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Author Topic: The future  (Read 987 times)

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Offline GeneWengert-WoodDoc

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The future
« on: May 26, 2019, 08:02:23 AM »
Of the hardwood lumber produced in the U.S., 24% is exported to China and 22% is  exported to other countries.  The new retaliation tariff by Chine on incoming hardwood lumber to their country from the U.S. will eliminate much of the sales of U.S. lumber to China.  This means a surplus of hardwood lumber in the U.S. and decreasing lumber prices.  These price drops are likely to make a significant number of sawmills become non profit operations as profit margins for hardwood sawmills are very small right now.  Once some mills go out of business, if the tariff war continues for very long, then when the lumber market demand finally increases, the shortage of lumber, due to increased demand from China markets (China is the largest consumer and manufacturer of forest products) and with fewer sawmills, we will see record high hardwood lumber prices.  Sawmills will do very well, but secondary manufacturers in the U.S. will be struggling indeed with higher lumber prices.

A secondary effect of this drop in hardwood lumber prices today and fewer hardwood lumber sales is that loggers will go out of business or switch to other careers.  When the lumber market returns and grows in the future, the needed log supply due to fewer loggers will not be available.

Now is the time for our individual manufacturing companies in our industry to become involved in the raw material supplies...maybe not buying a sawmill, but working creatively with the sawmills that can supply their hardwood lumber needs now and in the future.
Gene - Author of articles in Sawmill & Woodlot and books: Drying Hardwood Lumber; VA Tech Solar Kiln; Sawing Edging & Trimming Hardwood Lumber. And more

Offline Southside

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Re: The future
« Reply #1 on: May 26, 2019, 08:08:49 AM »
Just consider how much worse it would be if this were to happen in an already down market. Seems the ship has to be righted at some point. 
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Offline longtime lurker

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Re: The future
« Reply #2 on: May 26, 2019, 08:14:57 AM »
My gut tells me you're right, with a little caveat around the fact that other buyers but particularly the Vietnamese are also in the same marketplace and will use the combination of lower domestic pricing and no chinese competition to increase their market share.

There may also be some buying by proxy, with logs exported to a third party then re-exported to China. Stranger things have happened.

One also wonders about third parties who may have processing and/or manufacturing capability in China and how any sanctions will effect them. Caterpillar comes immediately to mind as a "domestic" company who build more machines in chinese factories than anywhere else.

Trade wars are just straight up bad for business.
The quickest way to make a million dollars with a sawmill is to start with two million.

Offline Ron Wenrich

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Re: The future
« Reply #3 on: May 26, 2019, 12:02:23 PM »
When I was working, downturns always meant that our business would pick up.  The marginal producers would go out of business.  This could be because they weren't very productive at the mill level, or they had too much debt load to support.  Debt loads have to be serviced even during down markets.  We didn't have debt, and easily worked around the markets.  When mills went under, we were tabbed to pick up the slack due to being able to weather the economic storm and produce a good product.  

The downside is that quality stumpage begins to dry up, since hardwoods depend on private landowners.  The solvent ones won't sell in down markets.  The ones that are looking for cash have had their woodlots high graded a long time ago, and the stands are either immature or severely depleted of any quality.  

Whether the market snaps back is dependent on whether China finds alternate producers.  They have hit southeast Asia pretty hard, and have moved on to Africa.  Russia has been picking up the slack in the softwood end, and you have to wonder if some of the hardwood market might also be taken up with them.  With the opening of the Panama locks, South America also comes into play.  A snap back of US markets is not necessarily a guarantee.  
Never under estimate the power of stupid people in large groups.

Offline nativewolf

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Re: The future
« Reply #4 on: May 26, 2019, 12:12:05 PM »
For many log producers the Canadian mills will be a good option and as longtime lurker said many Vietnamese mills have opened both as a way for Chinese to get assets out of China but also to skirt the tariff war.  

For now the new tariffs have hit many log buyers in the wallet and they are struggling to dump inventory.  
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Offline nativewolf

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Re: The future
« Reply #5 on: May 26, 2019, 12:16:03 PM »
And to chime in on trade wars in general, yep terrible for business.  
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Offline longtime lurker

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Re: The future
« Reply #6 on: May 26, 2019, 05:29:13 PM »
For me here (and presumably anyone else thats not US based) it's a bit of double edged sword.

The chinese are log buyers here rather than lumber buyers. With the AUD low it gives them greater purchasing power, and with a hole in their capacity where the US used to be it gives them great demand to buy to keep their mills running. Effectively this makes it hard to compete with them as a processor because the price of logs will go up to the point domestic processors can't easily compete, and it has been close to that level for the last 5 years before all this business started anyway.

 However because I have retained some logging capability in-house it also means I have the option to redirect my logs away from the mill for export. I'd rather not... but a dollar is a dollar and if I can make more profit selling logs than milling them I have to consider it, however distasteful I find it.

So this is going to be tough on mills here (and presumably Canada, NZ,and pretty much everywhere not the USA) but is likely to be good for the loggers.

When the trade war ends it will reverse... the chinese buyers will move into a US market that is weak and buy up everything leaving the harvesting contractors here high and dry. Most of them will have used the high prices and strong demand to modernise their equipment and have high debt loadings and will be left struggling under the weight of lease payments. Domestic processing capacity will have contracted thanks to high log prices pushing the vulnerable out. Log supply will be tight because (if it goes on for a while) increased harvesting will have impacted future supply.

There is opportunity in this situation no matter where you are in the world, but that opportunity also comes with risk. Rather like Ron, we have as a mill always expanded in tough times because we're lean and mean and I didn't have high debt levels or big overheads particularly staff. Mills going under means milling equipment available cheap for instance. Low stumpage prices brings the cost of timberland down. Interesting stuff.

The quickest way to make a million dollars with a sawmill is to start with two million.

Offline Wudman

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Re: The future
« Reply #7 on: May 28, 2019, 09:54:15 AM »
A secondary effect of this drop in hardwood lumber prices today and fewer hardwood lumber sales is that loggers will go out of business or switch to other careers.  When the lumber market returns and grows in the future, the needed log supply due to fewer loggers will not be available.


My opinion here.......I have never seen this to be an issue.  We have seen the cyclical nature of the logging force in the past, but they always come back.  A few years back, there was concern that there was not enough logging capacity to supply Virginia's mills.  Loggers were actually in the driver's seat and making a little bit of money.  Crew's expanded, put on more capacity, added additional crews, and new guys entered the business.  Today, I have guys working 3 days a week due to mill quotas.  Loggers tend to be their own worst enemy.  WestRock owns 4 paper mills that procure out of my area.  Thirty years ago, there were four separate owners for these mills.  Bear Island Paper Company (Ashland, VA - newsprint) and Verso (Luke, Maryland - coated paper) have recently shut down.  Consolidation and market conditions add to the woes. 
The biggest concern for the logging community now is trucking capacity.  We can find guys to put in the woods.  We can't find guys to transport the material.  Driving records and marijuana are the concerns of today.  For prospective drivers, either the insurance company won't insure them or they can't pass a drug test.  One of my primary contractors has five trucks parked due to lack of drivers.  His two most reliable drivers are 63 and 67 years old.  The future looks dim from that perspective.
Wudman 
You may tear down statues and burn buildings but you cant kill the spirit of patriots and when theyve had enough this madness will end.
Charlie Daniels
July 4, 2020 (2 days before his death)


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