Hakan Ekstrom's  Instablog

Wood costs have fallen the past year for many sawmills in the major lumber-producing countries worldwide. The Global Sawlog Price Index was US$82.90 per cubic meter in the 2Q/12, which was 11.5% lower than in the 2Q/11, according to the Wood Resource Quarterly. Sawlog prices have declined the most in Europe the past year.

Seattle, USA. Softwood sawlog prices continued their slide throughout the world in the 2Q/12, and the Global Sawlog Price Index (GSPI) was down for the fourth consecutive quarter to $82.90 per cubic meter, according to the Wood Resource Quarterly (WRQ). The Index, which is based on sawlog prices in 20 regions around the world, was down 3.4 percent from the 1Q/12 and 11.5 percent from its 17 year high in the 2Q last year.

Log prices were down in practically all regions tracked by WRQ in both the local currencies and in US dollar terms. The only exceptions were in Western US and British Columbia, two regions that have been benefiting from strong exports of lumber to Asia and higher demand for lumber in the US market the past six months. In US dollar terms, log prices in the 2Q/12 fell the most in Brazil, Japan, the Czech Republic, Sweden and Russia.

Consumption of lumber in Europe has been in decline as a result of the continued financial crises in a number of European countries. As a consequence, demand for sawlogs and log prices have fallen steadily for the past 12 months and were on average about 14% lower in the 2Q/12 than in the 2Q/11. The price declines were the largest in the Nordic countries where log prices have come down 18% the past year. The good news for the region's sawmills is that log prices have fallen more steeply than lumber prices, which only declined an average of eight percent from the 2Q last year. Despite having moved up slightly the past few months, lumber prices are still well below the average for the past three years.

A comparison of sawlog prices from the 2Q/12 with those from 2Q/10 shows that current prices are substantially higher in most European countries, particularly in Eastern and Central Europe. For example, average prices in Poland are up 32% from two years ago, and Austrian sawmills have seen log costs go up 15% since 2010. Of all European countries tracked by the WRQ, only Sweden and Norway had lower log costs in the 2Q/12 as compared to the same quarter in 2010.

Prices for mill and forest biomass fell in most major consuming regions of the US in the 2Q/12, according to the North American Wood Fiber Review. The main reason for the declining prices is the continued fall of natural gas prices to levels not seen in ten years.

Seattle, USA. Prices for woody biomass in the US, whether sawmill by-products, forest residues or urban wood waste, have been sliding for most of the past three years, but were still higher late in 2011 in most regions than they were five years ago, according to the North American Wood Fiber Review.

In the 2Q/12, woody biomass prices were down between 2-10 percent in the key biomass-consuming regions, the US South, Northeast and in the West as compared to the 1Q/12. In the US Northwest and California there continues to be a substantial price discrepancy between mill biomass and forest biomass, but this price difference is minimal in the US South.

During 2011, natural gas prices fell about 45 percent in the US and the lower prices have reduced the urgency for investing in woody biomass projects in the country. However, despite the plunging natural gas prices, plans for more facilities utilizing woody biomass continued during 2011 and 2012 in both Canada and the US, with some projects nearing completion and others in start-up mode.

Wood fiber demand for all planned biomass projects in the US dropped in the first half of 2012 as compared to early 2011. Most of the decrease in wood usage the past year has been that wood used in the generation of electricity for the domestic market in the US, while the pellet industry has continuously expanded capacity to serve the growing demand in Europe.

The US had about 450 announced and operating woody bioenergy projects in the spring of 2012, including wood pellets, liquid fuel, electricity-generation and combined heat and power (CHP). The projected wood fiber use for all planned biomass projects is estimated to reach just over 30 million dry tons of fiber annually by 2020, according to Forisk.

Commercial and residential energy consumers' interest in switching to more expensive green energy is likely to continue to be lukewarm as long as demand for energy is low and natural gas prices are their lowest levels in over ten years.

Prices for softwood chips have trended downward in both the US and Canada during the first six months of 2012, reports the North American Wood Fiber Review. The biggest declines came in British Columbia and Alberta because of lower market pulp prices. Chip prices in the US South, the Lake States and the Northeast experienced only minor price adjustments.

Seattle, USA. Softwood chip prices fell in a number of key regions in North America during the 2Q/12 from the previous quarter. The biggest declines were seen in the US North West, Lake States and Eastern Canada, while prices were unchanged or just slightly higher in the US South, US Northeast, British Columbia and Alberta, according to the North American Wood Fiber Review.

High wood fiber inventories, plenty of sawmill chips and pulplogs, and maintenance shutdowns by a number of pulp mills were the main reasons wood chip prices fell by almost seven percent in the 2Q in the US Northwest. Current chip prices are the lowest they have been in over a year, but still well over the 25-year average.

In the US South, softwood chip prices have stayed remarkably stable for almost two years. This is a testament to the well-functioning market dynamics that can balance the fiber supply and demand in an efficient manner despite recent droughts, wildfires and flooding. Chip prices in the US South are currently the lowest in North America, and are slightly below the historical trend.

Over the past six months, wood chip prices in British Columbia have fallen 16 percent, the second biggest price decline in North America the past two quarters behind Alberta. Temporary pulpmill shutdowns have led to lower wood fiber demand and sharply reduced prices for market pulp, resulting in the biggest price decline for chips since 2008, as reported in the North American Wood Fiber Review.

Just when many sawmills were marginally increasing their lumber production across Eastern Canada, several had to temporarily curtail their operations due to an excess of residual chips that they were unable to move. Pulpmill fiber buyers initially attempted to fulfill their fiber needs by purchasing residual chips from all sawmills, but as the quarter progressed, they protected their own company-integrated sawmills rather than independent sawmills. Softwood chips prices declined by about ten percent in Eastern Ontario and Quebec in the 2Q/12 from the fall of 2011, but were still among the highest in North America.