FEEE – ECI WEBINAR: June 9
Will Product Shortages and High Prices Force You to Change Strategy Soon?

For a heads-up on this summer’s market outlook and insights on how to manage in hot times, don’t miss this free webinar, coming at 1 p.m. ET Wednesday, June 9.

The scramble to find products to sell is an even bigger headache for dealers than the stratospheric price increases. At the same time, breakdowns in the supply chain are forcing you to rethink performance indicators like turn rates and inventory levels.

Join Craig Webb, president of Webb Analytics, and his panel of experts:
• Russ Taylor, president, Russ Taylor Global
• Ruth Kellick-Grubbs, president, Kellick & Associates
• C.R. Molitich, owner, IMOC Building Supplies

Our experts will bring you up to date and get you thinking about the future in this FREE webinar, courtesy of ECI – for company profile, see: https://www.ecisolutions.com/

SAVE MY SEAT: https://www2.ecisolutions.com/lbm-materials-supply-demand-and-price-in-2021

“There is never shortage of lumber, there is just shortage of lumber at cheap prices”

 10:40 AM / May 25, 2021

https://www.lesprom.com/en/news/There_is_never_shortage_of_lumber_there_is_just_shortage_of_lumber_at_cheap_prices_98928/

Russ Taylor, President of British Columbia based Russ Taylor Global, says that “high prices cure high prices.” High lumber prices will eventually reduce demand and increase supply – high prices scare people away. He is confident the prices for lumber will start to settle down, but at higher levels than we have ever seen before. There will be a new “base level” price to result over time. Supply and demand will always balance, but we just do not have the trees anymore in North America to allow for more sawmill construction except in the U.S. South, he notes in an exclusive interview for Lesprom Network.

 Lesprom Network: We are now witnesses of incredible events in the timber markets. Prices for lumber in the U.S.  have quadrupled to $1,600-1,700 per thousand board feet ($1,035 – 1,100/m3). The rise in prices is spreading to other countries as well. You have been researching timber markets for several decades. Have similar lumber shortages and price surges occurred in the past?

Russ Taylor: This is certainly a perfect storm, I guess you might say.  In my career, I have watched several price cycles over the last five decades. In 2018 we saw the highest prices ever, they reached $655 per thousand board feet for SPF lumber (FOB BC mill), and we thought that was spectacular. Now we are almost $1,000 higher and I think it will go even higher. It is incredible and so it is a perfect storm.  Historically we would expect to see prices more in the $350 to $400 per thousand board feet ($225 – 260/m3).range. We know it is not going to last forever, but it is a sign that the North America supply chain is very fragile. When we get shocks on the supply side that are negative and shocks on the demand side that are positive, we get these very wild responses. Because it is a commodity prices that respond accordingly.

Right now prices are holding as of late May 2021: for the first time now in about seven weeks prices have not moved up week over week. It is a volatile period. But this also happened throughout March in 2021 when prices went sideways for five weeks and then started going up again. We do not know what is going to happen, but it is exciting and stressful for buyers and sellers, that is for sure.

Lesprom Network: What were the reasons for these high prices?

Russ Taylor: The reasons are pretty much to do with the COVID-19. Back in March when the shutdowns all started, everyone, including myself, thought there would be weak demand and prices would crash. Indeed,  all the high-cost sawmills started curtailing very quickly and with the idea that demand would slow. As people realized they were going to be stuck at home, a lot of them started DIY projects, home improvement projects and pulled all kinds of lumber and panel products off the shelves at the retail stores. And the retail chains started to panic to get more supply quickly.

So that got the ball rolling at the same time as people started to realize living in Manhattan was great when there was no COVID, but now they are less sure they want to be in a densely populated part of the world. So, of course, people started moving out to the suburbs. Then they wanted to buy a new home or a renovated home. The new home builders have been on fire ever since as well. Meanwhile, there were low mortgage rates in the U.S. and government stimulus has given the consumer extra money to fill up their pockets full of disposable cash. We have had this unprecedented boom in housing, repair and remodeling that has outstripped the supply since April 2020.

The US had  been underbuilding homes for 13 years before the pandemic started. The long-term average new residential housing starts are around 1.55 million units per year and since 2007, we have been below that level. We have had a 13-year period of underbuilding that created a huge deficit of homes along the way, so we always knew that it would eventually balance out. We started to see housing starts bouncing back in the latter part of 2019 and into the first quarter of 2020, so housing starts were already rebounding and then COVID hit and that dramatically increased new home construction.

It is similar in Canada and in Europe. It is the same scenario that everyone is stuck at home. In Australia and in many other countries it is the same and no one expected it. In the first wave there was a toilet paper shortage and now we are looking at a building material shortage and it has just been unprecedented. But it is about long-term homes  being underbuilt in the US and now suddenly people want to go live in the suburbs and have a backyard, have a home office, have maybe a little home gym and be much more self-contained. For those that are now working part-time in the office and part-time at home, this can be a nice compromise. So, a whole bunch of things are all happening while is impacting consumers and lumber demand.

Lesprom Network: Does recent volatility indicate that the market has found a ceiling for price increases or is it a warm-up before setting new records?

Russ Taylor: That is a great question and, essentially, nobody knows. I mean, I have been forecasting lumber prices in the U.S. for over 30 years, and I cannot call this one. Like so many others, I have been getting it wrong, as I kept thinking every time we get to a point where prices flatten out, we all tend to think that it has to start going down, right? But no, prices keep going up!

Right now, the lumber futures market for SPF lumber (on the Chicago Mercantile Exchange) is extremely volatile. If you understand or follow the lumber futures market, which a lot of people do not, it has been very volatile and normally the cash market and the futures market are remarkably close. But about 10 days ago in mid-May there was a huge premium of over $200 per thousand board feet in the futures market which we have never seen before. That then corrected very sharply over seven days where future prices dropped over $200 per thousand board feet  below cash prices and that has caused everyone to pause and to wait and see what is going to happen. After this dramatic decline, the futures prices started coming back up and we are seeing perhaps the sign that cash prices could start to go back up again to new highs. But we know that prices will correct at some point in time and move lower – a lot lower.

I talked to a lot of people that are in the trade and some think that this price surge is going to peak in the next two to three weeks. Some say the next two to three months. Some say it will be 18 months. The predictions are all over the map. It has been incredible. I have called people that I have talked to over the decades that have a rather good feel for the market, but nobody knows what is going to happen as it is uncharted territory. The mills do have strong order files that support high prices. It is only when we get buyers to stop buying and mill order files shrink enough to where we will start to see a price correction. But for how long the correction lasts and to what price it bottoms out at, no one knows.

But even having said that, when we have a price correction, I do not believe it is going to crash and burn. I believe we are going to see a retrenchment to a lower price and then prices will stabilize at whatever level that is – but at a remarkably high level though –  and then I expect prices will start to go up again. I think we are going to see more of this extreme price volatility in the U.S. lumber market, and I think prices will generally stay high. My expectations are that the prices are going to stay elevated over the next two to three months. This means that lumber prices could remain high all summer, maybe not at the current levels as of late May, maybe it will be correct first. But I expect that prices could remain above $1,000 per thousand board feet. Next year I think it will finally correct and perhaps as early as  in the fall and move below $1,000. We are talking about very high prices. This also has been driving global markets as well, which is interesting to watch the ripple effect.

Lesprom Network: If high prices for lumber persist for a long time, are there opportunities for builders to find some substitutes? Contractors may avoid the traditional materials and opt to use composites. Is there a threshold after which the contractors will say, no, let us switch to composite materials?

Russ Taylor: That is another great question, and that is the worry that everyone has right now. Will builders find alternative products that are substitutes? And the answer is probably no. I mean a little bit yes, but there are very few substitute products that fit very well for wood house construction. In the 1990s, when lumber prices hit their peaks, steel was cheap, so steel studs were introduced into new home construction since they were being used in non-residential construction. Some builders switched over to steel studs that were much cheaper than lumber.

That lasted for about six months and then of course lumber prices came back down and steel prices went up. There ended up being little advantage to continue using steel studs and most of the builders said it was an experiment. They tried it, where they bought new tools, new screwing guns and then they had to learn about using it. It was not very efficient, so probably in the end they were better off just to stick with wood studs right through the cycle.

All other building materials, whether it is steel, concrete, plywood, gypsum, they have all seen higher prices as well. There are probably cheaper alternatives right now, but nothing that is significantly priced lower and that will remain sustainably at lower prices. In the U.S. market in particular, the building industry changes very, very slowly. I do not see any real uptake uptick at all in new substitute products. It will be more in off-site construction where building components are manufactured in factories and delivered to the job site.

But what this will do, though, is to cause builders to start looking for alternative products. We will not see anything dramatic, but maybe over the next two or three years, we are going to see some erosion where there are some new products that come into the market. But my expectations are that there will probably be a small erosion of wood products versus other building materials.

Lesprom Network: How high lumber prices are influenced by Canadian lumber tariffs, as well as issues with the Canadian forests?

Russ Taylor: Canada was a huge supplier to the US market. Through the 1990s and the 2000s, we had about a one-third market share of U.S. consumption, so it was significant. The US needed Canada and Canada needed the US. We had the BC mountain pine beetle epidemic that’s eroded BC’s forests and lumber production dramatically. In 2005, we had 105 sawmills of a medium size scale or bigger operating, and today we have barely 60 mills left in the BC interior. On the BC coast, we are seeing the lowest production levels in probably 40 years, but for different reasons (more about restricting forest access via government policies). The Canadian industry is not growing much anymore. It is shrinking in BC and  growing a little bit in the rest of Canada, but in total it is not growing on any scale.

Canada’s lumber contribution to the U.S. market is essentially not growing in volume and its market share is shrinking. Canadian lumber is now around 25% of U.S. consumption, and eroding. Going forward, the U.S. will have to either produce more of its own lumber, which right now it can only a little bit. In Canada, it is not possible to add any more sawmills since it is close to utilizing 100% of the forests’ sustainable harvest.

In the U.S. it is the same story on the forests and sawmills, except for the U.S. South. In the South, there are vast plantation forests that are fast growing. Following the housing market collapse in 2006-2009, the plantation forests had reduced harvesting and the remaining timber kept growing . Right now, there is a huge surplus of timber which means there is a vast number of new sawmill projects going on that will slowly add to the production base in the US going forward. The US can also increase lumber imports from Europe, and perhaps more from Russia to reduce its supply gap.

You mentioned the US import tax on Canadian lumber. That is 9% today. It will be doubling to  around 18% from the US government’s annual review that was just announced. But in this strong market, 100% of that tax is being passed on to the consumer. There is no real impact on the Canadian mills from this.

And the thing that some people may not realize is that the export tax could be refunded to Canadian mills when they negotiate another lumber deal between the U.S. and Canada, so the Canadian mills or exporters are likely going to get it back. They  may not get all of it back though. Last time around we had a similar situation and as part of a new US-Canada Softwood Lumber Agreement, they got back 80% of the tax, so they got about a $4 billion refund for the whole industry. So that was a nice bonus to receive. As a result, during these high-priced lumber markets, this is not an issue for the Canadian mills. In fact, I would say the Canadians are saying: “Leave the tax on, it can be a good thing for us in strong markets. And for the poor U.S. consumer, sorry, you have to pay for all of the Canadian import tax when prices are high”.

It has backfired from the American perspective. But it also benefits the U.S. timberland owners who are behind all this because they get higher value for the timber except in the U.S. South. They are getting a lower price than they received 15 years ago due to the surplus timber.  The U.S. West timberland owners in Oregon, Washington, California are the only ones that are benefiting from this tax, nobody else. The Canadians will eventually benefit from it too. So, it is really backfiring in a number of areas from the original intent of the Americans.

Lesprom Network: There are many coniferous forests in the U.S. South and some forest owners say that they are not getting the price boom of the lumber market? Why have not prices for U.S. logs increased as much as for lumber?

That is the supply and demand imbalance of timber in the U.S. South. There are many TIMOs (Timber Investment Management Organizations) as well as the private timberland owners. The TIMOs have these funds with their investors, and they need to generate cash every year as part of their mandate. Some of these forest owners or managers  have to harvest timber no matter what the price is to generate cash for investors. That means that they inadvertently help to depressed prices as there is an overall glut of timber, and there is always enough supply on the market to keep the price set at the same low level. Because of this glut of supply and with many companies that need to harvest, the timber price has been flat for about 15 years.

Even though lumber prices are at record levels, the poor US timberland owner is getting none of that increase. So, it is bittersweet for the timberland owners. And there are a lot of private timberland owners, just families, and watch these timberland corporations that are selling their timber at low prices for cash, keeping the overall timber price depressed.

Unfortunately, there is just way too much timber available, and this will probably go on for the next five years until more new sawmills start up to shrink the surplus. Some of the surplus logs are exported to China, and that sort of thing will help to tighten up the excess supply over time. Unfortunately, there are winners and losers in this industry and in the U.S. South, it is the sawmill owners that are the winners, not the timberland owners.

Lesprom Network: Few years ago, in an interview for Lesprom Network you noted that sawmills in the U.S. South made huge profits. What would you say about the profits of these sawmills now?

I have conducted a global sawmill cost study every two years since 1999 and I am working on the latest one right now. Since 2007, the U.S. South sawmills have made the highest earnings in the world, or close to it. Because of this continued depressed log price where any increase in lumber revenue goes to the sawmills. Several of the largest B.C.-based companies started investing in sawmills in the U.S. South back in 2002. They have been able to take advantage of these cheap log prices that have occurred since the U.S. housing market collapse starting in 2007.

Canadian companies have invested in 40 to even 50 sawmills now in the U.S. South. The bulk of the sawmill earnings of these Canadian companies now are from their U.S. South operations. Sawmill earnings in Canada have generally been well below the U.S. South over the last 15 years. It will be high this year, but in Canada, the stumpage price (the returns to the government that own 90% of the forests in Canada) normally floats with the lumber price. Sawmills in most Canadian provinces then tend to pay higher log prices as compared to sawmills in the U.S. South that are well situated in a huge lumber consuming region.

Lesprom Network: U.S. sawmill companies are not racing out to build new mills. Why are there not many new mills in North America?

That is not quite true. There are many new sawmill projects, but in the U.S. South only. From 2018 to 2020, there were 24 new sawmill projects, some were expansions, and some were new mills, but mainly expansions. That added about 3.7 billion board feet, so about 6 million cubic meters of lumber capacity was added in those three years. Looking ahead from 2021 to 2023, I have another about 20 projects announced on my list, mainly expansions, but seven new greenfield sawmills on the list. That is another 3 billion board feet, so close to 5 million cubic meters. So, looking ahead from 2018 to 2023, that adds 7 billion board feet or over 11 million cubic meters of new capacity. Now some of that new capacity will take time to come on, often delayed by 12-24 months before reaching full capacity.

But the problem is that U.S. demand this year and probably next year is growing by around 3 billion board feet a year, or 5 million cubic meters and the incremental capacity of these new mills in the US South is more like around one billion board feet (covering one-third of the growth in annual US consumption). Other incremental increases can come from Canada and from the U.S. West, perhaps adding another billion board feet, so another one-third of new production to cover increased US demand. So North American production can cover about two-thirds of the annual incremental US consumption. European imports are part of the solution as well as from  the Southern hemisphere. Incrementally, that could add about maybe half a billion board feet, 800,000 cubic meters, so we are getting closer. However, Canadian consumption is also increasing, reducing the potential of US imports from Canada.

If demand grows by more than about 2.5 billion board feet, then there is a gap. And that happened in the second half of 2020 and so far this year it is on pace to grow by 3.0 billion board feet. There is a supply gap and therefore prices go crazy, and then that starts to attract more domestic and imported supply. That is the cause right now around the price increases. But there is nowhere else to add new lumber capacity in North America except in the U.S. South.

The other thing about Southern Yellow Pine is that it is not a desirable wood species for house construction as compared to other options. It is heavy, it is stiff, and it does not nail easily. But it is particularly good for trusses in roofing systems. But it is not very good for wall studs, where you must repeatedly nail so many of them. But now that there is so much more supply of Southern yellow pine and less SPF lumber, there are now some small volumes moving into new regional markets in the U.S. and even into Canada.

Some of the volume into Canada is probably treated Southern Yellow Pine, but it is also going as far as into California. Customers are trying it because right now the prices of Southern Yellow Pine are quite a bit cheaper than Douglas fir or SPF out of Canada, so there is an experiment going on. There are lots of things happening in the US market, but there is no new capacity coming on except where the trees are, and that is in the U.S. South.

Lesprom Network: And the final question, when is the lumber shortage likely to end?

Oh, that’s another good question. Well as we would say there is never a shortage of lumber. There is just a shortage of lumber at cheap prices. That is really the issue. I think the high prices and the expensive lumber will continue this year and into next year.  One of the comments I use is that “high prices cure or fix high prices”, as high prices will eventually reduce demand and increase supply – high prices scare people away.  My friends are asking me now all the time: “I just went into a Home Depot. What is going on with the prices of lumber and plywood and OSB? I’ve never seen anything like this in my life”. Even my daughter who knows nothing about wood products had her boyfriend asked her to ask me about why wood is so expensive now compared to a year ago.

The consumers now are getting “price sticker” shock when they go buy some lumber to do outdoor projects, like a deck or a fence. They’re seeing crazy prices in there, and so now they’re saying, “well, we’ve got our vaccines now, so maybe rather than building a deck this summer, let us go travelling and will wait for prices to come down. So that attitude eventually takes care of any pent-up demand.

But we are going to see elevated prices relative to this average price we talked about earlier, which have traditionally been in the  $350 to $400 per thousand board feet. I think we are going to see price levels that could be double that for much of the next year and then eventually we will start to see prices settling down, but at higher levels than we have ever seen before. I expect a new “base level” price to result over time. We always know that supply and demand will balance, but we just do not have the trees anymore in North America to allow for more sawmill construction except in the U.S. South. That is going to basically create a tighter supply, and that means we will need more imports, say from Europe, even from Russia. Producers and exporters over there need high prices to access the U.S. market. When all the cheap spruce beetle wood in central Europe is reduced, the U.S. market will still need European lumber and European sawmills will need high lumber prices, especially if European log prices go back to  €100 per cubic meter.

That is why we think prices will move higher to attract new supply from Europe. And of course, the other question is why not Russia if the prices stay high? There are a number of Russian sawmills that export to Europe as well as overseas. The only bottleneck I see for sawmills in Europe and Russia is that the U.S. market requires planed or smooth lumber, so exporters will need to have large capacity planers to make smooth lumber. Some of the mills in Russia have small planers, may not have enough capacity or also enough kilns. The U.S. market requires kiln dried and planed lumber for almost all its products, so that becomes a bit of a bottleneck to access the U.S.

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The following article was published in the spring issue of Truck Logger BC (Truck Loggers Association – https://www.tla.ca/ ) . This summarizes the wild ride the lumber industry and market is having so far in 2021! Note: lumber prices continue to advance way beyond any levels imaginable only a few months ago!

TLA Spring 2021 - A Wild Lumber Super-Cycle

 

May 4, 2021                                                                                                           By: Russ Taylor, President

W-SPF 2×4’s at $2,000?

Ongoing Surge in Lumber Demand Is Creating Unbelievable Prices!

In late July 2020 I wrote an article in the WOOD MARKETS Monthly Report (my last-ever editorial) where I posed the question if W-SPF 2×4 #2&Better Random Lengths (FOB BC Mill) lumber could achieve the US$1,000/Mbf threshold (US$645/m3, net) in the COVID-induced rally that had started. At that time, W-SPF was trading at US$678/Mbf – or just over two-thirds of the way from the $1,000 target. In fact, the rally lasted only another -4-5 weeks into early September before prices peaked at US$955/Mbf. Close, but no cigar.

However, this was not the end of the price cycle – as many, if not most, had expected. Prices of 2×4 bottomed out at $530/Mbf in late October 2020 and then the second price wave started. W-SPF prices rose to $927 on January 8 before slumping for two weeks to $785.

Then the third (and current) wave started where prices have increased every week since (aside from holding steady for five weeks at $1,025) and at the time of this writing (May 1) prices were sitting at $1,420/Mbf (US$917/m3, net). Ironically, this is also just over two-thirds of the way to the next threshold of $2,000 but with extraordinarily strong momentum. Is a $2,000 price ($1,292/m3, net; or ~$1,375/m3 delivered US East Coast) for SPF possible during this cycle? Prices have increased $400/Mbf in the last five weeks (to April 30) – if this sizzling pace (averaging $80/week) were to continue, we would be there in nine weeks, or the end of June! As the graph shows, the recent torrid pace in April is unprecedented, but anything seems to be possible this year.

There are several reasons why this bold outlook has potential!

Supply issues:

• Sawmills are operating full-out and capacity is constrained for any significant increases.
• Acute trucking and container shortages with prices that are 50% to 150% higher than one year ago.
• Scarcity of skilled labour – logging to mills to logistics providers.
• Potential of summer forest fires and mill curtailments though to September are very possible.
• The production and export potential of the BC lumber industry continues to fade due to a myriad of issues. Aside from the fallout from mountain pine beetle epidemic, there are also more damaging government initiatives to the BC fibre supply and industry cost structure that are looming (stumpage formula, transfer of tenures to First Nations, fibre recovery zones and penalties, various and pending export restrictions on logs and cants, caribou protection strategy, AAC reductions, old-growth and parks strategy, environmentalists, other bark beetle infestations, etc.).
• Only the US South has the potential to substantially increase lumber production in North America.

Factors that could improve US lumber supply to ease price pressure include:

• Offset by reduced offshore lumber exports.
• Offset by more lumber imports from Europe and the Southern Hemisphere (as well as Canada).
• Offset by the potential of lower COVID restrictions at mills.
• More substitute products may be considered.

Demand issues:

Factors that could stall US lumber demand and prices:

• Scarce lumber and OSB volumes could delay house construction, increasing available inventories at dealers and causing a slowdown on mill orders
• Shortages of labour for house building could slow lumber demand.
• Housing prices have increased significantly, as have mortgage rates, so affordability issues for first-time buyers will start to limit demand for new and existing homes.
• Lumber and panel costs in the framing package for new US housing construction have increased by anywhere from US$36,000 (NAHB) to $50,000 (Layman’s Lumber Guide) from one year ago. This will continue to increase as current lumber and panel price increases are lagging actual building material costs on jobsites by about two months.
• A slower pace in building season could kick in during the summer heat.

However, there are many demand factors (housing starts; repair and remodelling) that continue to favour the strong demand cycle and they still outweigh the negative factors, at least for now. If dealers and builders need to purchase inventory at any price – at that about sums it up the current market sentiment – then the lumber price advances will continue for a time. Inevitably, prices will correct, but when and to what level they will drop is what is making buyers extremely nervous.

There is a chance that the average W-SPF 2×4 price could average over US$1,000/Mbf for 2021 – quite unbelievable, except this year! History suggests that whenever expectations get too lofty, things can change for the negative very quickly. If it is too good to be true, then it probably is not. And nothing cures high lumber prices like high lumber prices. Trying to forecast lumber prices in the unprecedented market is impossible – anyone that does can only be lucky if they are close but will most likely be wrong!

There are already spot market transactions of 9-foot studs at over $1,800/Mbf delivered to the US east coast and Texas. Getting to the $2,000/Mbf threshold for some products on a delivered basis is possible and, in fact, highly likely! Whether the W-SPF 2×4 R/L FOB mill price gets there is probably a stretch, but momentum suggests it will get close – just like the first and second cycles!

However, W-SPF 2×4 is currently at a substantial premium to SYP: instead of the normal $70-$80/Mbf discount, SPF is at a whopping $200+/Mbf premium! As this creates a disincentive to buyers of SPF, the question is: will SYP prices catch up or will SPF prices start to peak sooner rather than later? As always, the outcome will be played out in the lumber markets and no one can really predict what is going to happen in this crazy cycle until it happens!

Russ Taylor, President

RUSS TAYLOR GLOBAL – Wood Business & Market Consulting

russtaylor@russtaylorgloblal.com

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NEWS RELEASE

RTG REPORT: Japan Part 2 – Wood Market & Consumption Trends

Despite fading housing starts, non-residential construction remains an opportunity!

January 7, 2021 — Vancouver, BC 

RUSS TAYLOR GLOBAL is pleased to announce a second complimentary report that summarizes Japan’s wood industry and consumption trends. The Japan Part 1 report (released in December) covered log and wood products imports and domestic production and supply trends, including some historical perspectives back to the 1960s and 1970s. The new Japan Part 2 report discusses trends in business, demographics, housing, other end uses, and lumber prices.

Japan remains a most important market for global exporters of higher quality and value-added/engineered products. Understanding and reviewing some of the major demand and demographic trends and issues in Japan (in combination with import and domestic production trends) should be useful to most industry players.

The full Part 1 & 2 Report is available by request: simply send an email to: russtaylor@russtaylorglobal.com or visit www.russtaylorglobal.com for further details or to join our email distribution list.

Highlights of the RTG Part 2 Report are summarized here:

Recent Business Conditions

Japan’s Cabinet has approved an additional economic package worth 73.6 trillion yen (US$707 billion) to keep the economy on a recovery track. The government estimates the stimulus measures will boost Japan’s GDP by around 3.6%. As well, the Cabinet Office index of business conditions for November continued its upward trend, rising 5 points from the previous month to 89.7 against the 2015 base of 100 – this represented the second largest month-on-month increase since records started in January 1985.

Consumer confidence in Japan improved for the third consecutive month in November, but the pace of improvement slowed.

Population & Demographics Trends

Japan’s population peaked about 2010 and its’ indigenous population is now shrinking at an annual rate of about 500,000 persons. Japan is one of the world’s fastest aging nations with almost 30% of the population over 65 years of age. This is one of the reasons for Japan’s low unemployment rate and reflects the country’s contracting labour force and chronically tight labour market. Demographics will remain a headwind for economic growth over the coming years as “guest” workers and productivity gains are not expected to make up for the shrinking workforce and the increasing cost of elderly care.

Housing Starts

Japan’s culture of living with wood, plus government stimulus targeted at increasing use of domestic wood in construction, and favorable changes to building and fire codes, have supported the steady increase in the proportion of wooden housing starts since 2007. Before COVID-19 hit, the Government of Japan was in the process of implementing progressive taxes from 2019 through 2025. This was to provide a budget that would exceed US$700 million per year by 2025 for programs to support development of Japanese commercial forestry, logging, wood products manufacturing, increased promotion, and wood consumption in Japan. The proportion of wooden housing starts is expected to grow to eclipse a market share of 60% within the next 5 years from its current level of 56%.

Total housing starts are predicted to reach about 800,000 units in 2020 – a large drop from 905,000 in 2019. This was not only caused by COVID-19, but also from the increase in the consumption (VAT) tax from 8% to 10% that occurred in late 2019. Following an expected rebound in 2021, the overall housing starts trend is then expected to move lower over the next 5 years.

Non-Residential Demand

The main non-industrial end use segments include elderly, medical care and social welfare facilities that top the list, followed by agricultural buildings and mixed residential and commercial buildings, restaurants, and accommodations. Wood frame construction has consistently accounted for around 10% of total floor area in non-residential construction. Based on housing starts, the wood market share is probably stronger due to the success of wood frame in elderly care facilities and the commercial units surrounding those facilities (seniors homes need 7-Eleven-type stores close by), although the average floor area in these sectors is low. With government incentives in place to encourage increases in wood construction in non-residential uses, it is conceivable that wood’s share could double or even triple the current floor area by 2025.

A number of key factors (pros and cons) driving the Japanese market and demand over the next five years conclude the report.

The full Part 1 & 2 Report is available by request: simply send an email to: russtaylor@russtaylorglobal.com  or visit www.russtaylorglobal.com for further details or to join our email distribution list.

For further information, contact:

Russ Taylor, President

RUSS TAYLOR GLOBAL – Wood Business & Market Consulting

Email:  russtaylor@russtaylorglobal.com

Mobile: +1 604 897 5666

Web:    www.russtaylorglobal.com