Wood Product Future Demand

By 250 News

        What   does the rest of the world want when it comes to  forest products?  That  is the question Michael Armstrong of Price Waterhouse Coopers is always trying to answer.

In a presentation to  delegates at a forum in Prince George this morning, Armstrong says the industry will remain challenged, as the demand for fibre moves to Asia and the supply is increasingly coming from South America.  Armstrong says it is not unusual for the fibre mill to be located in South America, while the actual pulp mill it supplies is located in Asia.

Armstrong says there is demand for pellets, and B.C. has the capacity for a dozen pellet plants, but again, the supply of fibre will become an issue.    The supply matter could shift dramatically as Russia improves its infrastructure. Russia has 20% of the world’s forests, but is only producing the fibre at 50 – 60% of capacity.

Consultant Bernard Fuller echoed those concerns saying there are four factors which will shape the world’s plywood market:

• Supply of timber
• Exchange rates
• Manufacturing costs
• Flexibility to market changes,  He says  if there  is a shortage of plywood, some markets will switch to  MDF  

He also predicts the use of plywood will continue to slip as it has dropped from 46% to 33% as markets move to OSB.

Fuller says when it comes to panel board, the markets were very favourable for the past three years, and as is typical, the markets have slipped. “What is unusual this time is that North America is the exception.”  The rest of the world is seeing increases in supply and demand.  The North American Market is in a pit, says Fuller because of the U.S. housing market.  “If I had done this presentation three months ago, I would have been more optimistic about the recovery starting in 2008, but with the drop in the sub prime mortgage markets, that has hurt the confidence of the buyers.  You can expect to see monthly housing starts of 1.2 or 1.3 million which is very low, but keep in mind, employment remains very high, and mortgage rates are dropping.  It might take another 9-12 months to see that inventory of housing absorbed, so I expect to see things start to improve in the second half of next year.”

Fuller says plywood producers must keep their eye on the Canadian market as the housing starts in Canada have been very high, levels he indicates may be inflated and he is “Waiting for the other shoe to drop”.

On the positive side, Price Waterhouse Coopers’ Michael Armstrong  says the fact  Canadian  mills are modern,  able to adapt to shifts in markets, and are viewed as having  good forest practices  are all factors which play in our favour.  Fuller says the Chinese  plywood production will peak in the  next decade then drop because of production costs, and the quality of Russian  wood will limit the uses for those logs.  As for South America,  Fuller says timber supply  will be an issue as there is growing environmental pressure.

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