As the home building and construction season for 2019 marches on, seasoned players in the production, sale and purchase of North American softwood dimension lumber products continue to be surprised by the very low demand for solid wood commodities. Lumber prices continue to drop persistently from the soaring highs experienced just a year ago.
In response to slack demand and other poor market conditions, several of the largest sawmill operators in British Columbia (BC) curtailed production significantly during April and in May and announced some permanent closures as well. The most frequently cited reasons for curtailment/closure included excessively high log costs in BC, low lumber prices across North America and the overall reduction in timber supply due to the Mountain Pine Beetle infestation and the most recent wildfires.
To date, BC sawmill curtailments and closures will remove nearly 400 million board feet of annual production from the supply chain for 2019. It is worth noting that these announcements have come during a time when Canadian and US sawmills are typically running at their highest capacity rates for the year. What’s going on with producers that are still manufacturing and trying to stay afloat in a very slow market?
Canadian and Pacific Northwest lumber producers report that their yards are absolutely jammed with logs waiting to be processed over what is usually the busiest part of the season. Most producers made the large log investment at the start of this year in expectation of a bustling US homebuilding and lumber buying season. However, with the current dearth in demand, these sawmills could have concern that their plentiful log supplies might not be consumed before US home building slows into 3Q2019.
To put this situation in perspective, North America sawmill capacity utilization rates (as reported by the Western Wood Products Association) have not been encouraging so far this year. The latest issue of WWPA’s Lumber Track (February 2019) shows US sawmill capacity utilization rates almost flat compared to one year ago, at 86%. However, utilization rates for Canada are down significantly—from 87% this time last year to only 78% for February 2019.
The mid-term timber supply in British Columbia has been a topic of great discussion as of late. Until relatively recently, BC was forecast to have a stable mid- and long-term timber supply of about 70 million cubic meters (m3) per year. The actual harvest from public lands has been closer to 64 million m3. Recent analysis projects a decrease in timber supply to about 58 million m3 per year by 2025, primarily due to mortality caused by the mountain pine beetle epidemic. The forecasted timber supply then returns to approximately 65–70 million m3 per year by 2075.
SOURCE: British Columbia Ministry of Forests, Lands and Natural Resource Operations
Sawmill operators across the province are thankful that there is new, additional timber supply available from First Nations land, as well as mechanisms to access fiber through local Woodlots and Community Forests.
The BC Ministry of Forests, Lands and Natural Resource Operations provided an update for the near- and mid-term timber supply to feed the province’s sawmills. “After the 2017 and 2018 fires we re-analyzed the Timber Supply Areas (TSAs) most affected and concluded that the current Annual Allowable Cut (AAC) for these TSAs did not need to change. We have just started new timber supply reviews for the Quesnel and 100 Mile House TSAs, so the new AAC will reflect the impact of those fires. The new AAC for the Lakes TSA, expected this Autumn, will also include the effects of recent fires.”
The update continued, “We have not adjusted the AAC for any TSA to account for spruce beetle. We were aware of the extent of the spruce beetle during the Timber Supply Review for the Prince George TSA and we concluded that the spruce beetle could be managed within the AAC set for that TSA, there is no uplift needed. We recently adjusted the partition for the Mackenzie TSA to account for the spruce beetle. That AAC did not change; just the partition.”