Top 5 Factors that Affect International Timber Prices

Irrespective of the location you’re based, the cost of wood acts as the single largest variable of price when it comes to wood-consuming manufacturing projects. In this regard, you need to have a fair understanding of the timber wood price or stumpage in a supply region. The stumpage price is the amount paid to the landowner to gain the right to harvest the trees from the timberland of the owner that can drastically vary across local wood basins. Now, upon careful research and development, it has been seen that 5 major factors affect the stumpage prices, regardless of their location:

1. Competition: Wood basins, in general, consist of only a handful of counties, and are small in size. Based on whether the timber is located in a marginally or highly competitive area, the price of timber might vary. The companies offering forest products obtain their wood from places closer to their mills, even if it means paying a higher stumpage price to ensure low delivery costs. The price can, as a result, vary, even when you’re in a compact geographical distance.
2. Inventory: If you’re all set to manage facility production, overall supply chain productivity, or associated costs, maintaining an inventory is crucial. Now, by optimizing the supply chain, you can improve efficiency and save money at the same time. However, when inventories run low, the manufacturers consuming wood are somewhat forced to go out in the open market to pay a premium cost of construction wood. Having a strategy would ensure that the facility would get the required volume of timber to operate at the preferred level of production.
3. Weather: Wet weather, in particular, can make it challenging for loggers to supply the much-needed loads of wood as they would on dry days. Timber typically falls under the category ‘wet weather tract’ that could be harvested throughout the year, and since it is so accessible, it would earn higher premiums. When (and if) the supply becomes constrained, the timber market price increases to a large extent. In this context, the purchasers should also keep in mind the plausible but unforeseen weather extremities like wildfires and hurricanes which have a direct impact on the price of timber.
4. Transportation: Another major expense faced by loggers is the cost of transporting equipment. Now, the larger tracts of 200+ acres give the best opportunity to loggers who want to increase their weekly production by hauling or harvesting more loads every day. It is for this reason only that the tracts with higher acreage and volume would secure premium international timber prices.
5. Tree Size: At the end of the day, it is the size of the tree that actually matters when it comes to the pricing of timber. Pine logs, for example, usually fall into categories such as 5” to 7” of diameter in pulpwood, chip-n-saw at 8” to 11”, and sawtimber at 12”. The per-ton value of the trees usually increases when it comes to the size of the log. Low-quality trees, however, can be used in a less-expensive product class, even when they have reached the required breast height (DBH), which ends up with them having a low timber price index.

Increased Countervailing duty in Canada

Canada’s anti-dumping and countervailing legislation as part of SIMA (Special Import Measures Act), protects the Canadian producers and manufacturers from any unfair competition. The goods imported into Canada come at a lower price than the normal value. The SIMA process starts by submitting a complaint to the CBSA’s Anti-Dumping and Countervailing Directorate. At places that have evidence disclosing a reasonable indication that the goods have been subsidized or dumped and has been causing injury to the Canadian industry, the anti-dumping or countervailing duties will have to be paid on the importations. When these measures are in effect, the imports of the subsidized or dumped products start decreasing, and as a result, the Canadian shipments, employment, and related investments start increasing.

Production Curtailments Canada

Production curtailments don't necessarily happen due to the sawmills being threatened by the wildfires encroaching on them, but because the disruption in supply chains results from the reduced freight rail traffic. These wildfires burning in the Western part of Canada have impacted the supply chain significantly and thus affected the ability to transport the items to market. Now, due to this situation, the short-term production curtailments at the Canadian Sawmills (starting July 26) have been implemented. Such curtailments will take up around 115m board feet out of the Western Canadian production, to say the least.

High Log Prices and the Freefalling Lumber Rates

The prices of lumber have been receding quickly, especially in July 2021 as it faced a sixth week to reach the lowest point in more than 7 months. The weighted average SYP (Southern Yellow Pine) lumber price for the 26th Week (July 2nd) was at $566/MBF that ultimately represents almost a 31% decrease from the previous two-week period. Now, several people have put forward their thoughts on the disconnect between the lumber and log prices over the past year (all thanks to the pandemic). The reason behind this is perplexing for sure, but the truth is that the market for trees is distinctly different from that of lumber. The inventory of standing timber has risen since the 2007’s Great Recession which ultimately resulted in an oversupplied market. This surplus has kept log prices suppressed, even with the demand for lumber and sawmill production increasing.

The After-Effects of Hurricane Ida

As part of the after-effects of Hurricane Ida, the US lumber futures jumped for around 8% of the exchange-imposed limit and this hindered delivery in the US South as soon as the North American mills pulled back on their production. As per the Chicago Mercantile Exchange, the November lumber contract shot up 7.9% to $576.20 per thousand board-feet. This surge has extended towards a tumultuous year for lumber which was once upon a time one of the best performing commodities after the pandemic has fuelled a construction boom. After touching the all-time high price in the month of May, the combination of Hurricane Ida and the announcements of production slowdowns from the western mills has given the industry time to recoup some of those losses in recent weeks.

The above-mentioned points are ever-changing variables that can directly contribute to the complexity of the supply chain and marketplace of wood. Timber Exchange is a one-of-a-kind B2B platform that allows you to buy and sell timber directly with vetted and leading companies around the world. The platform allows smooth automation of the entire supply chain process where you can get the complete market data on the logistics, inventory, prices, consumptions, and productions with instant integration and team training. To get more information on the subject, feel free to check out https://www.timber.exchange.