Pacific Northwest Market Summary—July and August

From the September 2010 Forest2Mill newsletter.

Earlier this summer, world-wide pulp prices reached an all time high with NBSK prices up 30% over 2009. Northwest chip and fiber prices were flat, however, as supplies were adequate to meet production needs. This was one of the few times in recent history where raw material costs for the Northwest pulp and paper industry moved in the opposite direction of pulp and paper prices.

We are now seeing a reversal in this trend. Wood chip and pulpwood prices in the Pacific Northwest increased in July, a result of tight supplies of mill residual chips and limited pulpwood availability.

Total fiber chip cost increased by 6.5 % in July reflecting competition for whole log chip supplies. Conifer pulpwood prices were up by nearly 6 percent across all Northwest regions, indicating anxiety about future supply.

Discouraged by falling lumber prices, mill operators responded with production curtailments, which led to a scarcity of mill residues in the market.

A weak housing market have constricted logging rates and therefore the availability of pulp logs, which are a by-product of harvesting more valuable sawmill quality logs. The State of Oregon announced earlier in August that timber harvests in 2009 declined by 20 percent to 2.6 billion board feet. This is the lowest level since the Great Depression of the 1930s.

Log exports from Oregon and Washington private forestlands are one of the few bright spots in the market, as they help offset lagging sawmill demand. If not for off-shore markets, harvest levels would be lower and pulp logs even more scarce.

Small sawmill log prices are off as much as $50/MBF since May’s highs. Declining prices invited whole log chippers to dip into the chip-n-saw supply to secure pulp wood logs. In some cases, timberland owners have committed their entire third-quarter chip-n-saw production for chips.

During the last three weeks, world-wide pulp inventories increased, causing NBSK prices to decline. Prices are likely to soften further in coming months. With tight supplies of mill residual chips and limited availability of pulpwood, Northwest pulp mills will be challenged over the near term to meet demand and maintain their profit margins.