Event: The Western Wood Products Association (“WWPA”) released May 2022 softwood lumber stats.

North American softwood lumber production in May was up 2.8% m/m but down 1.2% y/y –

Production in May was down 1.3% y/y in the US and down 1.0% y/y in Canada. US production decreased 2.7% m/m, due to a 4.8% m/m decrease in the US South (-0.4% y/y), and a 2.8% m/m decrease in US Other (-1.4% y/y), partially offset by a 0.7% m/m increase in the US West (-2.6% y/y). In Canada, production was up 12.3% m/m, driven by a 13.0% m/m increase East of the Rockies (+4.5% y/y), and an 11.2% m/m increase in British Columbia (-9.5% y/y). While we think the data likely still reflects a certain amount of logistics constraints, we think it is notable that production in the US South was lower y/y and m/m in May, and will watch this trend closely given expected capacity increases in the region through the balance of 2022.

US operating rate dips with production; Canadian operating rate at highest level since November 2021 – According to the WWPA, US operating rates decreased slightly m/m to 84% in May (down from 86% in April), and were down 7 percentage points y/y. The operating rate in the US South was down 4 percentage points m/m to 85% (and down 9 percentage points y/y), while the US West was up 1 percentage point m/m to 82% (down 6 percentage points y/y). The Canadian operating rate was up 9 percentage points m/m to 81% in May (down 6 percentage points y/y), with the BC operating rate up 7 percentage points m/m to 70% (down 12 percentage points y/y), and the East of the Rockies up 11 percentage points m/m to 89% (down 2 percentage points y/y).

North American softwood lumber consumption was down 4.0% y/y in May – According to the WWPA, May saw a 4.9% y/y decrease in US softwood lumber consumption (or ~225 mmfbm), while Canadian softwood lumber consumption increased 2.5% y/y (or ~16 mmfbm), leaving North American consumption down ~209 mmfbm y/y. Although US consumption was flat m/m, with US housing starts decreasing from 1,805k (SAR) in April to 1,559k (SAR) in June (please click here), a 13.6% decrease, and new housing typically comprising ~33% of lumber market demand, we suggest that consumption is likely set to take a step lower m/m in June.

US softwood lumber imports increased 6.5% m/m on more Canadian volumes – US imports of Canadian lumber were up 8.8% m/m but down 9.6% y/y in May. Imports from British Columbia were up 9.6% m/m (-12.5% y/y), and imports from East of the Rockies were up 8.1% m/m (-6.7% y/y). Non- Canadian imports decreased 4.6% m/m, primarily driven by Europe (-10 mmfbm; -5.9% m/m). We expect that the European market has tightened at the margin (i.e., fewer exports) following the start of the conflict in Ukraine, and think a further m/m decrease in imports in July seems probable.

US log exports increased 5.9% m/m – According to the WWPA, US softwood log exports were up 5.9% m/m to 122 million board feet. A 15.9% m/m increase in exports to Canada, a 29.6% m/m increase in exports to China, and a 19.1% m/m increase in exports to Japan were partially offset by a 30.5% m/m decrease in exports to other countries. Exports were down 15.4% y/y, driven by a 42.0% y/y decrease in exports to China, primarily offset by a 29.4% y/y increase in exports to Canada.

Lumber pricing update – According to Random Lengths, the Framing Lumber Composite decreased to $616 as of August 11 (down $6 from August 4). Price trends were mixed, but activity picked up mid-week following West Fraser's announcement that it would permanently curtail approximately 170 mmfbm of combined production at its Fraser Lake and Williams Lake sawmills in BC (please click here).