This might be of interest to some of our log home and timber frame home friends. Good news/bad news, depending on which side of the tree you are on. This will have an impact on the whole housing industry though, not just the full timber homes.
From The Idaho Business Review
by Brad Carlson
Published: March 31,2011
A Russian-Chinese tax spat has driven up log prices on the Pacific Northwest coast, which means Idaho mills soon will be squeezed with higher prices that may force cutbacks in production.
Evergreen Forest Products Vice President Rodney Krogh said he expects prices to climb in the next two months. The company operates a sawmill in New Meadows, and a planing and shipping center in Kooskia.
Mills that can’t find enough affordable timber near the coast will head east and south, he said.
“We’re going to have increased competition for the limited log supply we have in the south (southern Idaho), so that will drive log prices,” Krogh said. He expects exporters to move into north Idaho to use the Port of Lewiston to reach international markets. That would increase competition for logs in north Idaho, he said.
Idaho landowners who harvest their timber may sell overseas, said Alan Harper of Idaho Forest Group, a Coeur d’Alene-based company that owns four mills in Idaho. Companies that buy timber harvested on federal or Idaho lands are prohibited from exporting logs, but not lumber, he said.
Prices on Idaho logs are trending higher, Harper said. For competitive reasons, he would not say by how much.
Harper has seen pressure from China driving up log prices on the coast. “I suppose some of that pressure will work its way inland,” he added.
The Boise Cascade LLC plywood mill in Medford, Ore., paid 35 percent to 40 percent more for logs in the past eight to nine months, said John Sahlberg, the Boise-based company’s general counsel and human resources vice president. China is buying logs from the Oregon, Washington and British Columbia coasts instead of from Russia, which imposed an excise tax.
Prices for plywood have remained steady but will rise if mills cut production in response to the high price of logs, he said.
“For some of these sawmills going out and buying logs on the open market now, it’s hard for them to convert profitably,” said Shawn Church, editor of Eugene, Ore.-based Random Lengths. The company publishes newsletters on softwood lumber and panel markets.
A Douglas fir log commonly used in sawmills is selling for about $650 on the Oregon coast compared with just less than $500 at the end of 2010, he said, citing Oregon Department of Forestry data. “We’ve heard some numbers up around $700 for a Douglas fir log sold on the export market.”
Evergreen paid about $375 for Douglas fir logs from south Idaho in February, Krogh said. He expects to pay about $425 by early June. Prices are lower here because the coast has much higher demand and more top-quality logs, he said.
Lumber prices remain low. On March 25, the Random Lengths Framing Lumber Composite Price was $291 per 1,000 board feet, down from $301 on Jan. 7 and $319 on March 26, 2010. Demand a year ago was helped by a homebuyer tax credit that since expired, Church said.
Lumber prices correlate to the housing market much more closely than to log prices, said Charlie McKetta, a retired University of Idaho forestry professor who owns Forest Econ, a consulting firm in Moscow. “Futures markets are up substantially,” he said. “They are saying within the next year we should be having a significant increase in lumber prices market-wide, and that will affect Idaho production.” A framing package for delivery is priced at $319.40 for May delivery and $342.80 for September delivery, he said.
McKetta said U.S. Census Bureau data show housing starts totaled 436,000 (annualized) in the fourth quarter of 2010, and the Mortgage Bankers Association expects starts to total about 535,000 in the fourth quarter of this year and 740,000 in the fourth quarter of 2012.
“What’s driving the North American lumber market is offshore business,” Church said. “Domestic demand is very suspect, and the housing market has not performed anywhere close to expectations for this year so far.
“At the same time, you have the Chinese and Koreans buying logs off the coast, paying premiums to the (U.S.) market,” Church said. “That in turn is helping to drive up domestic log prices at a time when domestic lumber demand is historically weak. It is creating a pinch for North American lumber producers.”
Dick Vinson, who co-owns Emerald Forest Products mill in Emmett, does not expect log price increases to come as far inland as southwest Idaho. The mill makes studs, pine boards, and furring strips for basements. It uses ponderosa pine and Douglas fir logs.
Freight costs would be too high to haul logs from the coast to Emmett, Vinson said. Emerald, which buys logs from private land in the area, has seen prices stay level recently, he said.
Emerald had a six- to seven-week supply of logs as of late March, all harvested in the past couple of months, mill Manager Bob Williams said.
“It appears volume in this part of the world is sufficient,” he said.
Williams predicted mills will cut production rather than pay freight costs on top of high coastal prices.
In addition to demand from China, competition for logs is driving prices up on the coast, McKetta said. Mills on the Oregon and Washington coasts must compete with the Canadian timber industry, which last year shipped 2.8 billion board feet to China, he said. Canadian mills focused on China after encountering trade problems and low lumber prices in the U.S. in 2007 and 2008.
Log prices in Idaho aren’t influenced much by the export market except for hemlock, a preferred export species, so price increases would be moderate, he said.
Krogh, of midsized Evergreen Forest products, said Idaho’s bigger mill operators have the scale and efficiency to afford to pay more for logs, which increases prices smaller operators in Idaho pay.
“If you’re in a competitive world, and if there is a scarcity of logs, that will drive prices up,” said Harper of the larger Idaho Forest Group. “People who are more efficient will be able to pay more.”
Krogh said high demand from China for logs isn’t entirely bad news. Inland mills face less competition to meet minimal U.S. demand since so many logs from Canada and the Northwest coast are going to China, he said.
McKetta said reconstruction of earthquake-damaged Japan will increase demand for lumber, but that boom will be short.
“Price spikes associated with catastrophes tend to be of short duration as world trade reorients to the affected area and prices drop quickly,” he said.