Slowing wood demand reduces global trade of lumber

(IMAGE: JIM ALLEN/FREIGHTWAVES)

(IMAGE: JIM ALLEN/FREIGHTWAVES)

The market for lumber slowed considerably in the second half of 2018 as the Chinese economy lost momentum and trade disputes with the U.S. persisted.

The United States has cultivated a strong export market for lumber products in China. Prior to the escalating trade war, the American Hardwood Export Council (AHEC) stated that the growth of the Chinese market would be “unlike anything ever encountered in this industry.” The Council predicted that in the near future 60 percent of American hardwood goods will be exported from the U.S., with 54 percent of exports bound for China.

In 2017, China imported $8.83 billion of total lumber products from the United States, according to the World Bank. However, 2018 saw China impose a 10 percent retaliatory tariff on U.S. lumber products and threatened a larger 25 percent tariff on $60 billion of total U.S. goods.

“We were on pace to do about $30 million in sales a year with about $7 million in sales to China,” said Tom Sheets, president of Blue Ridge Lumber Company in Virginia. But sales to China, “literally stopped overnight.”

As China’s credit shortage and consumer confidence worsens, so has the demand for forest products. The volume of imported softwood products during the first three quarters of 2018 dropped 11 percent compared to the same period in 2017. According to the National Hardwood Lumber Association, data from China’s Customs Department show the value of wood products trade between China and the U.S. fell 16 percent in March 2018.

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This is a sharp contrast to 2017, when U.S. forest products exports rose 9 percent, compared to only a 1 percent increase in 2016 and a sharp 16 percent drop in 2015. The main reason for the 2017 rebound was China. Exports to China, the largest U.S. trade partner for forest products, were up 21 percent from 2016.

Producers of southern yellow pine exported 41 percent more to China in 2017 than they did in 2016. But softwoods weren’t alone in the rebound. The import value of U.S. hardwood products to China reached a record high of $323 million in 2017. In the first quarter of 2018, the export value hit $138 million, an increase of 36.7 percent year on year, according to AHEC statistics. But there is little doubt that when all of 2018 is compared with 2017, the numbers will trend downward. And no one knows at this point what will happen during 2019.

Russia is China’s only trading partner to have increased lumber exports to the country in 2018, while all other trading partners, including the United States, saw their lumber exports to China decline during the year.

Moreover, the international trade of lumber was down 2.5 percent from January through September 2018. China, Japan, the United Kingdom, and the Middle East and North African (MENA) countries reduced imports from 2017.

While the U.S. is a major exporter of lumber and wood products, it also imports them. In fact, one-third of the U.S. lumber market is supplied by imports. Those imports into the United States reached a 10-year high of roughly 9.78 million cubic meters in the second quarter of 2018 before shrinking by 3.5 percent in 2018’s third quarter. However, third quarter imports were still 10 percent more than they were at the same time in 2017.

There also have been recent changes in trade patterns, with the United States importing lumber from different partners. While Canada supplied 95 percent of U.S. lumber imports in 2016, that percentage declined to 91 percent in 2018. This was due in large part to the 20 percent tariff imposed by the U.S. on Canadian wood products (which also caused U.S. exports of lumber to rise by 9 percent in 2017). As a result, lumber prices in the U.S. rallied more than 30 percent, according to Dow Jones’ MarketWatch.

Domestic prices rose above $500 per 1,000-board feet for the first time due to supply constraints in February 2018. But then U.S. lumber prices collapsed during the summer and fall of 2018, with major grade prices dropping 40 percent from June to November. This decline was due in large part to a corresponding decline in new housing starts during the same period. The NASDAQ reported that current price quotes are $328.50 per 1,000-board feet.

(IMAGE: SONAR)

(IMAGE: SONAR)

FreightWaves SONAR found that the average weekly rail traffic of lumber and wood was 3,515 journeys in 2018. The second quarter of last year saw the highest average number of weekly journeys at 3,647, as well as the single highest week of 3,838 journeys on May 26. Third quarter journeys declined to an average of 3,535 with the highest week of September 1 having 3,803 and the lowest week of September 8 having 3,059. The fourth quarter was even slower at 3,181 average weekly journeys and saw a trough of 2,164 journeys on December 29.

The home purchase sentiment index (a survey of homeowners based on one hundred questions) reported by Fannie Mae (FNMA: OTC US) has declined 8.8 points since May 2018 to 83.5 in December 2018, its lowest point since January 2017. Because prices of lumber and wood products are tied closely to the housing market, the downward trend of the sentiment index is likely to weigh down lumber prices, at least during the first quarter of 2019.