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...
4 min read
Matt Elhardt
:
Oct 5, '22
Labor union strikes and industry developments that have pinched the supply of conifer wood chips in the Pacific Northwest (PNW) now have a number of regional chip consumers on edge. Prices bottomed in 2020 in response to the pandemic, but they reversed course sharply in 3Q2021 and have been climbing ever higher since. Conifer chipmill (primary) and residual chip prices are now at a 10-year high in the region and are poised to go higher.
The PNW is a unique market with unique drivers of supply and demand.
As basic economic theory commands, the equilibrium between supply and demand ultimately drives price and when one of these elements falls out of balance, price will respond accordingly. In the case of wood chips, the PNW is generally more sensitive to supply side drivers for two primary reasons:
Conifer chip supply and prices are more captive to end markets and, as noted above, conifer chip price increases are driven by supply and demand. Currently, the market is characterized by a steady demand for chips, low inventories, mounting economic headwinds, and a looming winter season that will limit harvesting. Together, these events are raising concern about future supply; competition and prices are increasing as a result.
In the near-term, there are three converging factors placing additional price pressure on regional chip supplies.
Rapidly changing market dynamics like those currently developing in the PNW are challenging, but not without precedent. While the converging events noted above are unlikely to impact the regional pulp and paper manufacturing segment in the long term, maintaining profitability in periods of extreme stress still requires that manufacturers and their suppliers rationalize production during the stress while sensibly planning for the future. This is the time when preparation and forecasting pay dividends.
Forecasting
Forecasting with a high degree of accuracy is a complex procedure, but a reliable forecasting model must take both global and local events—and the interplay between the two—into consideration. To build such a model, Forest2Market and Fisher International have developed unique approaches that account for a comprehensive view of the market forces that influence price performance.
This allows us to uncover statistically significant correlations between pricing data, the economic indicators that affect demand (GDP, housing starts, etc.) and events that affect supply of forest raw materials. We incorporate the future supply/demand scenarios and other applicable macroeconomic factors in order to develop the most likely outcome. The model accounts for all of these factors—including global and local dynamics—to determine how and when prices will respond to changing influences.
A business forecast built on our robust, price-based datasets and business intelligence allows for greater accuracy because it is designed from a reliable, precise starting point. Rigorous, mathematical models are the tools needed to gain strategic advantage, operate efficiently, and increase profits, and we leverage these tools to provide the most comprehensive price-based forecasts in the forest products value chain.
At the procurement level, our forecasts enable customers to:
At the manufacturing level, our forecasts are designed to:
At the operational and strategic levels, our forecasts are used to assist:
These forecasts enable participants in the forest supply chains to respond confidently to market changes while assuming a comfortable level of risk. Using a forecast model that can maximize return and minimize risk is simply smart business, especially during times of market stress and uncertainty.
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