Is Your Company Positioned for Profitability as We Sit in Economic Uncertainty?
The economic calamity of the last three years has been painful in many respects. Businesses worldwide have undergone serious stress and we’ve all...
Several changes to report in the southeast US as the lumber market continues facing volatility.
Reduced demand means highly unfortunate news for a Florida sawmill. West Fraser, a global wood products company operating in the US, Canada, Europe and the UK, announced the closing of its Perry, FL sawmill effective January 10.
This event will continue to cause a ripple effect across the forestry industry. Using data insights from Forest2Market, a ResourceWise company, we can track how this event will impact the value chain across the forestry industry. We will explore all the implications in the post below.
According to a company press release, West Fraser "indefinitely curtailed" operations at its Perry sawmill effective January 10.
The closing comes thanks to two primary factors:
The fiber costs within the southeast have continued to rise. The fiber marketplace relative to the Perry sawmill increased competition for small logs that the Perry sawmill utilizes driving up the log cost high enough to affect the sawmill viability and contribute to its closure.
Lower-price commodity markets have continued to trend overall across lumber markets. As a result, profitability was seriously impacted at West Fraser's Perry location.
The closing of this plant will lower the overall production from West Fraser by 100 million board feet. It will also displace 126 workers. Fortunately, the company notes that it will do everything it can to offer them work opportunities at their approximately 60 other facilities.
Low prices are only one piece of the puzzle in a larger-scale chain market response. Regionally, sawmills have begun adjusting their policies based on these market conditions.
For instance, some Florida-based mills have raised their top sizes to a 6” diameter. Speculation is also potentially calling for a no butt or 9” minimum being raised to a 10” butt.
In normal circumstances, these changes more directly correspond to what the market dictates (and not by choice of the sawmills). So what factors are currently allowing sawmills to do this?
The change in standards reflects the fact that there is decreased demand – and therefore decreased competition for timber.
Accordingly, the biggest implication we can draw from these adjustments comes in the form of yields.
Sawmills will seek improved yields/margins thanks to market headwinds carrying over from Q4 2022. From here, better yields will produce less byproducts and other waste at their mills.
With fewer waste products available, pulpmills will have to buy pulpwood and chipmills will have to buy chips. They will pay more buying from these sources compared to sawmill chips and other byproducts they would have otherwise classified as waste.
To summarize, our analysis demonstrates a singular path of market action which plays out across the forest market value chain:
This route shows an example of how ResourceWise's product forecasting and data analytics offer real-world insights on the current market conditions.
We detail transactions and other movement within target market areas. This can help businesses better understand their own risks and opportunities.
Contact us today to learn more about how we can help your business get a clearer path forward with our strategic data analyses.
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