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Northwest Log Prices Rebound Thanks to China and Pulp and Paper

Chinese demand for logs and healthy pulp and paper demand have led to a turnaround in Northwest log prices, tightening margins for saw and plywood mills. Prices have eclipsed the levels set May 2010, when a brief spike in lumber prices drove Douglas fir domestic logs over $525/MBF for the first time in two years.

In January 2011, domestic Doug fir eclipsed $550/MBF in Western Oregon and Washington, a response to firming lumber prices and vigorous competition from export log purchases. Whitewood, more than any other species, has attracted the attention of Chinese buyers. Average hemlock export log prices rose beyond the $550/MBF level in January, a 30 percent increase in twelve months. Just a short time ago, hem-fir was difficult to sell. Eager to secure wood to build their growing economy, however, Chinese buyers have picked up the slack.

This growing demand from China has led to the re-opening of export yards in Port Angeles, Grays Harbor, Astoria and Coos Bay after more than a decade of relative inactivity. Local mills have become accustomed to the lack of competition from Asian exports. Because logs destined for China are of common size and quality, automated sawmills in the Northwest who favor the same logs now have to compete directly with Chinese buyers. The resulting price increases have pushed log costs higher and put pressure on margins. Several mills have recently announced limited curtailments citing high log costs.

Pulp and paper demand has been good over the past year, leaving mills with a healthy appetite for wood chips. Increased demand for fiber has driven wood chip costs from the low $90/BDT range to over $115/BDT during the past year. Even with the slight improvement in lumber prices, sawmill production remains more than a third below previous highs; as a result, pulp and paper mills have a deficit of residual chips in the neighborhood of 2.5 million BDT plus. Whole log chippers across the region have stepped up to meet the shortfall, but they have been taking chip-n-saw in order to do so. Pulpwood logs, mostly a by-product from saw log harvests, have been in limited supply. Instead, pulp log users are substituting 4-7” chip-n-saw normally delivered to sawmills. Pulpwood and chip-n-saw have increased $10/ton over this time a year ago.

Because of these higher prices, timber owners will have a window of opportunity in 2011. For the past two years, low prices have made log sellers hesitant to harvest. Many have a backlog of timber they have deferred cutting until the economy improves. This increase in values will encourage sellers to boost harvests, taking advantage of renewed demand. Look for this to continue into the summer of 2011 and beyond. Douglas fir at $600/MBF is a major threshold for many sellers. Having not seen this exuberance in prices for several years, many will scramble to cut timber while the market lasts.