Challenging times for US hardwood producers

October 05, 2018
Source:
Fordaq
Views:
616
  • text size

The 2018 NHLA convention was as packed as ever but the mood is more somber this year.

The biggest concern for all participants is the Chinese market. After a long period of growth, demand from China has been slowing down since Q2. Chinese companies interviewed give a number of reasons linked to new regulations (polluting industries closing down, regulations on new homes purchases, less lending). Demand from China during the summer months was very low. Orders increased after the 10% tariff were announced as Chinese importers aim to build up their stocks in view of a possible raise of tariffs to 20/25% beg January. Producers fear that orders might dry up in November. Prices have been under pressure since the summer but now Chinese buyers are also asking their suppliers to share the cost of tariffs. At the same time US concentration yards in areas affected by heavy rains over the last months have the additional problem of log shortages pushing green lumber prices up. Many exporters are now losing money or working with razor thin margins. 

The situation could get much worse in 2019. The general expectation is that tariffs will increase beg January. Volumes headed to China could reduce further with no obvious alternatives, especially for Red oak & Yellow poplar. There is also plenty of new production capacity coming to market next year which could worsen the problem of oversupply. Surprisingly equipment manufacturers have their order books full.  The US domestic market remains strong but the decline in building permits might be an issue down the road. 

On the Canadian side, tariffs are seen an opportunity. Exporters complain of low demand & prices from China. But the hope is that once the tariffs increase their order books will fill up and margins might even increase slightly. The KD's being built in Quebec will be well used in 2019 if China & the US dont come to an agreement till then.