US Woodchip, Pulpwood Prices Continue Decline

Jan. 22, 2009 - As a result of weakening markets for lumber and pulp, many US forest companies announced temporary, and even some permanent plant closures, this past fall.

There are no signs that the pulp market will turn around in the first quarter 2009, so with continued slow demand for wood raw material it is likely that pulpwood and wood chip prices will continue to fall in many markets in 2009, according to Wood Resources International (WRI) of Seattle.

The biggest price decline for wood fiber in the US in the 4Q '08, occurred in the Northwest, where softwood chips and pulpwood prices fell by over 10%. The price decline has been dramatic the past six months with prices down as much as 30% from the 13-year high in the 2Q 2008.

Demand for wood fiber declined dramatically in 2008, with consumption during the 4Q being the lowest ever recorded in the US Northwest. In turn, instead of an expected scarcity of wood fiber, there has been a glut, with most pulp mills having inventories they have not had since the record year 1995. Wood fiber inventories were just over 50 days in November—obviously a very costly and undesirable position to be in when financial times are tough.

Some wood chips are now being burnt rather than consumed by pulp mills or board plants as a result of the reduced demand for wood fiber. There is now even a concern by lumber producers that they will have to reduce production because of the difficulty in finding users of the by-products from their plants.

Prices have also declined this fall in the US South, where wood fiber prices typically are less volatile than in the western US. The biggest decline occurred in softwood pulpwood in the South Central states, which was almost 5 percent lower in the 4Q.

There has been plenty of pulpwood available throughout the South as many pulp mills were taking market-related downtime or reducing production through rolling machine outages.

Demand for smaller logs from sawmills and OSB mills has also diminished this fall, leaving lots of logs for any pulp mill that was short of sawmill residuals. In many regions, loggers have stopped sorting smaller logs for pulp, OSB and chip-n-saw grades and are instead sending all logs to the pulp mills.

The reduced demand for wood fiber from all sectors of the forest industry, together with increased log supply as a result of favorable logging conditions in the fall, have created large log inventories throughout the South. Although log prices have not fallen as much as in many other regions of the US, it can be expected that they will continue to slide in the coming months.

SOURCE: Wood Resources International LLC

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