WRI Market Insights: Global Softwood Lumber Markets

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 2Q22 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.

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 2Q22, lumber was still being shipped from Russia to many European countries, but this trade will end when many contracts expire in early 3Q22.

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 2Q22. 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, particularly those located in the Western part of the country, will be able to significantly expand sales much into the far-away markets in Asia due to high freight costs and logistical challenges. 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 the 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 1Q22, lumber production in North America fell about 4% YoY. The only region that saw an increase was the US South, where production was almost 9 million m³, up 3% from 1Q21. Most of the decline in production occurred in BC and the eastern provinces of Canada - resulting in a reduction in lumber exports by 11%.

Lumber prices in the US have fluctuated during 1H22. 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 YoY. In early 2022, the trade flows changed again when exporters moved away from the European markets where demand weakened and instead expanded shipments to the US, Egypt, Japan, and China.

Lumber Markets – Japan

Japan's softwood lumber imports were 13% higher in 1Q22 than in 1Q21. All major supplying countries increased their shipments to Japan except for Canada. Importation from Russia was practically unchanged QoQ in 1Q22 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 1Q22, 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 lower new construction activities, continued COVID lockdowns impacting supply chains and financial distress from recent negative updates in China's expected GDP targets. Although average lumber import prices fell from about $290/m³ in December 2021 to $260/m³ in April 2022, they were still substantially higher than during most of 2005-2020.  

Are you interested in worldwide wood products market information? The Wood Resource Quarterly (WRQ) is a 70-page report established in 1988 with subscribers in over 30 countries. The publication tracks prices for sawlog, pulpwood, lumber & pellets and reports on trade and wood market developments in most key regions worldwide. For more insights on the latest international forest product market trends, please go to www.WoodPrices.com