Global trade of softwood lumber slowed in early 2022, in particular lumber headed to China, the US, and Germany, where import volumes were down in the range of 6-20% from the same period in 2021.
Wood trade will likely continue to slide in the 2Q/22 due to inflation going up in Europe and the US, as this impacts consumer spending. In addition, China is reducing new housing construction, the ongoing war in Ukraine is causing changes in trade flows and increasing energy costs, and general consumer sentiment in the marketplace is getting more anxious.
Russian Trade Sanctions Will Impact Global Trade
The sanctions against trade with Russia by Europe, Japan, South Korea, and a few other countries in Asia will considerably impact the global trade of lumber in the second half of 2022. In 2Q/22, lumber was still being shipped from Russia to many European countries, but this trade will end when many contracts expire in early 3Q/22.
Lumber prices declined in the first few months of 2022 as demand fell in most major markets worldwide. Despite the reduced prices, current levels are still among the highest in over 15 years.
Lumber Markets – Russia
Russian lumber exports started to decline in March after the country invaded Ukraine, and this trend has continued into 2Q/22. It is expected that by early July, shipments to Europe and some countries in Asia will be minimal to non-existent due to the sanctions from the western counties and Russia's ban on exports to "unfriendly countries."
In 2021, Russia's exports to countries with trade sanctions or sales embargoes accounted for about 22% of total outbound shipments, according to the Wood Resource Quarterly. Alternative markets for Russian lumber, such as the CIS countries and the MENA region, are not likely to increase imports from Russia in the near term as demand in those markets is not growing.
China is the largest market for Russian lumber, accounting for over 50% of total export volumes in 2021. However, with the economy weakening and the demand for building materials in China decreasing, it is unlikely that Russian sawmills will significantly expand sales much into the far-away markets in Asia. High freight costs and other logistical challenges play a major role in this stalled expansion.
Even before the war in Ukraine, lumber shipments from Russia to China declined from 16 million m3 in 2019 to 12 million m3 in 2021. In 1Q/22, lumber trade between the two countries was at its lowest level in seven years.
With the reduction in exports and limited opportunities to increase lumber sales domestically, it is most likely that sawmill production in Russia will decrease for the remainder of the year and beyond.
Lumber Markets – North America
In 1Q/22, lumber production in North America fell about 4% year-over-year. The only region that saw an increase was the US South, where production was almost 9 million m3, up 3% from 1Q/21.
Most of the decline in production occurred in BC and the eastern provinces of Canada. This resulted in a reduction in lumber exports by 11%.
Lumber prices in the US have fluctuated during the first half of 2022. For example, southern pine prices fell from a high of $700/m3 in March to a low of $325/m3 in early June. However, it is essential to note that even the low end of the price range is higher than prices were at any time before 2020.
Lumber Markets – Sweden
Lumber exports from Sweden were 12.6 million m3 in 2021, down 10% from the previous year. Shipments shifted in 2021 from China and the MENA region to Europe, while exports to the US were unchanged year-over-year.
In early 2022, the trade flows changed again when exporters moved away from the European markets where demand weakened. Exporters instead expanded shipments to the US, Egypt, Japan, and China.
Lumber Markets – Japan
Japan's softwood lumber imports were 13% higher in 1Q/22 than the same time last year. All major supplying countries increased their shipments to Japan except for Canada.
Importation from Russia was practically unchanged quarter-over-quarter in 1Q/22 despite Japan's official trade sanctions policy against Russia because of the invasion of Ukraine. In April, Japan still bought about 60,000 m3 of lumber from Russia (almost 20% of total imports), down from 90,000 m3 in January 2022.
However, this trade flow will eventually halt because of the war in Ukraine, and Japan will need to find other supply sources.
Lumber Markets – China
China imported only 3.6 million m3 of softwood lumber in 1Q/22, the lowest quarterly volume in nine years.
Several factors that will likely continue to weaken demand in China for lumber in the coming months include the following:
Lower new construction activities
Continued COVID lockdowns impacting supply chains
Financial distress from recent negative updates in China's expected GDP targets
Although the average lumber import prices fell from about $290/m3 in December 2021 to $260/m3 in April 2022, they were still substantially higher than most of 2005-2020.
This is a preview post of our Market Insights report from Wood Resources International (WRI). For the past 13 years, Wood Resources International has distributed Market Insights on a regular basis to over 8,000 forest industry executives, analysts, investors, consultants and journalists worldwide. These Market Insights have covered the most recent developments in regard to global wood supply, forest industry production, forest products trade, and pricing of sawlogs, pulpwood, wood chips, lumber and biomass.