The latest quarterly report Madison’s has been producing this year for the federal government of Canada has found some interesting new developments in the market dynamics of producing and selling softwood lumber products. It is encouraging that Madison’s findings are this very week corroborated by analysts at Export Development Canada:
“By volume, B.C.’s exports to China peaked in 2013 when timber companies sold 7.9 million cubic metres worth of processed wood to Chinese buyers, versus 13.6 million cubic metres to buyers in the U.S. market.
However, while lumber exports to the U.S. increased to 17.9 million cubic metres in 2016, exports to China slipped to 5.9 million cubic metres over the same period.
B.C.’s total exports of lumber shrank by nine per cent in 2017, a year plagued by forest fires in the province’s interior and the challenge of shrinking timber supplies in the aftermath of the mountain-pine-beetle infestation.”
Madison’s own findings shed more light on this important new development:
OVERVIEW OF CURRENT NORTH AMERICAN LUMBER MARKET
So far since this round of US softwood lumber duties were applied on Canadian imports at the start of 2017, producers have been able to pass on the entire duty rate to their customers. Indeed at that time, sawmills were running at high capacity, buyers kept ordering more and more wood, so consequently lumber prices were rising.
This is because demand from the US for real building projects that were currently ongoing was unrelenting, and quite beyond anyone’s expectations. The immediate supply-demand balance was such that sellers were in a good position to force customers to pay the additional duty rate.
For our previous two reports this year, Madison’s found that non-USA (Canadian, export) customers who have good, long-established relationships with certain operators, were able to get a “5% to 10% discount” on print FOB mill lumber price. The actual discount was generally acknowledged to be “closer to 6%”.
That remains true in 3Q 2018, however there are other market dynamics and circumstances which have developed. In particular, return-to-trend after a sudden difference in the movement of trendline for Southern Yellow Pine price compared to Western- and Eastern-Spruce-Pine-Fir at the start of 2Q 2017.
Madison’s also has details from Canadian remanufacturers on price differences they are quoting for customers in Canada, in USA, and overseas.
The latest answer to the question of a ‘sans-duty’ or ‘Canadian’ price remains about the same: 6% to 8.5% discount on print for Canadian lumber selling into Canada for those with well-established relationships.
Madison’s expects this to change, however, even before the end of this year.
READ THE FULL REPORT HERE:
While for the moment there is no relief for Canadian customers of Canadian wood – apart from the small percentage already noted – it is possible this will change before the end of the year.
Indeed, if lumber demand does not pick up again at the beginning of 2019, there will develop a circumstance that even US customers will refuse to take the hit for the duty and will force suppliers to reduce their price quotes accordingly. However, Madison’s expects US wood purchasing for spring construction activity to come back on rather strong in January. It is likely Canadian sawmills have the same opinion. Thus producers will be able to hold off customer counter-offers through the end of this year; usually by scheduling maintenance shutdowns and curtailments throughout their facilities, thereby reducing supply.