C$215 this week and  most order files are barely one week.  Slocan’s Polar Board mill in Fort  Nelson started running again on September  25, right on schedule. It is still in  the start-up phase, and Slocan does not  expect to meet planned production targets  until around the end of October.

Cargo & Reload

The northeastern lumber market is treading water this week, with no sustained buyer interest. Highly mixed buys are the norm, say traders, and everyone seems to want fast delivery. Buyers are wary of buying very far ahead, with most trying to guess whether prices are heading even lower. U.S. west coast fir mills have the market all to themselves, with few competing offerings from British Columbia. Traders, however, report that northeastern buyers are reluctant to purchase carloads direct, relying instead on truck orders from stocking wholesalers. Selling prices for green fir are down $5 to $15, and green hemlock prices are down $5 across the board. Delivered prices from west coast mills are lower too, but some are now getting uncomfortably close to selling prices, say wholesalers.

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

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