New WOOD MARKETS five-year forecast calls for continued volatility as North American and global lumber markets continue to recover and grow
In WOOD MARKETS’ new five-year forecast, the short-term outlook is that North American and global economies, as well as softwood lumber and panel markets, are all forecast to improve, but at a much slower pace than has been expected. What has also short-circuited the prospects of stronger demand is a slowdown in China and Japan, impacting export markets. And the new wildcard that caused U.S. dollar prices to plunge in 2015, especially in softwood lumber, was the rapid currency devaluations of almost all major lumber producers as compared to the U.S. dollar. All of these factors have changed the WOOD MARKETS outlook to one that expects more lacklustre demand and corresponding price growth through 2018. After that, it starts to look very good!
These details and further analysis of commodity lumber and panels was released last week in the report, WOOD MARKETS 2016 – The Solid Wood Products Outlook: 2016 to 2020 by International WOOD MARKETS Group, Vancouver BC.
The supply-side dynamics feature eroding sustainable timber harvests in key provinces in Canada, resulting in dramatically lower lumber production than in the previous decade. Canada’s total lumber output will start to flatten out by 2018 with no further increases expected – just as U.S. and global demand are expected to gain momentum.
On the U.S. side, the U.S. West Coast region continues to watch log export prices in China and Japan, as many domestic log prices are correlated with export prices – this can quickly tighten the wood supply for sawmills and plywood mills as export prices rise. The U.S. South is forecast to be the only region where any significant lumber and panel production will occur, mainly due its ample, under-utilized timberland base of southern yellow pine. As lumber and panel demand increases, it is forecast that the current depressed log prices will start to move higher to feed incremental wood consumption of the expected additional panel and sawmill production.
On the demand-side, the key U.S. market has had some steady growth in the repair and remodeling and industrial sectors, but it has been the slow and steady pace of the new residential housing construction market segment that has underwhelmed lumber and OSB producers. U.S. housing starts have been growing annually at only 10-15% the last two years (reaching 1.12-1.14 million starts in 2015), but from very low levels. There is still a long way to go to get back to a more normal level of 1.5 million housing starts, so there is still some huge upside. WOOD MARKETS’ previous forecasts, and our current one, continue to hold to the belief that a structural change has been occurring in the U.S. housing market that will take much of this decade before a “new normal” result emerges. As evidence, our conservative 2015 housing starts forecast from last year’s report should almost exactly equal this year’s final housing numbers.
The potential of a “supply gap” in North America is still considered to be real and is forecast, but is pushed out towards 2019. WOOD MARKETS’s expects that rising wood products demand will trigger much higher lumber prices so as to attract more log and/or lumber supply to the market – this includes European lumber exports to the U.S. market. European exports are expected to increase as U.S. lumber prices eventually move higher as a result of stronger demand and tighter wood supplies starting about 2019 and they could reach at least half of their previous peak (achieved in 2005) by the end of the decade.
Published since 1996, the five-year forecasts in WOOD MARKETS 2016 explore the evolving recovery of U.S. and Canadian lumber and wood panel markets, including international developments. Trends assessed in the report include:
While there is expected to be a steady tightening of the global softwood timber supply base, slow demand growth continues to prevent the potential of any shortages from appearing. However, there is still a very possible supply gap in timber and sawmill capacity that can occur, especially in North America, that could drive prices much higher. However, the pace of demand is still the limiting factor, but it is possible to see the first signs of a major supply imbalance by 2019 – still a long way out as a result of the conservative WOOD MARKETS demand forecast.
Full details of the five-year outlook for the U.S. and Canada’s lumber and panels consumption, imports, exports, production and price trends are available in Wood Markets 2016 – The Solid Wood Products Outlook – 2016 to 2020. Visit https://www.woodmarkets.com/publication/5-year-outlook/outlook-to-2020/