Production curtailments due to fires and pine beetle have caught up with us (especially in BC). We have a fibre shortage! We are seeing more fir offerings on typical spruce products, fir plywood is more available than spruce. To protect their environmental certification, mills are not able to harvest what they want. They have over harvested in the past to utilize timber damaged by the pine beetle.
25 years ago Mountain Pine Beetle moved from Alberta into Northern BC. Overharvesting was government approved to deal with the damaged trees and mitigate the impact on the forest. Following this the government once again implemented a quota (reduced the Annual Allowable Cut – AAC) which made it difficult for all mills to continue to survive. Once this cut was completed, 2 billion board feet of timber was taken out of the market place and mills closed. (Reduction of the AAC made some mills infeasible due to lack of fibre supply and increased costs of harvesting/transporting the fibre. Resulting mill closures amounts to approx. 2 Billion board ft)
In 2018 massive spike in forest fires, which also created transportation issues in terms of material pick up and there was an increase in demand on the housing side. People were ordering more wood to compensate for the transportation delays creating an overload. This impacted pricing – the price per 1000 board feet saw at least a 50% decrease when it went from $685 USD into the 300’s. (2×4 WSPF #2 RL $655 US on June 1st to $298 US Oct 23rd).
Stumpage fees also play a role in the pricing of lumber. Trees that are harvested on crown land. Stumpage is a payment for use of a public natural resource and is not the same as logging tax. This is paid by the logging company to the government. This impacts the pricing of the logs sold to the mills. Volumes for timber harvested, purchased or sold from Crown land must be reported to the government.
The amount of stumpage paid is based on the timber volumes, species and grades you report and the stumpage rates for your timber. There is a one-year lag on pricing, so it contributes to the lumber price fluctuations. The reduction of capacity due to fires + the pricing of the previous year increased the price of the logs entering the mill.
These last 2 years ere expected to be good years, lumber prices were low in 2019 headed into 2020. Housing starts at an average of $1.2 in the USA. The amount of stumpage paid is based on the timber volumes, species and grades you report and the stumpage rates for your timber. There is a one-year lag on pricing, so it contributes to the lumber price fluctuations. The reduction of capacity due to fires + the pricing of the previous year increased the price of the logs entering the mill.
Enter Covid in 2020. Mill closures shut down production completely, pricing of lumber dropped to 2×4 WSPF #2 RL – $282 USD on April 3, 2020 (Mills thought it would go into the $100s) per 1000 BFT. The projection was that demand would fall off a cliff – businesses were preparing for shut down and construction shut down completely in some provinces.
Once mills began to reopen, they went from 2 shifts to one shift so they were working at partial capacity. Physical distancing guidelines were also being managed at the time and there was lack of trust in the market.
Supply continued to be monitored to assess projections and the DIY market hit particularly in 2×4 8’, the prime home center/retail item. In April, May and June, the supply needed by the home centre was being met – the supply was able to keep up with the demand.
Once the home building picked up the demand for material now doubled as the DIY market through the home centres/local retailers + home builders now required supply.
Eastern Canadian production was impacted as much, if not more than Western Canadian production. Ontario, QC, Maritime job sites re-opened earlier than Western Canada and started demanding wood that Eastern mills couldn’t supply. They began pulling more from the Western mills which shrunk availability for Western customers, and pulled away volume that US customers would typically see. As Eastern mills began catching up the Eastern demand from the West shrank, and the Americans having been driving the demand since.
To keep up with the supply, mills had to dip into what’s called the “cash market” or buying logs from Timber Sales. Essentially an auction system for buying harvest volumes/logs typically at higher prices than the allocated harvest given by the government.
Volume of lumber available was down, and the demand hadn’t changed. Prices in the markets on commodities are volatile. Prices will continue to increase until the supply can catch up with the demand. (or customers decide they can no longer pay the numbers, credit lines are also stretched at these prices). Mills have been fully operating in BC and Alberta for the past 2 months and working to fill the backlog.
BC typically harvests throughout the year but when forest fires hit (or too much wet weather, slow winter break up), logs cannot be collected which means they either have to wait until conditions allow them to, or look for other areas around them where there may be better conditions).
Alberta and Sask mills will do most of their logging in the winter months Nov-March when the ground is frozen and logs are cheaper. Most smaller or Independent mills will bring a years worth of logs into the yard so they won’t run out until the following logging season. It’s a truck of 2×4 #2 lumber would cost a retailer approx. $20,000 CAD. Today at $760 USD it costs At $282 USD 1 them $50,000, and that number will be higher this week massive tie up to cash flow, but they know they’ll be able to run regardless of weather, and know exactly what their costs will be.
Transportation became an issue and also is a factor that impacts pricing. Manitoba’s supply was impacted as there was a lack of truck availability headed back west to pick up supply. As of August 18 Manitoba is still an issue for Western producers.
Rail shortages hit a historic shortage – cars will be ordered for pick up and producers may receive 10 (20% or what they asked for) this impacts the ability to supply all the wood that has been sold. This also increases transport costs.
Trucking supply in Canada has also been difficult. Trucking to rural distances to pick up supply adds time to trips and with the limits makes efficient pick up and delivery difficult.
Softwood lumber and lack of an agreement hasn’t helped the issue. Tariffs of approx. 25% (varies by mill) are paid on every truckload of lumber shipped to the US. Weak Canadian dollar makes this manageable due to the 30% differential in currency. The duties are often seen as unfair as the anti-dumping is not actually happening and there have been several legal proceedings that have overturned this as a result.