Selective Cuttings

Tis the season: Good tidings for the solid wood products industry

January 3, 2013

All indicators are pointing to a strong recovery for the forest sector, and for the solid wood product subsector in particular. The epithet ‘fast-growing’ could soon become commonplace as applied to the forest industry.

A combination of a strong global demand and relatively tight supply has led solid wood products prices to continue to climb higher (see figure below). The Scotiabank Commodity Price Index estimates that at current prices, BC interior mills have a 20 per cent profit margin over total costs, including depreciation. The high prices also mean that the U.S. – Canada Softwood Lumber Agreement export charges drop to zero in January 2013 (likely in February too) which will further enhance the mills’ bottom line.

Random Length composite lumber price since 2001 with fixed lines denoting current composite lumber price and threshold taxing price under the current Softwood Lumber Agreement

The line graph shows how lumber composite price has been recovering since the lows of 2009 and is now once again above the highest price that would trigger taxing under the current Softwood Lumber Agreement.

But the good tidings don’t end there. U.S. building permits reached a four-year high in October 2012, indicating that housing starts will increase substantially in 2013 (see figure below). U.S. single-family housing starts are forecasted to reach between 655,000 (FEA) and 680,000 (Wells Fargo) in 2013 and between 820,000 (Wells Fargo) 880,900 in 2014 (FEA).

With that kind of demand increase in mind, Scotiabank is projecting that lumber and oriented strand board will have the biggest price increases next year of any of the 32 commodities that they track.

US single-family housing starts and permits since January 1980

The line graph shows how both US single-family housing starts and permits are recovering from the 2009 crash. The steady increase in permits in particular indicates that 2013 should see a continued recovery of housing starts.