As if a worldwide pandemic wasn’t enough to cause dislocation and chaos in the softwood market, we now have the spectre of a prolonged war in Europe between two significant softwood producers. This is already further disrupting global supplies of wood fibre and especially softwood.
Russia’s share of the global softwood trade is estimated at 22%. Russian exports were 27.8 million m3 in 2021. Punitive economic sanctions on Russia mean its exports to European and American markets will probably now be mainly sold to China, but also conceivably to India and North Africa (particularly Egypt).
The war is likely to increase already strong inflationary pressure worldwide. Governments will inevitably raise interest rates to curb inflation. In this respect, the US is and will be no different to other major western economies.
It’s possible that rising interest rates could lead to a modest downturn in US housing starts. However, there is still a high level of pent-up housing demand, which should ensure the market for new homes remains relatively buoyant throughout 2022 and into 2023. US housing starts are expected to reach 1,666,000 in 2022 before declining to 1,632,000 in 2023.
US softwood export sales were dramatically ahead in 2021 to US$1.03bn from US$660m in 2020. However, sales in 2020 were of course artificially depressed by the Covid pandemic. Sales to Canada increased to US$276m or 58%. Mexican sales recorded an even more dramatic increase to US$272m or 115%. These gains are being consolidated in 2022 with total sales ahead 19%. Sales to EU countries plus the UK were US$31m in 2021 versus US$20m in 2020. Leading export destinations were the UK (US$7m), Italy (US$6.7m) and Germany (US$6m). Sales to the end of February 2022 were 14% ahead of the same period in 2021.
According to one school of thought, US and Canadian lumber exports will decline until 2026, as mills opt to supply domestic markets instead of riskier markets overseas. A couple of things suggest this may not be the case.
First, US exporters had a bumper year in 2021 at a time when domestic effects of Covid were still being felt (a strong DIY market and sky high prices).
Second, very few US mills export their production themselves, preferring to sub-contract the risks to traders, so their sales destined for export are more like domestic sales anyway.
One factor that could affect the otherwise rosy export picture is the difficulty in and cost of securing ocean freight, congestion at ports and shipping delays. Freight rates and availability of shipping space was problematic before the war in Ukraine. A prolonged war will only exacerbate the situation.
Despite this, American Softwoods’ promotional programmes are now back in full swing around the world. Our first post- Covid trade show was at the Dubai Wood Show in March where, as well as buyers from throughout the Middle East, we welcomed many customers from India and Pakistan.
American softwood demand was such that we could have sold considerably more volume than was available. If the demand seen at the Dubai show is replicated more widely, there’s going to be a widespread and severe wood shortage for an appreciable time.
Trade show participation is planned by American Softwoods in India, France, Mexico, Taiwan, Vietnam and Egypt during 2022.
Lumber prices in the US averaged US$850 in 2021, up 50% on 2020. These vertiginous levels could not be sustained and prices declined steeply in March and April before stabilising. As more new mills come on stream in the south, prices could drop further towards the end of 2022. Prices will likely decline in 2023 but will still be significantly above 2018 levels.
US imports increased by 10% in 2021 as European mills took advantage of high prices in the market. Imports from Europe will decrease somewhat in 2022 as sanctions on Russia and Belarus reduce supplies to the European market by around 10 million m3 and some European volumes previously exported to the US remain in Europe to fill the gap.
In conclusion, the world trade in softwood is destined for a period of considerable uncertainty, characterised by fluctuating prices, difficulty in securing ocean freight at an economic price, growing demand and inflation.
