Wet weather, the China trade war and new commercial trucking laws could soon impact fiber supply and prices for some producers, if not already.
Yestoday we talked about the wet weather impact now the another:
Hardwood Lumber Tariffs
For U.S. hardwood exporters, 2018 started off strong. “But things fell off a cliff after tariffs were announced in the summer,” explains Tripp Pryor, U.S. Hardwood Lumber Export Association international program manager. “By the end of 2018, we were only down 16 percent by volume compared to 2017, thanks to a record start of the year for exports to China. But so far in 2019, we’re down 51 percent across all species, and we’re down 60 percent for all wood products.”
In simple terms, China was taking in more than half of all U.S. hardwood exports—about half of grade lumber production in the U.S., according to Pryor. Rates of 25% were set for April, but temporarily frozen in midst of negotiations.
“When one out of every four boards we produce is going to a single market, any disturbance is bound to send shockwaves throughout the industry,” Pryor says. “There are other factors involved—China’s currency devaluation and slowing economy also play a role—but the retaliatory tariffs imposed on U.S. hardwood products are the single largest reason we have such a difficult climate in the hardwood industry today. It makes a lot of sense for hardwood producers to slow down production because prices haven’t been stable and demand has been fickle. It does make sense there is increased competition for sawdust with many companies scaling down production in the face of global trade challenges.”
Blue Ridge Lumber Co., a hardwood sawmill in Fishersville, Virginia, produces over 35 million board feet of lumber annually, also supplying mulch, sawdust and other byproducts to customers. The company’s sales to China saw an abrupt stop in the wake of the trade war, according to president Tom Sheets. “It made a bad situation worse,” he says. “China’s economy was already shrinking and the tariffs caused an abrupt disruption in the market, resulting in an uncertain demand, therefore lower prices. Our pricing to China is off 20 to 30 percent.” The hardwood industry is a friendly causality on both sides of the water in this trade dispute.”
Sheets says while some other markets have been active and prices have begun to recover somewhat, some production has left the market indefinitely. “It’s had to have made a difference in the availability of wood fiber from pallets to chips to sawdust,” he says.
Pryor agrees with Sheets that there are other global bright spots for exports. “But even Vietnam, which now is a larger market for American hardwoods than Mexico and imports more lumber by volume than the entire EU, can’t fully replace losses in China. The only market that could replace that demand is the U.S., where we have seen wood consumption per capita drop as laminate flooring and plastic substitutes have taken over.”
While the initial round of tariffs didn’t affect BioMaxx or the lumber market, the second round did. And, if the 25 percent tariff were to hit, “it would shut down some saw mills,” says Watson. “We have had two of our major suppliers tell us, ‘We’re causing our own problems, so we’re going to reduce our own production. The tariffs aren’t bothering us too much, because we’ve shared the cost with our buyers—each took half and it’s been okay, just as long as the next one doesn’t come.’ But they also said they were not going to flood the market with lumber; rather, they would reduce labor and production hours. For our main supplier, that meant almost 50,000 feet a day they weren’t selling because they pulled back 40-hour weeks—that’s a huge amount of raw material.”
And, Watson adds, there are at least three pellet plants pulling from that supplier. “Loyalty goes a long way to a point, but when your prices go up by 20 or 25 percent when we have those kind of increases, something has to happen,” he says.
Hamer Pellet Fuel is another facility facing fiber constraints. The plant’s parent company operates four sawmills and two kiln dry facilities, and has been producing hardwood lumber for over 70 years, according to Sales Manager Todd Webb, who has been employed at the company for 16 years, half of which he has been managing sales for the pellet plant.
With the decline of the U.S. furniture manufacturing industry, less material has been available in the past 10-plus years, Hamer says, and while the current situation is making the situation much worse—the wet weather and tariffs—so there are also contributing issues in the trucking industry. “We came off two on the wettest years on record—the Northeast region—but we also have a transportation crisis in this industry,” he says. “There aren’t enough trucks available to the general manufacturer, you can only get so many. You might have all of the volume you need, but you can only get so many trucks. It also creates a rising cost as to what you have to pay to get that truck, and if not another pellet fuel competitor, it might be someone with higher margins.”
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