Market Report
RUSS TAYLOR
Global Economic Highlights
• The sharp swing to the right in the EU and French elections combined with the uncertainty caused by the attempted assassination on the Republican candidate for November’s USA elections has caused increased political uncertainty and division in both Europe and the USA.
• Counter to this trend, the July 4th election in the UK swung the opposite way ushering in a center left government after 14 years of conservative rule.
• The IMF release on 16th July 2024 indicated that global growth remained steady while disinflation was slowing and policy uncertainty rising.
• Global growth is expected to be 3.2% in CY2024 and marginally improve to 3.3% in 2025.
• Although the IMF sees the emerging Asian economies as the primary driver of global growth, recent trends in China are more worrying than the Q2 growth target missed and an increasing need for further stimulus.
• Global inflation expectations for CY2024 remain similar to that reported in April although disinflation trends in several advanced economies have slowed with upside risk.
• Global trade issues are increasingly fueled by concerns in some Western countries over China’s growing global influence. In a reversal of the USA’s climate friendly policies, punitive tariffs have been introduced on green products from China such as solar panels, electric vehicles and steel. The EU is also introducing high tariffs on China in a similar protectionist move. These moves by the USA and Europe increase the risk of a trade war.
• The IMF sees oil prices remaining elevated due to OPEC cuts in production and a carry over from the Israel-Hamas conflict. Overall however, energy commodity prices are forecast to fall 4.6% over CY2024.
• Downside risks over the balance of CY2024 include the uncertainty created by the USA presidential election in November and increasing trade tensions between the West and the non-aligned block. As in April, new price spikes from geopolitical tensions, slowing improvements in core inflation and a disruptive turn to fiscal adjustment that can slow economic activity may occur.
• Potential upsides include the increasing likelihood of early rate cuts in the USA (potentially as early as September) and Europe which could lead to an increase in economic activity and business confidence.
• Brazil – According to the Central Bank’s Focus bulletin (July 9), the financial market forecasts economic growth of 2.1% (GDP), inflation of 4.0% (IPCA), exchange rate of 5.2 BRL/USD (FX), basic interest rate of 10.5% (nominal Selic) and trade balance of USD 82.9 billion by the end of 2024. Compared to the forecasts at the beginning of the year, the GDP (1.6%) and trade balance (USD 70.5 billion) estimates improved. On the other hand, the FX (5.0 BRL/USD), Selic (9.0%), and inflation (3.9%) worsened.
NORTH AMERICA
• US housing trends slowed considerably in May 2024. US revised housing starts in May were 1.314 million units (Seasonally Adjusted Annual Rate, SAAR), a decrease of 2.8% from 1.352 million units in April (revised). In May, single-family starts were 1.002 million, a decline of 3.3% month-over-month, and represented 76% of total starts (vs. 64% in May 2023). Multi-family starts were lower by 1.3% to 0.312 million units.
• In June 2024, US housing starts were mixed. Total housing starts increased from May to 1.353 million units (SAAR). Single-family starts were lower than May and were at 0.980 million, down 2.2% month-over-month, but multi-family units were higher by 19.6 %.
• Mortgage rates remain around the 7% mark making housing less affordable to many buyers. Median home prices have been on an upward trend and market evidence points toward slow existing home sales, with transaction volume improving only slightly. Low sales volumes will adversely impact lumber and panel markets for the rest of 2024.
• US softwood lumber production in the first three months of 2024 was lower by 3.4% (to 9.0 billion BF; 14.5 million m3, net) as compared to the same period in 2023. US West lumber production was lower by -0.9%, southern yellow pine (SYP) production was down by 4.9%, and the rest of the US was lower by -3.1%. Very low lumber prices in the US South caused some production curtailments, resulting in decreased output.
• US softwood lumber imports were higher by 0.25% in the first five months of 2024 to 9.0 billion BF. Imports from Canada increased by 4.0% to 7.5 billion BF and imports from Europe were lower by 23% to 1.05 billion BF (1.7 million m3). The leading European importers were Germany, Sweden and Austria and they represented 87% of European shipments to the US.
• Canada’s lumber output was higher by 2.2% to 5.3 billion BF (8.5 million m3, net) in the first three months of 2024 vs. 2023. BC production was lower by 6.6% to 1.68 billion BF.
• Canadian softwood lumber exports through the first five months of 2024 were 5.8 billion BF, an increase of 3.3% compared to the previous year (COFI Connect).
— Canadian lumber exports to the US were 5.18 billion BF, or 4.0% higher as compared to the same five months in 2024. — Exports to Japan were 36% higher and were 24% lower to China.
• North American lumber prices in the first half of 2024 have generally trended lower as market demand slowed and production exceeded demand. From the beginning of the first quarter through to its end, W-SPF 2×4 prices gained 4% while W-SYP 2×4 declined 15%. From the beginning of the second quarter through to its end, W-SPF 2×4 prices dropped by 25% while W-SYP 2×4 declined by another 9%. Through the first two weeks of July, prices have continued to move lower where almost all “average” or typical sawmills in North America are at or below breakeven costs. Negative margins of perhaps 20% to 30% face European lumber exporters to the US given their higher log costs.
• US pulpwood prices vary by region and season. In the Lake States region, Q2 hardwood roundwood prices remained flat quarter-over-quarter and year-over-year. Softwood roundwood prices rose USD 2 in the Lake States and were up 2% year-over-year. In the South Central region, hardwood roundwood rose USD 1 per green ton and softwood roundwood prices remained flat, while year-over-year, hardwood was down 8% and softwood was down 3%. South Atlantic region prices increased USD 2 from last quarter for hardwood and were up 6% year-over-year while softwood roundwood prices were up USD 1 and still down 3% year-over-year. Northeast region prices for hardwood were down USD 1 and softwood roundwood were flat compared to last quarter and were up 4% for both hardwood roundwood and softwood roundwood year-over-year. Lastly, Pacific Northwest softwood roundwood prices were stable from last quarter and were down 15% year-over-year.
• Pacific Northwest Douglas-fir (DF) average log prices declined in Q2 2024 through May. Prices were continuing to decline most in the Willamette Valley, and holding the best in the Puget Sound where nominal 2 Saw prices declined about 0.8% as of May YTD. Average annual nominal DF 2-Saw prices across regions were down 4.3%through May YTD. Average annual nominal Whitewood 2-Saw prices were up slightly at 1.1% May YTD across regions, down 1.0% in the Puget Sound region, up 0.6% in the Columbia River region and up 3.5% in the Willamette Valley region.
• US Q2 2024 large timberland transactions were quiet, with few packages closing or pending. Pending transactions are still in progress from Q1 and new offerings are mixed quality.
— Some transaction details were reported, including:
▪ A private seller sold 10 700 acres in Louisiana to a private buyer for USD 1 020 per acre.
▪ PotlatchDeltic sold 34 000 acres in Arkansas and Alabama to FIA for USD 1 705 per acre.
▪ Manulife sold 108 000 acres in eastern Louisiana and eastern Texas (Carthage package) to MEAG for
* USD 2 309 per acre. *updated.
— Other transactions were pending or awaiting results such as:
▪ The Rayonier offering of 115 200 acres on the Olympic Peninsula of Washington (Project Teal).
▪ The Nuveen offering of 22 260 acres (Project Discovery) in southwest Washington.
▪ The Manulife offering of 72 100 acres in Central Alabama (Sweet Home), in three parts. Two are pending and one is a no-sale.
▪ The Molpus/AFM offering of 18 200 acres in Alabama, Mississippi and North Carolina (Tristate package) was expected to close in Q2.
US hardwood lumber demand slowed in Q2, especially in June as summer slowdowns began early with high mortgage rates and inflation stifling domestic demand for hardwood lumber. Some sawmills instituted shutdowns while secondary wood markets were able to continue production full-time. Exports to Thailand, Indonesia and Vietnam, while still modest, have increased dramatically. Poplar and alder shipments to Vietnam and China have soared. Log export volumes were the highest in 24 months. Demand from Vietnam and China led the trend, with white oak exports reaching a 35-year high and walnut hitting a third consecutive record.
The full report can be seen here.
Russ Taylor is President of Russ Taylor Global
