Forisk Wood Fiber Review: U.S. Northwest Prices in Q4 2020

Sawmills in the Northwest maintained aggressive production levels in Q4, while softwood chip exports declined, residual chip prices fell, and sawdust prices in every region were on par with those seen in 2018.
By Andrew Copley | February 04, 2021

A historic fire season remained the dominant story across the U.S. West as landowners assessed damage to timberlands, tried to arrange salvage operations, and planned to recuperate damaged lands. The toll of a destructive 2020 wildfire season is still being tallied, but nearly 2 million acres of forestland in Oregon and Washington alone were within active fire boundaries. While significant areas were on public federal land, private industrial landowners suffered more than in previous fire seasons. Logging equipment losses were in the tens of millions of dollars as well, challenging salvage operations. Concerns turned toward recovery and the massive seedling demand needed to replant acres. Expectations for years of seedling shortages concern landowners as most Douglas-fir seedings require a two-year production cycle.       

Continued high lumber prices encouraged sawmills to maintain aggressive production levels, further increasing residual chip supplies in the region. This increased residual chip production met a decline in softwood chip exports and a stagnant wood pellet sector. Demand from the pulp and paper sector remained uneven—the pandemic deteriorated market conditions for printing and writing paper and accelerated newsprint’s decline, while increasing demand for containerboard, paper packaging and tissue. Still, many regional pulp mills, which had deferred or extended outages, were back to normal operations. 

Softwood pulp log demand remained low as residual chip volumes continued to displace higher-cost pulp logs. Price impacts were greatest in western Oregon, reducing northward into Washington. Quarter-over-quarter prices fell an additional 3-6% for Hem-fir and Douglas-fir (Figure 1). Year-over-year, both Douglas-fir and Hem-fir pulp log prices fell 19%. In contrast, hardwood pulp logs—which remain a small part of the Northwest fiber story—trended sharply higher. As landowners and contractors raced to salvage burned areas, hardwood supply was challenged. Shrinking availability pushed prices higher, up 10% for the quarter and 17% year-over-year.

Residual chip prices west of the Cascades continued to fall for the second consecutive quarter as high lumber production generated healthy volumes of residual chips and pulp mill demand remained uneven. Prices fell less in Q4 than in Q3 as several pulp mills resumed operations following outages. East of the Cascades, chip prices were mostly flat. Historically, Q4 pricing trends upward across the Northwest, highlighting the continued unusual nature of 2020.

Residual chip prices fell more than whole-log chips for the quarter and the year. Prices west of the Cascades were down over 20% year-over-year for residual chips. Puget Sound whole-log chips suffered the greatest decline for the quarter, ending the year down 19% from Q4 2019 (Figure 2). Whole-log chips in other Northwest subregions fell 7-11% year-over-year. The spread between residual and whole-log chips widened materially over the course of 2020, ballooning from $4 to $6 in the Lower Columbia River and Willamette Valley at the end of 2019 to $15 to $21 in Q4 2020.

Pulp mills continued to honor commitments for whole-log chips but widening price differentials highlight why the product mix is shifting toward residuals.     
Softwood chip exports remained low, further limiting markets for excess sawmill chips. Exports from the Northwest, historically the largest softwood chip exporting region in the U.S. with volumes concentrated to Japan, declined 24% year-over-year through November. Export volumes trended higher toward the end of the year, however, with declining export chip inventories providing a hopeful sign for reducing the current glut of residual chips.

Sawdust prices were flat to down in Q4. Significant volumes were reportedly burned in boilers amidst the glut. A longer-term view highlights that the past two quarters erased sawdust price increases from the preceding 18 months. Sawdust prices in every region were on par with those seen in 2018. While green shavings prices moved similarly to sawdust, dry shavings were finding homes in pellet plants, in final product mixes, or as fuel, which provided moderate price growth west of the Cascades.

While U.S. wood pellet capacity continues to increase, driven by export-oriented projects, the sector remained stagnant in the U.S. West. The region’s production capacity, which represents approximately 6% of total U.S. wood pellet capacity, serves the domestic home heating market and oscillated around 1 million metric tons for well over a decade. Near-term global demand for industrial wood pellets continues to increase, however. As new demand for industrial wood pellets in Europe slowed, growth prospects shifted to Asia, providing the U.S. West a logistical advantage. Japan expects to be the largest importer of wood pellets in Asia, with demand growing more than 270% to 7.5 million metric tons by 2025. Enviva, the world’s largest pellet producer by capacity, noted that around 50% of its offtake contracts will be with Japanese customers by 2025.

Author: Andrew Copley
Forisk Consulting LLC