The ongoing paper and packaging slowdown reached into a third consecutive quarter and contributed to falling wood fiber prices across much of North America in Q2 2023. High inflation cooled consumer demand for goods, and paper mills are drawing down finished goods inventories to match current demand levels. The market still fears a recession could be in the future, so caution is dictating most operations.
Through early 2023, paper mill closures across North America trimmed production capacity in response to the slowdown. According to the Wood Fiber Review, fiber prices in most regions trended down, unlike the wide range of regional differences just months ago. In this article, we focus on the U.S. North and West, with notes on Canada, which is experiencing historic and massively impactful wildfires.
Pulpwood Price Drivers in the US North and West
Historically high wood fiber prices in the Northwest and Northeast U.S. dipped over 10% for the quarter. In the U.S., only the Lake States reported higher softwood fiber prices, as western Canadian prices inched higher as well. Hardwood prices increased in both the Lake States and the U.S. Northwest.
Fierce competition for fiber in the U.S. Northeast drove prices higher in 2022. The story flipped this quarter in rapid fashion, with loggers being put on quotas as mills slowed operations. Prices dropped as much as 32% this quarter in response, and fears renewed of additional logging capacity losses, the major constraint pushing prices higher last year. In the Lake States, prices continued higher as a lighter winter freeze pushed consumers to extend procurement distances in search of fiber.
The pulp and paper slowdown impacted Northwest U.S. markets as well. Inventories swelled and prices dropped 10% or more for all products except hardwood logs. Poor markets resulted in several mill closures in the region, including tissue converting operations at two Cascade facilities in Oregon, and the idling of Packaging Corporation of America’s Wallula, Washington, facility.
In the Pacific Northwest, poor pulp and paper markets coupled with high mill inventories are making it difficult for many suppliers to remain healthy. For fiber suppliers, diversification and flexibility in their businesses continue to be valuable. Softwood prices decreased across the board, with product mix (Douglas fir, hem-fir, and mixed softwood) prices dropping more than 15%. Prices in a few categories remain higher year-over-year.
Notes on Canada: Smoke and Fire
Western Canada is experiencing one of the worst wildfire seasons on record, making the outlook for the summer months more daunting. Mills in British Columbia and Alberta have taken downtime to ensure employees’ safety and protect assets. In addition, timber harvest levels in British Columbia continue to trend down, with numbers lower than 2009.
In the region, softwood fiber prices rose less than 2% in Q2 2023. Fiber shortages remain challenging in Western Canada as sawmills announced new or extended outages and closures. For example, Conifex in Mackenzie, B.C., went down for four weeks beginning in early June. The unscheduled downtime will impact production capacity of about 16 million board feet.
News from Eastern Canada blanketed North America as forest fires billowed smoke across the border, along the eastern seaboard of the U.S. The rising number of uncontrolled fires have put added pressure on a market that is already starved for residual chips. This scarcity has pushed the cost of softwood residual chips higher.
The estimation of Canadian forests burned by mid-June is 1% of the country’s forests, or about six times the amount that is managed in an average year. Unusually active and severe fires in Ontario and Quebec clouded skylines of major U.S. cities. Wildfires in Nova Scotia burned over 90 square miles of forest and forced thousands of evacuations.
Our team at Forisk wishes everyone a safe and productive spring and summer.
This article includes data from the Forisk Wood Fiber Review, a quarterly publication tracking North America’s major wood fiber markets