Asia's Wood Demand Drives Sawlog Prices Up in the U.S. and Canada

 |  Includes: PCL, POPE, RYN, TMWEF, WY
by: Hakan Ekstrom

Softwood sawlog prices have trended upwards in all major regions of North America over the past two years. The biggest increases have occurred in the U.S. Northwest, where the log export market has had a major impact on the supply-demand balance. Total log shipments to Asia from the U.S. West Coast last year were the highest they have been in 14 years and much of this increase was the result of China’s seemingly never-ending need for wood raw-material. The U.S. Southeast and U.S. South Central are the sub-regions where log prices have increased the least since 2009; in fact, prices in these regions even fell slightly late last year, according to the North American Wood Fiber Review.

In the 4Q/10, Douglas-fir log prices in the Northwest were up 19 percent from the same quarter in 2009. Hemlock sawlog prices, which increasingly have been influenced by log exports to China and South Korea, have gone up over 25 percent the past 12 months. With the recent price increases, sawmills in the West now have higher wood raw-material costs than sawmills in the South, which is opposite to the situation in 2009. Price levels in the Southern states are currently close to their nadir of 15 years.

Sawlog prices in Canada have followed the same pattern as in the US, with prices in the Western provinces increasing more than in the Eastern provinces. In the 4Q/10, log prices in British Columbia had moved up to their highest levels in over two years in U.S. dollar terms. Despite the increase, softwood lumber producers in the Interior of the province still have some of the lowest wood raw-material costs on the continent.

According to the Wood Resource Quarterly, Western Canada currently has the lowest sawlog prices in the world. In Canadian dollar terms, prices have fluctuated less in 2010 than they have over the past few years and Western and Eastern Canada were actually two of the few regions in the world that had lower log costs in the 4Q/10 in the local currency than they did in the 4Q/08.

North American companies that have benefited from China’s increase need for wood raw-material include Weyerhaeuser (NYSE:WY), Plum Creek Timber (NYSE:PCL), Rayonier (NYSE:RYN), Timber West (OTC:TMWEF) and Pope Resources (NASDAQ:POPE). Recommendation for the above companies is hold in the short-term, with opportunities for upward movements of their stock value over the next 24 months because of the higher demand for logs both domestically and for exports.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.