Pulp Mills in Western U.S. Now Seeing Benefit from Lower Wood Costs in that Region

During much of the past seven years, wood costs have been substantially higher for pulp mills in Western US than they have for pulp mills in the Southern states. However, sharply falling wood chip prices in the West during 2012 and 2013 have improved the competitiveness of the regionís pulp mills.

In the US Northwest, prices for softwood chips (the major fiber source for the region's pulp mills) have fallen for five consecutive quarters.

Sept. 3, 2013 - Wood costs account for between 50-55 percent of the production costs for pulp mills in the US. Historically these costs have often been substantially lower in the Southern states than in the Northwest — the two major pulp-producing regions of the country. However, this has been changing with the most dramatic regional price movements in North America happening in the US Northwest, where prices for softwood chips, the major fiber source for the regionís pulp mills, have fallen for five consecutive quarters, says Hakan Ekstrom of Wood Resources International (WRI).

Chip prices in the second quarter of 2013 were down by a third from early 2012, according to figures in North American Wood Fiber Review a quarterly report published by WRI. In contrast, softwood residual chip prices in the US South have remained practically unchanged for over three years, even though the supply of wood chips has increased as the result of higher lumber production in the region.

Wood chip prices in the US South are still lower than in the Western states, but pulp mills in the Southern states are consuming a higher percentage of higher-cost wood fiber in the form of roundwood, making the total average fiber costs in the South only slightly lower than in the West. Just a few years ago, the average softwood fiber costs for pulp mills in the West were more than 50 percent higher than those in the South, WRI noted.

Southern prices for both softwood and hardwood pulplogs in the second quarter of 2013 were unchanged from the previous quarter, after isolated price spikes during the always volatile winter season. However, pulp mills typically take spring maintenance outages, which reduces demand for wood fiber, resulting in downward prices pressure on logs. The fact that both softwood and hardwood roundwood prices remained unchanged this spring indicates additional demand is being felt from other sources, ie. pellet and OSB mills in some regions, and that harvest levels have picked up after the housing recession, WRI said.

Prices for pulplogs, which are the major fiber source for pulp mills in the South, have slowly trended upward the past two years and are expected to continue this trend during the rest of 2013. Since June, heavy amounts of rainfall have begun to cause challenges for wood supply deliveries, and there are early indications that wood prices in the South are climbing in the third quarter of this year, according to WRI's quarterly report.

The North American Wood Fiber Review (NAWFR) has tracked wood fiber markets in the US and Canada for over 20 years and it is the only publication that includes prices for sawlogs, pulpwood, wood chips and biomass in North America. The 36-page quarterly report includes wood market updates for 15 regions on the continent in addition to the latest export statistics for sawlogs, wood pellets and wood chips. For further information visit: www.woodprices.com

SOURCE: Wood Resources International LLC