VANCOUVER – A recent global benchmarking survey from Wood Markets (FEA-Canada) has once again placed mills of the U.S. South at the top. The U.S. South was the highest margin sawmill region in North America – a place it has held since 2008 – as well as the top global earner again in 2016 and for the second quarter of 2017.
Out of 32 countries and/or regions surveyed, “average” U.S. South mills had the highest earnings results in 2016 with a 25 per cent EBITDA. The earnings at “top-quartile” mills in this region were “off the scale.”
“As has been the case since 2008,” explained Russ Taylor, managing director of FEA-Canada and the principal author of the report, “the major operating advantage for U.S. South mills continues to be the region’s low log-cost structure. With a surplus of timber and not enough sawmills operating in the aftermath of the housing market collapse, delivered log prices remain among the lowest in the world with margins being the highest in the world.”
EBITDA earnings at “average” mills in Canada were strong, partly as a result improving prices and no U.S. import duties in place for all of 2016, the report says. Canada’s earnings as a whole were above average on a global scale and also ahead of Europe and Russia (mills with logs at cost) but lagged the U.S. weighted average. The Canadian average earnings comprised a wide range of regional results, with higher earnings in the west versus half of those seen in the east.
“Average” mills on the U.S. West Coast had earnings that below those in Western Canada in 2016, mainly due to tight log supplies and strong log export markets in Asia, according to the report.
All regions covered in the global sawmilling industry in 2016 and in 2017 showed good results. The benchmarking report says the average global earnings (EBITDA) at “average” sawmills actually dipped slightly from US$21/m3 (US$34/Mbf – nominal) in 2014 to US$18/m3 (US$29/Mbf) in 2016 but improved to US$24/m3 (US$39/Mbf) by 2017-Q2. For best or “top-quartile” mills, and depending on the region, earnings results were typically about double that of “average” sawmills in each country.
The fortunes of most regions improved significantly in 2017-Q2 due to higher global lumber prices. The North American economy has been stable, boosting lumber demand and prices and the European economy improved in 2016 and especially in 2017 as many mills (and countries) had their best results in five years, according to FEA-Canada.
The introduction of import duties in 2017 on Canadian lumber to the U.S. significantly reduced sawmill margins and has stimulated large increases of lumber exports to the U.S. from Europe, Russia and the Southern Hemisphere. “What is most interesting,” commented Taylor, “is that net margin achieved by mills in Sweden (delivered to the U.S. Gulf region) is now higher than all calculated margins from Canadian top-quartile mills. With import duties on Canadian lumber, top-quartile sawmills in Sweden now have the lowest delivered lumber costs aside from the various U.S. regions.”
These results and detailed cost, revenue and earnings data were released earlier this month in the 2017 edition of the Global Timber/Sawmill/Lumber-Sawnwood Cost Benchmarking Report. A summary, including a “special analysis” on delivered lumber costs to key export markets, is also provided in this month’s Wood Markets Monthly International Report.