Commodity Watch: Chestnuts Roasting Over an Open Fire: But Where Does the Wood Come From?

Spend Matters welcomes a guest post from Nick Peksa of Mintec Ltd.

With winter closing in and the warm weather firmly behind us, it's time to think about the holiday season. In an ideal world, we would be all be sitting at home with our family on a comfortable sofa, huddling around a log fire, eating fresh food served from a nice side table, all in full view of a large Christmas tree.

In a competitive world, most of what has been mentioned above can be purchased from a major retailer. So let's bring a little more light to the furniture and timber supply chain with a view to explore the current market and consumer trends.

How the wood is harvested: simple production, supply chain.
The tree is cut and topped in the forest. Some of the larger limbs may be taken and used for pulpwood or firewood. The main bole of the tree is taken to a "landing" to be cut up to log length and taken to a mill.

Logs are separated at the mill, with some logs being sold to other secondary processors. The cull logs are removed for pulp and firewood.

The logs are then broken down in the sawmill into timber, cants, and lumber. Lumber is graded and separated. It is then put on drying stickers (little wood sticks that separate layers of lumber) and kiln-dried. It is now ready for a number of different applications.

The applications of timber
Timber uses are wide-ranging and diverse, from rough construction lumber to the more valuable and decorative veneers. The dimensionally strong or treated softwoods and hardwoods are used in the construction industry, whilst the waste wood, shavings and forest thinnings are used for paper pulp (packaging), wood chip fuel or fibre and chip boards.

The furniture sector is also a large industry with distinct fashions and trends; timber companies may promote newly introduced timbers for veneer or decorative applications. The table below shows some selected uses of wood; there are many more for toy manufacture to boat building that has not been detailed.

Table 1: Uses of Timber

As eyes turn elsewhere for saving, chances are we are looking toward different consumer demand cycles in the furniture industry.

Current market factors
US and EU timber markets showed strong growth the 3rd quarter of 2011, but fell back more recently on concerns about the sustainability of world demand amidst rising US and EU debt concern. The EU construction sector has been showing a slight rise year-on-year, but the outlook in individual EU countries is more mixed, with strong growth in some countries being countered by steep falls in others.

Global lumber markets have continued to show mixed fortunes over the last few months with rising demand in the Far East being largely offset by stagnant growth or falls in demand in the West. Chinese lumber imports have risen by over 300% since 2006; from 6.1m m3 to about 20m m3 in 2010. China is expected to replace the US as the world's largest sawn lumber importer in 2011.

US lumber production fell by 13% from March to April on weakening North American demand. US sawmills are operating at only 67% of their capacity, while those in Eastern Canada are operating at rates as low as 55%. Canadian lumber shipments to China, the majority of which are from British Columbia, in Western Canada, rose by 97% in the first six months of 2011 compared to the same period of 2010.

The global biomass market has seen growth, although EU demand has been rationed by rising prices. Demand in Asia is reported to be showing strong growth, with Japan, China and South Korea all recently announcing plans to increase their use of biomass in energy generation.

To pardon the pun, as wood is such a versatile market, we have hardly scratched the surface! Each timber type will have its own dynamic and market prices, we can explore this all another day.

- Nick Peksa, Mintec Ltd.

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