Meet the Beetles (Mountain Pine to be exact)
The British Invasion brought us the Beatles (John, Paul, George & Ringo), forever changing the landscape of Rock n Roll in the US. Now a new Beetle is changing the US landscape via the “Canadian Invasion” and unless US Mills keep the balance of production power equal, those screams you hear will not be those of teenage girls in poodle skirts, but us, the end users.
The last time you encountered Dendroctonus ponderosae or the Mountain Pine Beetle could very well have been through half closed eyelids as Mutual of Omaha’s Wild Kingdom concluded your Sunday evening. So you can imagine my surprise when I learned that this Arthropoda is playing a major role in shifting market dynamics, altering demand over an entire continent and changing the supply chain. The only other organism capable of inflicting this level of economic interruption is a Wall Street Banker!
Current market pricing at record highs has been 20 years in the making as the forces of nature have come to bear and markets now chase demand with non-traditional trading partners. The result has been extreme upward pricing pressure and also availability issues.
So let’s begin at the beginning.
In the past, Canada produced 30% of United States timber consumption. Inside Canada, 50% of the total timber production came out of British Columbia. From 1999-2014 the Mountain Pine Beetle Epidemic destroyed 50% of the standing pine in B.C., devastating an area the size of Florida. Mills were forced to harvest dead standing wood and exceed the Annual Allowable Cut (“AAC”). “Use it or lose it” was the philosophy as mills needed to recoup as much as possible before the dead trees lost all commercial value. The result was overharvesting (2005 – peak of production) with the knowledge long term consequences would follow.
In 2017 a record forest fire season would destroy an entire year of AAC impacting an area the size of Connecticut.
During the same timeframe, US demand would waiver with the “Great Recession” and Canada would be forced to diversify into new international markets. In 2005, almost all of the SPF production produced in B.C. remained in North America. By 2017, 35% of that same production would be shipped to the Far East (China, Japan and India).
BC production is on steady decline and is forecasted to continue this trend. The Peak Annual Harvest of 90 million cubic meters, last occurred in 2005 (during the Mountain Pine Beetle Epidemic). In 2025 the forecast estimate is approx. 50-60 million cubic meters. That is a 33% reduction from the peak.
This reality is not lost on Canadian Mills who are in the process of reinventing themselves as their availability of domestic fiber drops. Over the last decade large BC mills (Canfor, West Fraser, Interfor Pacific) have acquired 43 Saw Mills in the Southern United States. This accounts for 33% of the Southern Yellow Pine (“SYP”) production.
So we arrive at the epicenter of the changing lumber market dynamic. The Canadian Mill takeover of the US South production of SYP allows them to have 1) major production influences on both sides of the US-Canadian Border, and 2) new access to traditional northern shipping markets with the introduction of SYP into those markets.
The move of Canadian Mills south sets in motion an overall shift in Market Share between BC and the US South regions. With this shift comes increased SYP production which will go to the North and Western US to satisfy the timber supply shortfalls by Canadian Suppliers of SPF. Treated Lumber is accessing new markets at record export levels, Framing is also moving into new markets effecting availability and spreads and even SYP Timbers are moving into the Pacific Northwest for the first time. Ultimately this all has an effect on pricing resulting in the current environment of record high pricing.