Commodity report - Softwood lumber

This report on softwood lumber only with market conditions in Europe and North America which have been the chief source of softwood trade supplies for the rest of the world during the postwar years. It is hoped that future reports can be expanded to cover other areas as well. Other commodity reports on softwood lumber have appeared in UNASYLVA, Vol. III, Nos. 1, 4, and 6, and Vol. II, No. 5.

Europe
North America

The beginning of the year 1949 could be described as a period of readjustment in the production and consumption of softwood lumber. Commodity prices, although affected by a number of restrictive factors outside the classic supply/demand pattern, do indicate - if not reflect - the general trend. This period of readjustment in the lumber markets, with a slight leveling off in prices, ended in Europe during the second quarter of the year and in North America during the third quarter. Since then, production, consumption, and trade have shown a firm tendency.

This statement does not mean that there have been no changes in international lumber trade. On the contrary; the increases in the dollar exchange rates in the countries belonging to the "sterling area" and in many other non-dollar countries, which took place during the fall of 1949, have naturally affected the lumber trade. The devaluation measures have widened the gap between the "dollar trade area" and the "non-dollar trade area," and there has been a further decline in North American overseas lumber exports. In theory, this development might augur the appearance of two isolated regions in lumber production and trade, applying different price levels not comparable to each other. It must be borne in mind, however, that many of the more important timber-importing countries need specifications which are obtainable only from North American sources. Moreover, it seems that the North American, particularly the Canadian, sawmilling industry needs the safety valve which traditional exports to overseas countries represent.

Trade in forest products, particularly in lumber, is highly specialized and therefore tends to be conservative. Confronted with a changed price situation, suppliers will try to avoid any sudden switch from traditional markets to new outlets whose dependability is uncertain. It would be misleading, therefore, to attribute the slackening of the transocean lumber trade, which is due to the general dollar shortages and a delay in post-devaluation adjustments, to mutual disinterestedness.

The over-all picture at the end of 1949 indicated potential strong demand for softwood lumber, unfilled housing needs of great magnitude, and a slowing down of the earlier decline in price trends.

Europe

Requirements

By July 1949 many European countries had relaxed controls of softwood lumber imports or disposed of them entirely. Even in countries where controls over the use of lumber were continued, increased quantities were permitted to be used per dwelling unit, except in the United Kingdom. Lumber consumption therefore rose, although prices, still considered high, and limited consumer purchasing power helped to keep it below what was thought to be normal.

In Belgium and the United Kingdom building activity during January-June was greater than during the corresponding period of 1948. However in the United Kingdom the year's target has since been cut by 25,000 houses, representing approximately 40,000 standards of softwood lumber. In Denmark, where the building program for the first half of 1949 was lower than for 1948, construction for the full year is expected to be a little higher than in the previous year.

On the other hand, there was diminished building activity during the first half of 1949 in the Netherlands, Sweden, and France. It is reported that in France a weakening of demand continued during the second quarter of the year and that building activity was severely affected by restrictions on credit. A fall in prices for agricultural products, together with a shortage of money in rural areas, caused the postponement of many non-urban reconstruction programs.

The problem of determining Europe's timber needs is very difficult to solve on any objective basis. Some valuable material has been forthcoming as the result of studies by the Economic Commission for Europe covering housing requirements. In a paper entitled "The European Housing Problem, A Preliminary Review," published by ECE in October 1949, it is stated that in 1948 the need for dwelling replacement in 17 reporting countries alone ¹ was 11.1 million "average dwelling units." The cumulative total of houses to replace inadequate houses, to reduce overcrowding to a reasonable minimum, and to repair war destruction was 14.25 million units. The current annual requirements, based on essential needs in the reporting countries, were estimated at very close to one million dwelling units per annum. The implementation of this "necessary program," a program of house construction twice as great as before the war, would meet the aggregate housing needs of the 17 countries in 22 years, with a variation between individual countries of from 6 to more than 150 years. Another program, called the "probable program," based on a realistic estimate of what could be done, increases progressively from 758,000 dwellings per annum in 1948 to 1,275;000 in 1952. In 14 countries which were able to furnish data concerning building material requirements ² the aggregate requirements of timber to carry out the "probable" housing program totaled over 1.5 million standards in 1948, as compared with 1.7 million standards used before the war. Implementation of the "necessary" program in the same countries would require over 3.4 million standards of timber per annum, which corresponds to more than 200 percent of the prewar consumption for house construction. While the "probable" program is more or less based upon factual availabilities of construction materials, the "necessary" program predicates a substantially increased output of timber and other raw materials.

¹ Austria, Belgium, Czechoslovakia, Denmark, Finland, France, Greece, Hungary, Ireland. Italy Luxembourg, Netherlands Norway, Poland, Sweden, Switzerland, United Kingdom.

² Those enumerated in the preceding footnote, except Hungary, Luxembourg, and Poland.

The study mentioned above covers only some 43 percent of the total European population, and the data on timber consumption for housing relates to an even smaller proportion. Since the housing problem is very complex in each individual country, the conclusions arrived at for reporting countries cannot be extended to the whole of Europe. It is, therefore, not possible to estimate the total amount of timber needed for house construction in that continent, but it is obvious that European timber requirements for this purpose alone must be placed at a much higher level than present and prospective availabilities.

The ECE Timber Committee at its fifth session in September 1949 noted that the effective demand for softwood timber in Europe continued to be only slightly above production, but that the gap between the continent's supplies and demand could be expected to increase somewhat in the future.

Production

Statistics available for nine months of 1949 indicate an increase by some 17 percent in European softwood lumber production over the corresponding period of 1948. The better coal coke supply to timber-producing countries freed considerable quantities of wood which, in the previous year, had to be used as fuel-wood.

Table 1. - Production and trade in softwood lumber

Country			Production		Exports		Exports
			Jan.-Sept.		Jan.-Sept.		Jan.-Sept.
			1949	1948	1949	1948	1949	1848
			(Thousand standards)
EUROPE
Importing Countries
	Belgium		26	43	63.4	79.8	0.4	1.2
	Denmark		56	47	104.1	91.4	0.1	0.3
	France		428	455	74.8	112.6	67.6	56.1
	Germany:
		Bizone	1,035	618	25.5	1.5	71.6	46.4
		French Zone	240	191	-	-	97.7	67.1
	Greece		11	9	29.3	23.7
	Hungary		...	...	170.1	...
	Ireland		4	5	39.2	19.1
	Italy		...	...	115.9	46.0	...	0.3
	Luxembourg		2	2	1.1	0.7	1.0	0.6
	Netherlands		2	3	201.8	157.1	0.1	0.1
	Switzerland		154	181	6.5	13.1	0.8	6.3
	United Kingdom		250	250	689.5	580.5
Exporting Countries
	Austria		355	211	0.4	0.1	3187.9	365.9
	Czechoslovakia		4496	4518			...	538.4
	Finland		622	608			352.3	315.2
	Norway		...	6210	6.4	11.4	10.0	7.1
	Poland		...	372			...	17.3
	Sweden		5535	5480	9.0	11.1	418.0	323.6
	Yugoslavia		...	...			115.5	101.3
NORTH AMERICA
Canada			72,214	72,261			8707.5	8902,1
United States			11,790	13,890	470.9	647.8	196.7	195.7

NOTE: Owing to the inclusion of later information, some figures in this report may differ from those shown in the quarterly bulletin Timber Statistics, Vol. II, No. 3.

... Not available.
- None.
¹ Jan.-August only.
² Excludes production from imported logs.
³ Includes prefabricated houses.
⁴ Includes sawn hardwood and sleepers.
⁵ Jan.-June only.
⁶ Three-quarters of the production for the year ending 1 July.
⁷ Includes production of hardwoods; and in British Columbia, sleepers.
⁸ Excludes shingle

The following countries have shown important increases in sawn softwood production during the first part of 1949, compared to the corresponding period of 1948:

	Percentage increase
Finland	2
Sweden	11
Norway*	14
Western Zones of Germany	58
Austria	68

* Difference between half-yearly rates, 30 June 1948-1 July 1949 and 30 June 1947-1 July 1948.

At the same time, sawn softwood production in France, excluding sawn timber from German logs, declined by 27,000 standards.

The greatest increases occurred in Western Germany and Austria. Production of sawn lumber in Austria during the second quarter of the year was disproportionately high, since the sawmilling industry, anticipating price reductions, worked at full capacity. Production costs increased as a result of a rise in wages and railroad freight rates.

The remarkable increase in sawn softwood production in the Western Zones of Germany was not due to any considerable expansion of lumber exports.

Lumber output in all of the three northern timber producing countries increased as a result of certain favorable circumstances. In Sweden, the adequate supply of sawlogs was due to a good felling season and favorable weather during the floating season. Production in Norway reached a level sufficient to cover the domestic needs of approximately 300,000 standards per year and to permit increased exports. In Finland, during the first half of 1949, the increase in production was slight. The weakening of export prices which occurred last spring caused financial difficulties for a number of small sawmills which were forced to use their log supplies at a more rapid rate than usual.

The expanded exports from Yugoslavia and resumption of exports from Poland and Romania during the first half of 1949 indicate a rise in production in these countries.

Exports

As shown in Table 1, exports of sawn softwood from European countries during nine months of 1949 show an increase of 33 percent as compared with the corresponding period of 1948. The most important percentage increases were:

	Percentage increases
Austria	185
Finland	12
Western Zones of Germany	49
Poland 1	2 963
Romania 1	141
Sweden	29
Yugoslavia 1	14

¹ As reported by importing countries for the first half of 1949.
² Exports were negligible during the first half of 1948.

As is seen from the above percentage figures, the first half of 1949 saw the re-entry of Poland and Romania into the European timber export trade. In addition, the U.S.S.R. has resumed its lumber exports on a large scale, but no exact figures are as yet available, since most of the shipments were made toward the end of the year. One of the more important events in 1949 was the contract, made in August, for shipment of 100,000 standards of lumber from the U.S.S.R. and the Soviet Zone of Germany to the United Kingdom.

In September it was evident that the European softwood exporting countries had made up for the reduction in imports from the dollar area and even supplied additional quantities. Later reports from the northern and eastern European countries seem to confirm that the trend continued through the fall season.

European lumber trade was affected by the great fire in the forests of the Landes region in France, in August 1949. It will make available for foreign markets a quantity of approximately 250,000 standards of sawn maritime pine, the bulk consisting of small size planks. It was hoped to place the salvaged wood on the market as soon as possible. At the end of October an agreement with the United Kingdom for a considerable part of this timber had been reached. A fire which ravaged a big stockyard near Kemi, in northern Finland, in the autumn destroyed about 26,000 standards of sawn timber, corresponding to some 5 percent of the annual exports of sawn timber from Finland.

It is to be expected that exports from Finland and Yugoslavia will increase as a result of the International Bank loans noted elsewhere in this issue. In these loan agreements, Finland agreed to export 420,000 standards of lumber each year between 1949 and 1951, and Yugoslavia 160,000 standards of lumber and 80,000 standards of pitprops. The loan agreements provide for timber payment arrangements whereby designated importing countries agree to make purchases up to certain limits each year, and specified payments for the same are to be made to the International Bank in dollars. Preliminary reports indicate that, in 1949, Finland has exceeded the pledged figure.

Imports

The principal European importing countries received approximately 1,350,000 standards of softwood lumber during the first nine months of 1949, as contrasted with 1,125,000 standards for the same period of 1948. Imports from European areas increased. On the other hand, during January-June 1949, imports from hard currency areas totaled 94,000 standards, almost 130,000 standards less than during the same period in 1948. Imports received by Germany (Trizone), Greece, Ireland, Italy, Netherlands, and the United Kingdom were slightly higher than the corresponding figures for 1948, whereas imports of the other countries were somewhat lower than in 1948.

While imports of sawn lumber increased during the first half of 1949, imports of softwood sawlogs decreased by 390,000 m³ ®, a quantity of logs sufficient to manufacture approximately 50,000 standards of softwood lumber.

Four major changes in the European lumber trade pattern which occurred during the first nine months of the year, ought to be recorded in this connection: the continued slackening of imports from North America, resumption of lumber imports to Germany on a large scale, the forthcoming decline of French import needs of softwood lumber, and remarkable increase of imports originating from eastern European countries and the U.S.S.R.

The background of the decrease of lumber imports from the collar 'area was dealt with in UNASYLVA, Vol. III, No. 6, and there is no need to repeat its causes. The fires in the Landes region, which had the immediate effect of committing France temporarily to exporting sawn lumber, have already been mentioned. As to the change of Germany from a timber exporting country to an importer, an event which had been anticipated for some time, it may be noted that the opening of those markets occurred in June 1949 when an agreement was signed between the Bizone and the French Zone of Germany, on the one hand, and Sweden, on the other, providing for purchases, before 30 June 1950, of about 65,000 standards of lumber, about 95,000 m³ of pitprops, 200,000 m³ of pulpwood, and, in addition, sleepers, telegraph poles, and plywood.' This agreement was followed by purchases' from Finland and certain other countries.

The increasing importance of imports to western Europe of Russian and eastern European timber is illustrated by contracts made by the British Timber Control. As mentioned above, the United Kingdom contracted, early in August 1949, for 100,000 standards of lumber from the U.S.S.R. and the Soviet Zone of Germany for shipment during 1949. About 70 percent of the lumber bought was to be shipped from the Kara Sea and the White Sea, a fact which gave rise to doubts as to the possibility of securing delivery as scheduled. In addition, negotiations between the United Kingdom and Yugoslavia for the purchase of 70,000 standards of lumber for shipment before March 1950 were continuing, and an agreement with Poland concerning shipment of 75,000 standards was reached. United Kingdom importer circles expect that the greater imports of lumber from the U.S.S.R., Yugoslavia, Romania, Austria, Czechoslovakia, and Poland may in 1950 more than equal all that has been shipped from dollar countries in 1949. As a matter of fact, it is estimated in the same circles that, as compared with 1949, the need for North American timber may decline further and should in 1950 represent only some 15 to 20 percent of the total supply required in the United Kingdom.

Prices

The slight decline in lumber prices during the first three: months of 1949 leveled off during the second quarter of the year. On both the export and domestic markets there were no general signs of further price reductions. In France, Switzerland, and Germany the demand for price reduction was due to abnormal circumstances which did not influence the general trend.

It should be noted that ocean freight rates during the first half of 1949 were considerably lower than those prevailing during the corresponding period of 1948. For instance, the freight rates from southern Scandinavian ports to the United Kingdom are said to have been between 20 to 25 percent lower, with resulting lower c.i.f. prices.

The Russian contract made by the British Timber Control provided for a basic price of £42 for 7" u/s redwood battens f.o.b. Archangel. The price fixed by the Timber Control for corresponding Swedish goods during the second quarter of 1949 was £42 10s. It is of interest to note the average c.i.f. values per standard of quantities imported by the United Kingdom:

AVERAGE C.I.F. VALUE OF LUMBER IMPORTED INTO THE U.K.. JANUARY OCTOBER 1949*

Country of origin	Average value per standard
Finland	£48 3s. 5d.
U.S.S.R.	£49 16s. 8d.
Sweden	£49 13s. 9d.
Canada	£63 1s. 8d.

* According to Churchill and Simms Ltd., London.

The devaluation of a great number of currencies has upset the price situation to some extent, and, toward the end of 1949, not very much could be said with absolute certainty about future trends. The three northern timber-exporting countries, Norway, Sweden, and Finland, maintained the previous relationship between their respective currencies and the pound sterling while devaluating with respect to the dollar Finland had, in addition, separately devalued her markka by 17.7 percent in July 19493, and thus the basis of the prices paid by the greatest importer of their timber was not affected. However, there are other factors which cause confusion in relation to prices in wood importing countries. The extent of devaluation varied in different countries, and within one country contracts are often made in different currencies, such as the pound sterling, dollar, and krona. Some time must elapse before a firm trend in prices will be discernible.

Two factors may have particular effects upon the situation. One is the probability of declining competition from Canadian and United States-timber in the European and, especially, the' United Kingdom market. This absence of strong overseas competition will naturally strengthen the position of European timber-exporting countries. Toward the end of the year 1949 the other factor could be defined merely as a "trend." As a result of devaluation, non-dollar commodities on international markets also showed a more or less general price increase.

As an indication of the development of lumber prices for the opening of the 1950 season, the Swedish round timber auctions in November 1949 showed that, while the average price of sawlogs remained almost unchanged, the price differentiation between grades had increased still further. Reports from other northern European timber-exporting countries also reflected a belief in the persistence of the firmness of the lumber market. The first week of 1950 saw the announcement of a 7.5 percent wage increase in Finland, which is bound to affect the lumber industry.

The opening of Scandinavian export sales for shipment at first open water or later in 1950 has also been favorable for the exporters. Prices for Finnish deliveries to Ireland and Belgium, and for Swedish deliveries to Western Germany and Belgium have been slightly higher than those paid in 1949. Prices to be paid at the beginning of the 1950 season on the most important markets, the United Kingdom and the Netherlands, are unknown at the time of writing.

The freight market which throughout September and October 1949 was comparatively weak, showed signs of slight strengthening in November.

Outlook

So far there are no indications that consumption of lumber in 1950 by the major European importing countries will differ in any marked degree from that of 1949. Demand can be expected to remain at about the same level.

On the other hand, an improved fuel situation and restrictions on domestic lumber consumption may enable European timber-producing countries to raise their 1950 exports by some 10 to 20 percent above the 1949 figure. Several incentives can be mentioned: increased production in countries which have received special "timber equipment" loans, general stability on a market where no serious competition from dollar countries is felt, and the set-back on the pulp market. The latter factor will result in as little pulpwood and as much sawtimber as possible being cut in Sweden and Finland during the felling season 1949/50. It is also reported from Sweden that, due to the market situation, the minimum dimensions of sawlogs at the November auctions were reduced to 5" top diameter for pine and 6" for spruce, compared with minima of 6" and 8" respectively a year earlier. The result will be an alteration in the proportions of pulpwood and sawlogs obtained from the cut, in favor of sawlogs.

In a number of eastern and central European countries, such as Poland, Czechoslovakia, Austria, Romania, and Yugoslavia, there is a strong stimulus towards increasing production and exports of softwood lumber, and the resumption of Russian lumber exports in 1949 on an expanded scale can be expected to be followed by larger shipments in 1950.

Consequently, it is anticipated that the shortfall in European softwood lumber supplies due to the import requirements of Germany and the decline in imports from the dollar area may to a considerable degree be balanced by increased supplies from northern and eastern European countries and by temporary exports from France.

In September 1949, the ECE Timber Committee estimated that the difference between export availabilities and import supplies for 1950 would run between an approximate balance and a deficit of 540,000 standards. Due to the French forest fires, the total European import demand was placed at 2.9 million standards, 10 percent below earlier estimates.

North America

Canada

The production of softwood lumber (including hardwoods east of the Rocky Mountains) during the first ten months of 1949 was about 2.40 million standards, or about 100,000 standards (4 percent) less than for the same period of 1948. The production of softwood lumber (including sleepers) in British Columbia accounted for about 1.9 million standards of this total and was about 26,000 standards less than in 1948.

Softwood exports for the first nine months of 1949 were 708,000 standards,* or about 195,000 standards less than those of 1948 for the same period. Although exports to overseas destinations showed a continuing decline, there were, on the other hand, no clear signs of increased exports to the United States. This situation was expected to change during the latter half of the year, particularly as a result of devaluation. Since the Canadian dollar has been devalued by only 10 percent, Canadian wood, at unchanged prices in Canadian dollars, would have cost about 31 percent more f.o.b. in British, South African, or Australian pounds than before the devaluation. It is obvious that this situation seriously handicaps the competitiveness of Canada's lumber export trade on many overseas markets. It also can be expected to increase the dependence of the country's sawmill industry on the United States markets which have become the main outlet for Canadian lumber exports.

* Excluding shingles.

During the first eight months of 1949, lumber prices on Canada's domestic market were maintained. In November, however, a trade report indicated that devaluation of the Canadian dollar was already having an effect on the domestic lumber prices in British Columbia, slight increases having been noted. It has also been indicated that in Vancouver higher prices obtained by exporting to the United States might lead to a rise of about 6 Canadian dollars per standard in retail prices.

United States

Consumption of softwood lumber in the United States for 1949 is expected to be somewhat lower than in 1948, 13.76 million standards as compared with 14.36 million standards, according to industry estimates.

There was a general reduction in production of all commodities during the first half of 1949, but production rose during August and September. This was reflected in an upsurge in building activity and an increased demand for lumber. Thus, consumption of softwood lumber, which in the second quarter of the year is estimated to have been 3.65 million standards, is estimated to have reached 3.83 million standards during the third quarter. A slight decline in the consumption figure was anticipated for the fourth quarter, to around 3.59 million standards.

The upturn in lumber demand, felt about the middle of the third quarter of the year, was not immediately reflected in increased production. Softwood production, set at 3.49 million standards for the second quarter of 1949, was estimated at 3.48 million standards for the third quarter, 0.2 percent less than the previous quarter and 12.2 percent less than the third quarter of 1948. For the rest of the year the prospects were considered as favorable.

The Lumber Survey Committee, an unofficial committee reporting to the United States Secretary of Commerce, in a report-dated 15 November 1949, stated that the minimum wage law providing for payment of at least 75 cents per hour would substantially increase labor costs and have serious effects on sawmill operations in the eastern states and more especially in the southern states in early 1950.

In August 1949, for the first time since the high figure of August 1948, the composite lumber price index in the United States failed to decline from the previous month's figure. Prices of construction lumber also showed signs of firmness. In September there was a slight increase (0.7 percent) in the average wholesale price index of construction lumber.

Toward the middle of the fourth quarter, some fear was felt regarding the eventual effects of the devaluation of the Canadian dollar on United States lumber prices. Canadian exporters were now in a position to ship lumber to the United States at a lower price than the domestic lumber prices prevailing in the United States. It was therefore felt that at the end of 1949 and the beginning of 1950 imports from Canada might have a strong influence on the United States lumber market.

As a result of sharp drops in exports to the United Kingdom, Argentina, China, and the Union of South Africa, the total volume of lumber exported from the United States during the first half of 1949 was some 15 percent under the quantity exported during the comparable period of 1948. Exports of softwood lumber in the third quarter of 1949 were at least 8,100 standards higher than those of the second quarter of 1949 (64,400 standards) and 22,500 higher than those of the third quarter of 1948. Although representing hardly more than 2 percent of total softwood production, the export trade is of considerable importance to certain segments of the trade.

On the other hand, imports of softwood lumber also showed a considerable decline, namely 25 percent, during the first half of 1949 as compared with the corresponding period of 1948. Third quarter imports in 1949 were 168,300 standards as compared with 244,700 standards for the third quarter in 1948.

Outlook - North America

Official forecasts in mid-1949 estimated the United States total lumber production in 1950/51 at about 16.9 million standards and domestic consumption at some 17.3 million standards. Net imports may total some 900,000 standards in 1950, leaving an export availability of about 500,000 standards. Similar estimates place Canada's export availabilities to countries other than the United States for 1950 at some 800,000 standards.

Forecasts of this sort are easily susceptible to upset. Toward the end of 1949, the following features regarding prospects for 1950 seemed to be indicative.

According to estimates of the United States Department of Commerce, the total value of new construction in the country during 1950 would reach 19,250 million dollars, or about the same level as in 1949. A decline in private construction would be offset by an increase in public construction, which, however, requires comparatively less lumber. There might therefore be only a relatively slight drop in demand for lumber for construction purposes, which accounts for the greater portion of lumber consumption.

Other factors may affect the United States lumber industry. The rise in production costs, due to the minimum wage law, has already been mentioned, as well as the possible effects of Canadian price competition:

The outlook for the sawmill industry in Canada is considered as very favorable. Due to the prevailing situation on the pulp market, it is anticipated that in Canada as in several European countries the pulpwood cut during the felling season 1949/50 will be less and the sawtimber cut will reach or even surpass the level of the 1948/49 season. Domestic demand for lumber, it is believed, will remain firm. The position of Canadian lumber on the United States market is also viewed with optimism. The export of lumber to the United States since September 1949 has been facilitated by the lifting of export controls on all items, with the exception of sawlogs. For the time being, the 10 percent increase caused by devaluation in the value received for Canadian lumber exports to the United States is considered as a cushion sufficiently large to enable Canadian shippers to meet prospective domestic competition on United States markets.

On the other hand, the significance of both Canadian and United States lumber for European and other overseas markets is likely to be further reduced.