Falling Fiber Prices Make Western U.S. Mills More Competitive with Southern Mills
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Wood costs account for 50% - 55% of the production costs for pulp mills in the U.S. Historically these costs have often been substantially lower in the southern states than in the northwest, the two major pulp producing regions of the country. However, this has been changing with the most dramatic regional price movements in North America happening in the U.S. Northwest, where prices for softwood chips, the major fiber source for the region's pulp mills, have fallen for five consecutive quarters. Chip prices in the second quarter of 2013 were down by a third from early 2012, according to the North American Wood Fiber Review (NAWFR), Seattle, Wash., USA.
In contrast, softwood residual chip prices in the U.S. South have remained practically unchanged for more than three years, even though the supply of wood chips has increased as the result of higher lumber production in the region.
Wood chip prices in the U.S. South are still lower than in the western states, but pulp mills in the southern states are consuming a higher percentage of higher-cost wood fiber in the form of roundwood, making the total average fiber costs in the South only slightly lower than in the West. Just a few years ago, the average softwood fiber costs for pulp mills in the west were more than 50% higher than those in the South.
Southern prices for both softwood and hardwood pulp logs in the second quarter of 2013 were unchanged from the previous quarter, after isolated price spikes during the always volatile winter season, as reported by NAWFR. However, pulp mills typically take spring maintenance outages, which reduce demand for wood fiber, resulting in downward prices pressure on logs. The fact that both softwood and hardwood roundwood prices remained unchanged this spring indicates additional demand is being felt from other sources, ie. pellet and OSB mills in some regions, and that harvest levels have picked up after the housing recession.
Prices for pulp logs, which are the major fiber source for pulp mills in the South, have slowly trended upward the past two years and are expected to continue this trend during the rest of 2013. Since June, heavy amounts of rainfall have begun to cause challenges for wood supply deliveries, and there are early indications that wood prices in the South are climbing in the third quarter.
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