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Negotiated prices for wood chips exported to Japan 1H/2007 (FOB):Douglas-fir, U.S. (US$/BDU) 167.50 142.50 (2H/06)SPF, Canada (US$/BDU) 140.00 100.00 (2H/06)Pine, Australia (US$/BDU) 150.00 110-112 (2H/06)Euc., Australia (Aus$/odm 176-180 161 (2H/06)
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Wood fiber prices are moving downward
Wood fiber prices were unchanged or falling in mostregions this quarter with the exception of British Co-lumbia and Alberta, where tight fiber supply pushedprices of both wood chips and pulplogs upwards. Woodprices in the two western provinces were also impactedby higher market pulp prices as some chip contractsare linked with these prices. As the Canadian dollarstrengthened this quarter, wood costs in US dollar termsdid go up in all provinces of Canada and are generallyhigher than in the US.
Only two regions in the US had higher wood costs thanCanada during the 2Q; Maine, and the states in theNorthwest. Pulpmills in western US have gone througha roller coaster ride, with conifer residual chip pricesalmost doubling from the 2Q last year to the 1Q of thisyear, peaking at US$140/odmt (delivered). At their peakthis region had the highest conifer fiber costs in theworld. During the 2Q/07, pulpmills in the US North-west were able to build exceptionally high inventories(they increased from 10 days in December to 30 daysin May), and wood prices have started to came backdown again.
In the US South, prices were practically unchangedwith pine chips averaging $68/odmt (delivered) and pineroundwood ranging from $80-90/odmt. Wood chipprices have been remarkably stable the past few yearswith only small adjustments of a few dollars up or down.Pine log prices have trended upward as stumpage andtransport costs have increased, particularly in the SouthCentral states where average prices are up almost 10%from a year ago to $36/green ton ($90/odmt).
Canada increases imports of wood chips
Wood chip trade between Canada and the US has in-tensified as Canadian pulpmills are struggling to supplytheir pulpmills with residual chips from a sawmill sec-tor in decline. Chip imports more than doubled in 12months from early last year to March of this year. In
Benchmark Prices for Market Pulp in Europe
300
350
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500
550
600
650
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750
800
Jan-
03
Apr-0
3Ju
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Oct-03
Jan-
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4Ju
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Oct-06
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7
US
dol
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/ton
Softwood Pulp (NBSK) Hardwood Pulp (BHKP)
Source: FOEX
As of June 12, 2007: NBSK: $785/ton BHKP: $686/ton
the 1Q/07, Canada imported almost 500,000 odmt ofwood chips, of which most were destined to pulpmillsin British Columbia, Quebec and New Brunswick. Withcontinued cut backs in the lumber industry and astrengthening Canadian dollar, it can be expected thatCanadian companies will continue to search for addi-tional chip volumes on the US side of the border.
Softwood pulp prices keep going up
Global softwood pulp prices are continuing upward,while hardwood pulp prices have leveled off at just over$780/ton according to FOEX Benchmark Index. Theaverage benchmark NBSK pulp price in Europe hasincreased by almost $150 in one year, reaching $785/ton (CIF Europe) in June, the highest price since 1996.
Notes.Units in US$/odmt (delivered).1 odmt (oven-dry metric ton) equal to 1.102 short tons or 2204 lbExchange rate: Can$ 1.11/US$ (Average 2Q/2007)
Sources.US - Lake States WRI sources and the Timber Mart-North published by Prentiss & Carlisle Management Co.All other regions Data collected by Wood Resources International and WRQ sources
Conifer Wood Fiber Costs in North AmericaSecond Quarter, 2007
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British ColumbiaChips 91 (83 - 112)Roundwood 113 (79 - 122)
Notes.Units in US$/odmt (delivered).1 odmt (oven-dry metric ton) equal to 1.102 short tons or 2204 lbExchange rate: Can$ 1.11/US$ (Average 2Q/2007)
Sources.US - Lake States WRI sources and the Timber Mart-North published by Prentiss & Carlisle Management Co.All other regions Data collected by Wood Resources International and WRQ sources
Wood Fiber Costs in North AmericaSecond Quarter, 2007
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Note.
Prices are for residual wood chips and roundwood delivered to pulpmill or chip plant (units in US$/odmt).
1 odmt (oven-dry metric ton) equal to 1.102 short tons (dry weight) or 2204 lb
Exchange rate: Can$ 1.11/US$ (average 2Q/2007)
Sources.US - Lake States WRI sources and the Timber Mart-North published by Prentiss & Carlisle Management CoAll other regions Data collected by Wood Resources International and WRQ sources
Wood Chips Roundwood
Avg Min Max Avg Min Max US$/odmt (delivered) US$/odmt (delivered)
Notes.All prices in US dollars per green tons (2000 pounds) or equal to 0.907 metric tonnesRoundwood prices are delivered to pulpmill or chipping facilityChip prices are for residual chips and do not include chips manufactured from roundwoodExchange rate: Can$ 1.11/US$ (average 2Q/2007)
Sources.US - Lake States WRI sources and the Timber Mart-North published by Prentiss & Carlisle Management Co.All other regions Data collected by Wood Resources International and WRQ sources
Surprisingly swift turnaround in wood fiber inven-tories.
Wood fiber inventory levels at pulpmills in the North-west have experienced an amazing turnaround the pastsix months; going from a record low of only 10 days inDecember to the highest June inventory in seven years,equivalent to 30 days fiber consumption. The north-east Washington (Puget Sound) and western Oregon(Willamette Valley) were the only regions where pulp-mills did not substantially increase their wood fiber in-ventories in the 2Q. Much of the increase was theresult of lower demand from pulpmills which were tak-ing maintenance downtime during the spring, as wellas to higher availability of roundwood chips.
The FRA Western Technical Division data reveal thatlast month's inventory of pulplogs was the highest forthe month of May for at least the past 8 years.
A number of independent wood chip producers in theregion have started to cut back on pulplogs as de-mand for roundwood chips has declined. This has re-sulted in reduced pulplog prices region-wide: from$42/green ton to $37/green ton, a drop of over al-most five dollars. Some log buyers saw prices fall fromalmost $50/ton in the first quarter to less than $35/tonin June.
Dramatic fall of wood fiber prices in the 2Q
After peaking at 12-year record highs, regional aver-age softwood residual chip prices in the Northwest
fell by as much as $25/BDU ($22/odmt) in the 2Qcompared to the previous quarter. The biggest pricedrops occurred in the subregions of the Lower Co-lumbia River and Western Oregon, where some saw-mills received up to $30/BDU less for their chips thisquarter. In those two regions, which are the most com-petitive areas in the Northwest, residual prices rangedbetween $125-130/BDU. The lowest wood fibercosts continue to be in the Puget Sound regions and ineastern Washington, Idaho and Montana.
Despite the sharp price reductions this quarter, woodfiber costs are still substantially higher than a year agoand it is expected that prices of both residual chipsand whole-log chips will continue downward in the3Q.
Increased exports of wood chips from the US toBritish Columbia
As fiber supply has tightened in neighboring BritishColumbia, pulpmills close to the US border have in-creasingly been purchasing wood chips in the USNorthwest. Wood chip imports to BC in the 1Q were241,000 odmt, which was up 35% from the previousquarter and 159% higher than a year ago! With ex-pected continued decline in residual supply in the prov-ince and strengthening of the Canadian dollar againstthe US dollar, it is likely that the northbound move-ment will continue, thus putting price pressure up inthe northern part of Washington state.
Softwood Chip and Pulplog Inventory - US NW
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Pulplogs Softwood chips TotalSource: FRA/WTD
Residual and Roundwood Chip Prices 2Q/2007Western U.S.
148164 162
152 146139 140
113108
125124132130
114110
149
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Douglas-fir
Hemlock Douglas-fir
Hemlock Douglas-fir
Hemlock Douglas-fir
Hemlock
W. Washington Lower Columbia R. W. Oregon Inland Empire
Notes. Wood chip prices in above table and graph include both residual chips and chips manufactured from roundwood.Prices are in US$/BDU delivered to domestic pulpmills. 1 BDU= 2400 lb. = 1.09 metric ton (dry weight),1 BDU = 1.2 BDT
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Douglas-fir Chip Prices in Western U.S.
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W. Washington Lower Columbia R. W. Oregon Inland Empire
A strengthening Canadian dollar impacts fiberprocurement strategies
In the middle of June, the Canadian dollar reached0.93 on the US dollar, and market analysts are pre-dicting that the US and Canadian dollars will be onpar later this year. With this strengthening of the Cana-dian dollar, now at an over 15-year record high againstthe US dollar, many Canadian companies both in thewestern and eastern provinces are struggling to keeptheir mills running. Few are profitable given the cur-rent lumber prices in the US market.
According to WWPA's most recent statistics, the in-dustry was running at 83% of practical capacity inMarch. This is likely to be lower in the 2Q as moresawmills, particularly in Interior BC and Quebec, haveannounced curtailments during the quarter. Lumberproduction in BC was 9% lower in March this year ascompared to last year, while production in the rest ofthe country ran 15% lower than in March 2006. Evenmany integrated companies with both pulpmills andsawmills took the unusual step at curtailing lumber pro-duction despite the impact this will have on the internalwood fiber supply for the pulp manufacturing. Thisdevelopment has forced pulpmills all over Canada toincreasingly rely on more expensive roundwood chips.
Wood fiber prices reaching seven year highs inthe western provinces
In British Columbia and Alberta, chip prices have goneup for four consecutive quarters after dipping torecord-lows in 1Q/06. Wood chip prices in the twowestern provinces are now at the highest levels in sevenyears, with Coastal BC prices averaging over C$100/odmt (FOB sawmill) while average prices in Albertaand Interior BC were around C$80/odmt in the 2Q.
Assuming the Canadian dollar continues to strengthenand pulp prices remain flat, wood chips prices couldvery well decline a few dollars next quarter as manypulpmills still use formula pricing based on mill net prices(in US dollars).
Increased reliance on manufactured chips in BC
Historically most pulpmills in the Interior BC have re-lied on residual chips for over 95% of their wood fiberfurnish, as the lumber industry is fairly large relativethe pulp sector. As this supply source has diminishedthe past six months, many pulpmills have been forcedto start up whole-log chip programs with increasedutilization of smaller trees (mostly beetle-killed) andtreetops.
Over the next 8-10 months it can be expected that theshare of manufactured chips will increase to between10-20% of the total fiber supply. Increasingly, coastalpulpmills are also hauling roundwood chips from theInterior out to the coast, as prices are competitive withthe high-cost volumes on the coast. Declining residualvolumes on the coast have pushed up pulplog pricesfrom C$32/ton for hem-fir a year ago to $52/ton inthe 2Q/07.
Wood fiber costs down in Eastern Canada
Wood fiber prices did not change much in Ontarioand Quebec as the overall supply and demand werein balance. However, there were regional differenceswithin the provinces and some pulpmills have to in-creasingly travel further, including into the US, to pro-cure roundwood for chipping. Wood chip prices av-eraged just over C$135/odmt (US$124/odmt) downabout 13% from a year ago.
WOOD FIBER PRICES - Western CanadaApril - June 2007
Notes.* Only small quantities traded during this quarterDomestic chip prices in Can$ per BDU at sawmillDomestic log prices in Can$ per m3 (delivered)1 BDU= 2400 Lb. = 1.09 metric ton (dry weight)Exchange rate: Can$ 1.11/US$ (Average for 2Q/ 2007)
Can
ada
WOOD CHIP PRICES - Western Canada
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WOOD CHIPCan$/BDU (FOB sawmill)
Douglas-Fir Hem-fir Spruce/pine/fir CedarAve Range Ave Range Ave Range Ave Range
Notes.Domestic chip and log prices in Can$ per odmt (delivered)1 odmt (dry weight) = 1.102 short tons (dry weight) = 2204 lbExchange rate: Can$ 1.11/US$ (Average for 2Q/2007)Sources: Industry contacts and the Wood Resource Quarterly (WRI, LLC)
CONIFER WOOD FIBER PRICES - Eastern Canada
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Ontario Chips
OntarioRoundwood
QuebecChips
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Maritimes Chips
Maritimes Roundwood
Can
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WOOD CHIPS ROUNDWOOD
Can$/odmt Can$/odmt
Conifer Non-conifer Conifer Non-coniferAve Range Ave Range Ave Range Ave Range
The Global Forest Industry - 1Q/2007Excerpted from our sister publication Wood Resource Quarterly, a 48-page market report tracking globalpulpwood and sawlog markets, including prices for most major wood-consuming regions around theworld. See www.woodprices.com for more information.
The Pulp and Paper Market
The supply of softwood market pulpis continuing to be tight as manypulpmills in the Nordic countries,Canada and Western US have haddifficulty running at full operatingrates due to wood fiber shortages.As a result, NBSK prices have goneup this quarter, reaching $760/ton inEurope and $790/ton in the US.
With many pulpmills taking mainte-nance shut downs in the spring, itcan be expected that global pulp sup-ply will continue to be tight and thatpulp prices will strengthen further.
The global production of market pulpwas 3.1% higher in 2006 than 2005,and this trend continued in early 2007when pulpmills, particularly in LatinAmerica, ran at substantially higherrates than in early 2006.
The only region that did not increaseproduction in 2006 was NorthAmerica, where the pulp sector inEastern Canada was hard hit by highproduction costs and reduced woodfiber supply.
The Lumber Market
The declining trend in housing startsin the US that lasted for much of2006 ended in November, and num-bers have since then stabilized ataround 1.5 million starts (seasonallyadjusted annual rate).
With lower housing starts, demandfor lumber has been in decline foralmost 12 months, resulting in con-tinued reductions in lumber manu-
facturing. In early 2007, productionin both Canada and the US wasmuch lower than in 2006 and thereare few signs that demand for lum-ber will pick up any time soon.
With the lower demand for lumberin the US, imports fell by an aston-ishing 24% in January as comparedto the same month in 2006. The big-gest decreases in shipments werefrom Canada, Germany, Austria andSweden.
In March, lumber prices in the USwere close to record low levels. TheRandom Length composite price forframing lumber was down 23.6%from a year ago.
The lumber market in Europe is hot,with strong demand in western Eu-rope and limited supply in the Nor-dic countries, in eastern Europe andin Russia. The tight market has in-creased lumber prices to record-high levels.
Lumber consumption in Japan washigher this winter than last year, re-sulting in an increase in domesticproduction as well as a rise in im-ports. In January, imports were upfrom the US, Russia, Europe andNew Zealand, while Canadian ship-ments were down almost 20%.
Global Sawtimber Prices
The WRQ Global Conifer SawlogPrice, based on sawlog prices in 18major regions around the world, wasup substantially this quarter, reach-ing a all-time high of US$82.31/m3in the 1Q/07. This can be compared
to US$72.71/m3 the same quarterin 2005, and to US$71.84/m3 in2004. The biggest price increasesthis quarter occurred in western US,Finland, Germany and the BalticStates.
The Global Average Wood FiberPrice
The average global coniferpulpwood price was up 3.5% to$101.76/odmt in the 1Q/07, and asmuch as 16.8% from a year ago asfiber prices increased in practicallyall markets covered by the WRQ.Eastern Canada was the only regionwith both lower wood chip andpulplog prices this quarter.
The average global price for non-conifer wood fiber was practicallyunchanged at $91.47/odmt withlower prices in Canada and Japan,while prices increased in Europe,Russia and Australia.
The Wood Pellet Market inNorth America
Wood pellet markets in the US andCanada have really taken off thepast few years. Total production inNorth America increased sharplybetween 2003 and 2006, doublingfrom almost 900,000 tons to 1.7 mil-lion tons.
This year, it is expected that pro-duction will reach approximately 2.3million tons. Despite this dramaticchange, the per capita consumptionis still much lower than in Europe.
Almost half of harvested industrial roundwood in theworld is used to produce sawnwood, of which themajority is conifer species. Approximately 1/3 of theglobal roundwood removals are consumed by the pulpindustry mainly in the US, Sweden, Finland, Braziland Indonesia. Pulpwood removals have increasedfaster than that of sawlogs the past ten years resultingin a higher share of pulpwood harvests today than inthe mid-1990’s.
Fiber Consumption by the Global Pulp Industry
The global wood-based pulp industry relies on round-wood for up to 65% of its wood fiber needs. Thelogs are either from fast-growing plantations such asin Latin America and Oceania or from thinnings andtree tops in the slower-growing regions of NorthAmerica and the Nordic countries. Residual chips aremost commonly consumed in the US, Canada, Swe-den and Finland as these countries have large saw-milling sectors.
Production Costs for Wood-Based Kraft Pulp
Wood fiber costs account for between 38-52% ofthe total variable production costs when producingchemical wood-based pulp. Pulpwood costs havetraditionally been higher in North America and Eu-rope than in regions with faster-growing plantationssuch as in Brazil, Chile and Indonesia. The spread inwood costs between the Northern and SouthernHemisphere has declined the past few years.
Production Costs for Conifer Sawnwood
Wood cost is, by far, the largest cost component inthe production of conifer sawnwood. Wood costsrange from 60% to 75% of the total variable costdepending on the region of the world. Sawmills inNorth America and Europe typically do have higherwood costs both in real terms and as a percentage ofthe total production cost, as compared to countrieswith short-rotation plantations, such as Brazil, Chileand New Zealand.
Production Costs for Conifer Sawnwood
Labor15.0%
Other11.0%
Energy4.0%
Wood70.0%
Source: Wood Resources International LLC
Wood Fiber Consumption by the Global Pulp Industry