EDITOR’S COMMENT  ISSUE 67 FEB/MAR 2019Chris Cann Editor

Mixed outlook for forest products in 2019

I was asked recently for my view on global  markets for this year and, while it’s always  flattering to be asked for opinion, providing  a meaningful response felt close to a mission  impossible.

In one sense, the outlook appears good,  underpinned by an encouraging global GDP  forecast of 3.6%, which in theory should see  demand for wood products in general push  forward materially.

Indeed, this is the expectation of wood  industry research group, Wood Markets,  which is expecting consumption of softwood  lumber to grow by an impressive 2.8% – 350  million m3 – in 2019 having recorded growth  of 2.1% last year and 1.9% in 2017.

The overall strengthening demand trend  reflects the likelihood for gains in all major  regions, led by the US and China, which  are both poised for demand growth of 7%,  according to Wood Markets. Canada and  “some European nations” were expected to  record “moderate growth”. Japan was among  a handful of poorly performing jurisdictions.

Pricing is also likely to move higher if the  firm’s forecasts for global supply are accurate  and the fundamentals of supply-demand  economics hold up.

Wood Markets has a 2018 supply forecast  that attempts to keep track with demand but,  at 2.4% (342 million m3), is almost half a  percentage point adrift, implying a deficit is  on the cards.

The research group suggested US production  would continue to rebound and have a  “sustaining influence” on production  elsewhere in the world.

“Our forecast calls for an impressive gain of  up to 4.5% in the US and little advancement in  Canada, with the latter potentially diminished  by the outcome of US import duties”, the firm  stated.

Wood Markets was forecasting the  continuation of a difficult period for Canada,  with the increased tariffs imposed by its  formerly friendly neighbour set to coincide  with a fall in value for British Columbia timber,  effected by mountain pine beetle. Japan,  again, was the only country likely to post a  negative number.

That supply summary from Wood Markets  provides the first hint of the potential  disruptors for this rosy outlook – the Donald  Trump-led protectionist trade policy. Though  most countries were disappointed by the US  policy, from a global perspective it was not the  worst thing in the short-term, as the US led a  resurgent macro economy and, over the first  half of last year, growth reached 4%.

By the second half of the year, though,  Trump’s short-term measures were fading  and this year economists at Morgan Stanley,  among others, are expecting a continued  decline in the face of “tighter labour markets,  fading fiscal stimulus and the absence of  monetary accommodation”.

This wouldn’t be such a concern if Trump  were a logical policy maker and could be  relied upon to see the writing on the wall and  change course. But he’s not, and he can’t.

The trade war with China then becomes  a critical determinant of global and wood  industry fortunes. China – already slowing  considerably from its halcyon days a decade  ago – will be further curtailed if the US  persists along its current course.

Meanwhile, Europe remains under pressure  due to not only Brexit but tensions in Italy  and in France that undermine confidence and  investment in the Eurozone.

And, on top of this, the world is on the cusp  of a debt crisis, with federal banks unable  to further leverage their favourite monetary  policy tool – interest rates – should that crisis  eventuate.

Whether heavy rains will fall from any or all  of these dark clouds cannot be modelled into  forecasts. And, so, while the numbers may  look good right now, I’d prefer to reserve  judgement.


Chris Cann

Issue 67 Feb/Mar 2019

Issue 66 Dec/Jan 2018

Issue 65 Oct/Nov 2018

Issue 64 Aug/Sept 2018