Due to the intricate supply chain and manufacturing processes in the forest products industry, a noticeable shift in the marketplace generally occurs at a relatively slow pace. But global demand for forest raw materials is changing the speed at which the supply chain must react. A recent visible change occurred in the export market to China. In 2015, China increased its purchases of Ponderosa pine logs from the Pacific Northwest while decreasing its purchases of southern yellow pine (SYP) from the US South.
In early October 2015, large portions of South Carolina experienced record rainfall and flooding as Hurricane Joaquin and other weather patterns combined to create a system that dropped consistent heavy rain over most of the state for several days. Historic rainfall set daily, monthly and/or seasonal records at weather stations across the state; caused at least 16 dams to break or breach; and resulted in 541 road closures including a 19-mile stretch of Interstate 95.
Continue reading → Part I: Shifts in Wood Supply & Procurement Patterns...»
Continue reading → Part II: Mill Inventories & Delivered Price...»
Continue reading → Part III: The Relationship between Haul Distance & Supplier Margin...»
Global demand for goods teaches us a lot about the malleability of market trends and developments, as well as new opportunities that exist to service these markets. The forest products industry is no different; if we know where to look, markets for forest raw materials exist in every corner of the earth. The advent of the export wood pellet industry in the US South, for instance, is a market that has grown from zero in 2008 to 3.6 million tons in 2014 due to European demand.
Perhaps due to the abnormally mild temperatures throughout much of the country, February housing starts reversed course from January's temporary slump to post impressive gains vs. the same period last year. While it's important to remain grounded when monthly data presents us with significant swings, February's numbers could bode well for construction projects for the remainder of the spring season.
Over the last 10-15 years, the forest products industry has migrated away from the vertical integration model. This trend has created a number of challenges within the larger market that have also been more pronounced in the Lake States. Consider the situation in the region as we head into 2Q2016.
Forest industry performance in January and February was reported by both the US government and the Institute for Supply Management. Total industrial production (IP) increased 0.9% in January, a greater month-over-month (MoM) rise than expected owing in part to December's reading being revised lower (from -0.4% to -0.7%). Total IP remained 0.7% below its year-earlier level, however, the third consecutive month of YoY declines.
We have written extensively about the challenges associated with procuring wood from an increasingly fractured supply base, an issue that Fred Souba addressed just last month in his Lake States industry analysis. However, this trend is not unique to a single region; one question I often hear when speaking to landowners is, "How much is the logger or dealer getting for my timber at the mill?"
