Log Market Forecast for 2019 by Vincent Corrao, President
Log markets in 2017 were strong and in second quarter 2018 log prices were very high and, in some cases, reaching all-time prices. This volatility came from several different economic factors including the US- Canadian softwood lumber agreement which expired in November 2017 which placed an average of 20% tariff on Canadian importers. With the impacts of the lumber trade agreement and a trade war with China we saw increases in the global lumber market and as global markets expanded so did log prices. There was also relatively strong gross domestic product (GDP) growth and historically low unemployment rates through these years which led to strong economic improvement. The Feds raised the federal funds rate seven times in 2017 through 2018. Housing starts have also been increasing although underwhelming for the past few years, 2017 ended in 1.2 million units after a 10-year high and then a year end decline. There was a strong housing start reported in the first half of 2018 which was 1.26 million starts but then these sank 11% to a two-year low ending the year short of 1.1 million units.
The 2019 economic forecast will be driven by certain fundamentals which include a low unemployment rate for February 2019 of 3.8%. The January 2019 inflation rate was at 1.6% and the January 2019 wages were up 4.1%. We also saw a fourth quarter 2018 GDP growth of 2.6% and current federal interest rates between 2.25% and 2.5% with the current average 30-year fixed mortgage rate of 4.6%. The global economy is slowing down particularly with China and is in part to the unresolved trade war with the US but there are recent optimistic developments. Europe overall has a slower economic growth with its own trade disputes and the rise of nationalism.
Residential repair and remodeling continue to make up the biggest part of market share and mortgage rates are projected to stay stable. The forecast for 2019 housing starts range from 1.23 to 1.31 million units which is very modest growth. Most forecasters expect the lumber market to track more similarly to 2017 then 2018 and all signs point to a strong lumber market in 2019 but not at the highs or the boom and bust nature that we saw second and third quarter of 2018. Global softwood lumber supply forecast is to grow 2 to 2.25% in 2019 and global softwood demand is forecast to grow 2.5 to 3 % in 2019 and led by the US and Canada. The US softwood demand forecast is to increase 6 to 7 % in 2019 with the softwood demand trends in housing starts.
Log markets generally follow but lag lumber markets. These prices are highly dependent on US residential construction of housing starts but there are promising emerging markets such as Cross Laminated Timber and Mass timbers products and recent legislation is advancing these markets. Log prices in the Pacific Northwest will face competition from highly efficient Southern US timberlands but overall log prices are expected to be relatively strong but closer to 2017 values then the peak ones of 2018. Sources: Keith Balter- HNRG, Random Lengths, FEA January 2019, Forest2Market, timberinnovation.org, Federal Register, WA DNR.