What is happening to the softwood sawn timber prices?
Softwood sawn timber prices have increased by 20 to 30% over the last five months. What caused this? There are several reasons.
Many people around the world have been working from home since April 2021. The pandemic forced families to stay home and spend time within their own four walls, unable to go on holidays and/or dine out. Hence many have decided to start home-renovations both interior as well as outdoors. Like in the USA, people moved away from the bigger cities and started building new homes in smaller towns where they can afford larger homes at lower costs. The USA has issued a record high of new building permits during the last six months. And all these new houses needed and continuously need softwood sawn timber (called “lumber” in North America).
China used to be the largest supplier of softwood building components to the USA. Probably still are, but the trade restrictions imposed on both sides, the USA and China, due to the trade war from 2019 onwards, have resulted in an imbalance of supply and demand. Some Chinese production moved to South East Asia (mainly Vietnam and Indonesia, less to Malaysia), and many Chinese factories closed for good. Neither Vietnam nor Indonesia can produce similar volumes at the low prices China was able to offer.
Europe’s softwood forests became infected with the “Spruce bark beetle”. This beetle is a very destructive pest that bores holes in the females’ bark to lay eggs. The beetles transmit a blue fungus on the sapwood where the affected trees’ pines fade from green to yellow to reddish-brown. The beetles prefer already damaged trees but can mass-attack healthy trees as well. For beetles, it takes less than a year to kill a whole forest. This pest has become a severe threat to softwood forests all across Europe. Many countries are affected, Germany, Sweden, Norway, Poland, Ukraine, to name a few. Those countries are forced to cut down affected forests and find a home for these logs, mostly for export to China. Thus, the availability of quality logs for local sawmills became drastically reduced.
Other traditional softwood logs and timber supplying countries outside Europe such as Australia, Brazil, Chile, and New Zealand have been affected by the Covid pandemic or other, more economical reasons.
Australia’s timber supply and demand are upset due to China’s trade-ban on Australian products due to Australia’s refusal to admit China’s Huawei 5G technology to enter the country. In Brazil, plantation forests are mainly owned by pension funds, and log prices climbed to levels that local softwood mills cannot afford to pay to produce sawn timber profitably. Many mills closed down or reduced their capacity.
The Covid pandemic has affected a wide range of services essential for our industry. There is a severe lack of workforce in the forests, at sawmills, transport providers, and ports. Today, it takes at least five times longer to process containers at the port, which, amongst other reasons, resulted in a shortage of empty containers. Freight prices have gone through “the roof”, with many routes seeing five to six times higher rates than in previous days.
So, what can we expect for 2021?
Sawmills need stability, and there needs to be a better balance between demand and supply, which is unlikely to happen soon. Log prices are not expected to decrease till that balance is restored. The work-from-home situation will not lessen until all Covid restrictions are lifted. As much as we are all looking forward to this, it will still take months, if lucky, maybe in the 3rd quarter of this year. People will continue to spend more money on house renovations, home improvements, and building new homes.
Consequently, the demand for softwood sawn timber will remain strong.
In conclusion, I believe that softwood log and sawn timber prices will continue to rise in the next quarter but probably stabilise mid-summer and slightly reduce towards the end of this year. And the chances are high that prices will not return to pre-Covid levels any time soon.