Improving markets around the world generate strong global earnings at softwood sawmills in 2017
2017 Global Timber / Sawmill / Lumber Cost Benchmarking Report on delivered softwood log and sawmilling costs in 32 countries and regions shows the U.S. South is again the big earnings winner.
WOOD MARKETS’ (FEA-Canada) 8th biennial global benchmarking survey has once again placed the U.S. South at the top. The U.S. South was the highest margin sawmill region in North America – a place it has held since 2008 – as well as the top global earner again in 2016 and for the second quarter of 2017. All regions covered in the global sawmilling industry in 2016 and in 2017 showed good results; the average global earnings (EBITDA) at “average” sawmills actually dipped slightly from US$21/m3 (US$34/Mbf – nominal) in 2014 to US$18/m3 (US$29/Mbf) in 2016 but improved to US$24/m3 (US$39/Mbf) by 2017-Q2. For best or “top-quartile” mills, and depending on the region, earnings results were typically about double that of “average” sawmills in each country. The fortunes of most regions improved significantly in 2017-Q2 from higher global lumber prices. The North American economy has been stable, boosting lumber demand and prices and the European economy improved in 2016 and especially in 2017 as many mills (and countries) had their best results in five years.
These results and detailed cost, revenue and earnings data were released earlier this month in the 2017 edition of the Global Timber / Sawmill / Lumber-Sawnwood Cost Benchmarking Report. A summary, including a “special analysis” on delivered lumber costs to key export markets, is also provided in this month’s WOOD Markets Monthly International Report.
Out of 32 countries and/or regions surveyed, “average” U.S. South mills had highest earnings results in 2016 with a 25% EBITDA and “top-quartile” mills earnings were off the scale. “As has been the case since 2008,” explained Russ Taylor, Managing Director of FEA-Canada and the principal author of the report, “the major operating advantage for U.S. South mills continues to be the region’s low log-cost structure. With a surplus of timber and not enough sawmills operating in the aftermath of the housing market collapse, delivered log prices remain among the lowest in the world with margins being the highest in the world.”
“Average” mills in the U.S. West Coast had earnings that below those in Western Canada in 2016, mainly due to tight log supplies and strong log export markets in Asia. EBITDA earnings at “average” mills in Canada were strong, partly as a result improving prices and no U.S. import duties in place for all of 2016. Canada’s earnings as a whole were above average on a global scale and also ahead of Europe and Russia (mills with logs at cost) but lagged the U.S. weighted average The Canadian average earnings comprised a wide range of regional results, with higher earnings in the west versus half of those seen in the east.
The Southern Hemisphere regions surveyed (Australia, New Zealand, Chile, Brazil and South Africa) achieved global average EBITDA earnings of 6% at “average” sawmills, lower than in 2014. Three Southern Hemisphere countries achieved earnings results below the region’s average, Brazil and South Africa were above the average.
European regions finally had improving markets starting in 2016, and especially in 2017. Overall EBITDA earnings for “average” European sawmills results moved higher from a small gain in 2014 to US$7/m3 (US$11/Mbf) in 2016 and higher in 2017-Q2. “Average” mills in Sweden and the Czech Republic achieved some of the highest earnings in Europe in 2016 partly from favourable log and operating costs. In the global survey, only Finland in 2016 and Finland and Siberia (with logs at market price) in 2017-Q2 recorded losses at “average” mills.
Following the devaluation of the ruble, Russia had some of the best earnings in the world in 2014 but these slipped in 2016 and further in 2017-Q2. Russian mills that had to purchase logs on the open market achieved much reduced earnings, mainly due to rising log prices.
The introduction of import duties in 2017 on Canadian lumber to the U.S. significantly reduced sawmill margins and has stimulated large increases of lumber exports to the U.S. from Europe, Russia and the Southern Hemisphere. “What is most interesting,” commented Russell Taylor, “is that net margin achieved by mills in Sweden (delivered to the U.S. Gulf region) is now higher than all calculated margins from Canadian top-quartile mills. With import duties on Canadian lumber, top-quartile sawmills in Sweden now have the lowest delivered lumber costs aside from the various U.S. regions.” The massive spike in U.S. imports of lumber from Sweden and Germany is no coincidence!
The results for 32 countries/regions were compiled for both “average” and “top-quartile” sawmills for both 2016 and 2017-Q2 and includes quarterly data starting in 2015-Q1.
The 2017 edition of the Global Timber / Sawmill / Lumber-Sawnwood Cost Benchmarking Report benchmarks delivered log costs (with a full break-out of logging, hauling, overhead and stumpage), sawmilling costs, lumber and by-product revenues, and EBITDA margins in 2016 for 32 producing countries and/or regions around the world, and includes an update for 2017-Q2 for both “average” and “top-quartile” sawmills. This 315-page report is available by subscription and a summary of the report appears in the November issue of WOOD Markets Monthly International Report.