While the U.S. economy is doing well overall, the trade war with China is causing distortions in the normal supply and demand curve for the forestry sector.

“Housing starts are trending upward, and it looks like 2019 will be more of a flat spot in the housing start curve than a downturn.  Interest rates are low and the housing forecast for 2020 is pretty good.  So you’d think that stumpage prices would also trend upward,” writes Marshall Thomas, president of F&W Forestry Services, Inc., in his company’s winter newsletter.

But Thomas said the trade war with China has caused U.S. markets to be flooded with excess wood on top of already existing supply excesses.

While there has been a de-escalation of the trade war with the “phase one” agreement between the U.S. and China, the impact of the tariffs on the forest products sector has been harsh and has caused severe financial harm, particularly to the hardwood industry.

“But the bad news is that there is no resolution to the Chinese tariffs already impacting the wood products industry—and the U.S. Trade Representative has indicated it could take years to resolve the differences with China,” Thomas wrote.

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Foreign demand for U.S. wood pellets continues to climb, with exports more than doubling between 2013 and 2018, growing from 2.99 million metric tons to 6.02 million, according to data from the USDA Foreign Agricultural Service.

This demand has led to an explosion of wood pellet production facilities in the U.S. over the last decade, particularly in the Southeast.  With global demand for wood pellets projected to continue on this steep upward trajectory, manufacturers are reacting by expanding production capacity and investing in additional mills.

Currently most U.S. wood pellet exports are destined for Europe, primarily the UK, but there is growing demand from Asia for pellets, which is expected to grow exponentially over the next three years.

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