Lumber export restrictions hurt U.S. sawmills

Posted: July 22, 2011

Source: Ravalli Republic

Lumber exports restrictions hurt Montana sawmillsTo parody yet another song: ‘where have all the flower’s gone?’ by Pete Seeger; ‘where have all the sawmills gone?’ Most Montana wood products manufacturers are geared to supply the U.S. housing market. U.S. housing starts were at a seasonally adjusted annual rate of 523,000 units in April, 10.6 percent below the revised March estimate and 23.9 percent below the revised April 2010 rate, according to the Census Bureau. The Random Lengths weekly lumber report indicates a nine-week consecutive drop in framing lumber markets, with their Framing Lumber Composite Index Price at $259 per thousand board feet. This compares to last year’s low point of $240 per thousand board feet. Similarly, building panel prices (plywood and oriented strandboard) are depressed too, with Random Length’s Panel Composite Index price pegged at $280 per thousand square feet. This compares to last year’s high point of $470 per thousand square feet. It doesn’t get any better, but it might get evenworse.

The hot timber commodity is export logs to China, and, according to Wood Resources International – an international timber consulting firm – it is an interesting study in market dynamics: Russia has been, by far, the largest exporter of logs in the world. When their government announced a log export tax of 25 percent in 2007 and the intention to increase this tax to 80 percent in 2009, many forest companies in Asia and Europe decided to reduce their reliance on Russian logs. As a result, total log exports from Russia fell from 51 million m3 in 2006 to about 22 million m3 in 2009 and 2010.

In the 12 months to February 2011, China imported approximately 35 million cubic metres of coniferous logs and lumber. Chinese authorities recently announced a plan to build 35 million affordable housing units in the next five years, with 10 million to be built in 2011. However, booming commodity prices have taken their toll on the economy, with China posting its first quarterly trade deficit in seven years at the end of the March 2011 quarter.

Chinese imports of logs for the year to February 2011 were 25.3 million cubic metres, which is an increase of 3.8 million cubic metres on the previous 12 months. Imports from Russia continued their decline, falling another 0.9 million cubic metres. Much of the 4.7 million cubic metre supply gap was filled by the U.S. (up 2.06 million m3), New Zealand (up 1.45 million m3) and Canada (up 0.9 million m3). The U.S. and Canadian exporters are enjoying the boost in demand from China, ramping up exports to this region in a time when domestic demand is feeble.

So how can Montana wood products manufacturers get involved with this booming market? Well, it’s not that easy. First, if your business is a Federal Timber Purchaser, you are prohibited from exporting any raw logs – even from your own, private forestland.

In 1968, domestic processors successfully lobbied for the first legislation to restrict log exports from federal lands. The subsequent 1968 Morse Amendment to the Foreign Assistance Act extended the reach of the restriction to federal lands west of the 100th meridian and also raised the specter of preventing the substitution of federal logs for private logs exported.

In 1974, an appropriation’s rider set substitution in stone and in 1990 the passage of the Forest Resources Conservation and Shortage Relief Act, restricted log exports from state lands. These policies were specifically designed to stabilize local log costs and encourage domestic processing of logs for American houses.

What about exporting finished wood products to China? Well, that’s not so easy either. The Chinese would prefer to import low cost raw material and create the manufacturing jobs at home. Also, China uses the metric system and it’s not a doddle to re-jig your sawmill to cut metric dimensions and metric nominal thicknesses. Meanwhile, our Canadian neighbors to the north are steaming away, steadily increasing their finished lumber exports to China – a seven-fold increase over the last three years, approaching 4 million cubic metres in 2010 and much of this being low-cost beetle-killed timber from interior British Columbia. Not too bad, eh!

So, where have all the sawmills gone? Perhaps going to China, every one.