By Russ Taylor, RUSS TAYLOR GLOBAL November 21, 2021
A super rain and windstorm, the so-called “atmospheric river” that is being called a “100-year storm”, hit BC and Washington State with catastrophic results last weekend. Main roads and bridges that are integral to the infrastructure throughout BC were breached, including on all major highways and rail lines. Also impacted were oil supplies from a critical pipeline from Alberta to BC that is used to produce gasoline and diesel at local refineries – this caused the government to enforce fill up restrictions to a maximum of 30 litres (6.7 gallons) at gas pumps. In fact, Vancouver was logistically cut off by road and rail from the rest of Canada for about 72 hours as all highways and rail lines heading across BC were damaged and/or impassable. Even one week later, only two secondary highways have been re-opened and they are for the exclusive use of emergency and essential service vehicles.
Full details in pictures and videos that show the full extend of the damage in BC and Washington can be found in the excellent summary prepared by the Washington Post: https://www.washingtonpost.com/weather/2021/11/18/british-columbia-washington-floods-climate/
The reality from the storm is that business and logistics operations will not be back to even close to normal levels until well into December and perhaps not until after the New Year. This will mean that the lumber supply from BC, and to some degree from Washington State, will be reduced as supply chains remain in disarray. With the Port of Vancouver currently cut off from road and rail service, lumber export deliveries to the port could be limited as the priority should shift to moving more critical cargos through the port – that may not include lumber, so it will need to be redirected into North America.
Paul Quinn of RBC Capital Markets provided the sentiment of his take on what this means to North American lumber markets in his Lumber Pulse Check of November 21. His comments echo mine:
- The impact from BC and Washington State is that lumber supply could be reduced for an extended period.
- It appears that most traders are preparing for a longer outage, but the service disruption sets up for a challenging winter transportation season.
- Even prior to the flooding, the lack of containers was a material constraint on export volumes and most mills were shifting volume back into the North American market. It is understood that some mills are limiting rail shipments by necessity and instead relying on truck where possible; however, there are a limited number of trucks available, so production is likely to far exceed shipments in the near-term.
- The consensus view among traders is that the increase in US softwood lumber import duties from 9% to 18% around December 1 are a weak reason to increase prices, but because the market is tight, buyers are more likely to pay higher prices if mills ask for it
- This leaves risk firmly skewed to the upside heading into 2022.
- In terms of a lumber market impact, traders are mostly seeing a tighter supply scenario resulting and believe that the price risk is skewed to the upside (i.e., US$1,000/Mbf lumber is now more likely than $550). Random Lengths published prices for W-SPF 2×4 #2 random length (FOB BC Mills) on November 19 was US$620/Mbf, up from the previous week’s $555.
As I have been saying for over a year, expect more volatility in lumber markets for the indefinite future!