Cedar faces tight supply

FTETAILERS ordering cedar late l-Itni. month or in December could face a tight supply.

Members of the Western Red Cedar Lumber Association anticipate a tight cedar log supply continuing into 1993. The British Columbia, Canada government's plan to remove approximately lSVo of the Annual Allowable Cut (AAC) from the provincial industry harvest has already affected some companies. This combined with summer fire season closures furtber aggravated a tight log supply situation. The brunt of the AAC cutbacks are expected to hit in the spring of 1993. Other factors, such as a heavy winter snow pack shutting down logging operations, could further tighten supply.

International Forest Products Ltd. has had two mills running at half capacity during tlrc past six months as the severe surnmer fire season limited log supply. John Drew, general manager at their McDonald Cedar mills, comments "supply is tightening but we are not going to run out of cedar."

Glen Connor, Canadian Forest Products manager of cedar lumber sales, maintains that U.S. buyers will continue to face an ordering dilemma. About 854o of the province's cedar production goes into the U.S. market, according to WRCLA executive director Ken McClelland. In addition to appealing to the environmentally "green" buyers, cedar is etching out a brand of consumers that want "an original home, one that is not just a

Fewer panels, no shortages

Qtructural panel demand will be met rJin the coming months although the West will lag in production.

Overall, structural panel production in the U.S. will increase. However, western production, which has dropped about 3Vo this year, will continue to decline. The timber harvest from private forest lands will be stimulated by higher log prices, but will not be enough to offset furtler harvest declines from western public lands.

"An increase in raw material supplies is not expected in the West at this time or in the foreseeable future since significant new tracts have not been offered for sale on public lands for several quarters and there is no end in sight to the spotted owl debate," the American Plywood Association's annual "End-Use Marketing Profiles for Structural Panels, 1993" reports.

Total U.S. industry production, according to the report" is forecast to reach 25.5 billion square feet (3/8 inch basis) this year,26.7 billion feet in 1993 and 27.5 billion feet in 1994. Industry production in 1991 was approximately 24.3 billion feet. Western production has fallen from nearly 9.1 billion square feet as recently as 1987 to just 5 billion feet or less this year.

Structural panel mill capacity in the U.S. as measured by equipment capacity is now 32.2 billion square feet. Part of this capacity is 1.2 billion square feet within westem mills which have been closed for some time, primarily due to the lack of adequate log and ven@r supplies. Closed mills are still capable of operating, although some may require invesfrient prior to start-up, APA notes. house, but a home with natuml character," he says.

Many western and inland mills are not producing at levels they could be if they were not constrained by a lack of wood supplies and this unused capacity has been estimated at2.3 billion square feet This leaves 28.7 billion feet of sustainable productive capacity which will not increase unless raw material supplies increase ornew mills come on sfeam.

At this time, new capacity planned for start-up by the end of 1993 totals 600 million square feet and will increase total productive capacity to 29.3 billion square feet. With no relief in sight for raw material supply, existing productive capacity and planned new capacity appears to be adequate to meet needed industry production of 26.7 billion feet for 1993.

Beyond 1993,without new productive capacity to match increasing demand, market share could be lost in some segments; APA concludes.

At present" despite demands nade by Hunicane Andrew, it appears there will be less structural panel product available from western nills, but an adequate supply overall.

While supply side shortages have caused slight price fluctuations this year, "going back o the 1972 dollars and in temrs of buying power, cedar is still priced competitively,"reports McClelland.

He expects sales volumes this year will remain equal to 1991.

Bob Thompson, MacMillan Bloedel's North American cedar disribution rumager, maintains that higher cedar prices are really a market correction. "It has always been a specialty product but has not been priced that way."

He contends tightening log supplies, reduced production capacity, plus increasing consumer recognition of cedar's special qualities "should continue to remove cedar from commodity pricing and place it vrithin a less volatile market of specialty products."

Harry Erskine, Still Creek Forest Products Ltd. sales manager, believes an AAC reduction will push companies into more remote timber, which could spawn nore costly harvesting techniques. This would translate into available supply but higher cost. He doesn't believe higher prices will drive away consumers as markets are going "green" and consumers want a quality product that won't need replacing on the short terrn.

"What's going to happen in the spring is probably not much different from the past 30 years. We always have spurts and hollows and the people who are thinking positively are going to do well," he predicts.

Cedar producers note that the market hedged when the international trade tariff of. l4.5%o increased costs and buyers ordered smaller lots rather than a rail car, correctly gauging that Canada would have the countervaihng duty reduced to a lower 67o. No one wanted to get sftck with higher priced lumber in inventory and now some buyers have become used to purchasing in smaller quantities.

The question retail yards will have to resolve is again one of cost and supply. Traditionally the fall is the time when the yards let inventories dwindle, ordering in late November and December anticipating the rush of spring construction. However, this year that collective demand may hit a time when log shortages are most acute.