Beetlemania? Has the Impact of British Columbia's Mountain Pine Beetle Epidemic Been Exaggerated?

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Forest Economic Advisors recently completed a major study on the Mountain Pine Beetle (MPB) epidemic in British Columbia. While we are by no means the first research group to investigate this issue, we believe that our study makes a unique contribution by placing the MPB issue within a forward-looking framework that moves beyond BC and considers the effects on the broader North American softwood lumber and timber markets.

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Despite the barrels of ink that have been spent on the topic, we had yet to come across research that sets the impact of the epidemic in its continent-wide context using a bottom-up approach from the stump to the marketplace

Industry-leading consulting firm Forest Economic Advisors (FEA) has just released a comprehensive assessment of the impact of the Mountain Pine Beetle infestation on the North American wood products and timber sectors. The study is a synthesis of various leading academic reports, FEA interviews and FEA's econometric analysis into a concise report that is heavy on qualitative and quantitative analysis. Among the findings:

  • Not only is production likely to fall by less than most observers expect, but declines will occur later than the 2013-2014 timeframe most commonly cited by market participants.
  • Demographic reality dictates that the US housing sector will recover from current depressed levels while at the same time Chinese lumber demand is likely to remain strong. Resurgent demand and constrained supply are projected to drive lumber prices to a multi-year peak by mid-decade.
  • By 2020, over 500 million cubic meters of dead pine will be left unharvested, so shelf life will be the paramount supply consideration. And the fact is, shelf life is determined by lumber prices. Higher prices mean mills can afford the lower log and grade recovery associated with processing longer killed pine. The trough in projected BC lumber production for the 2016-2020 will exceed the projected 2011 production by about 5% and the actual 2009 level by 30%.
  • Eastern Canadian timber supply policy will have about the same effect on North American lumber markets in the coming decade as will the MPB epidemic. The 25% reduction in AAC following the Coulombe Report has resulted in significantly lower Quebec lumber capacity. Meanwhile, Ontario's reorientation away from traditional forest products production and toward biomass and bioenergy production will limit that provinces lumber output.
  • The MPB epidemic will trigger substantial substitution across species and grades of lumber. Southern pine will be the primary beneficiary of the decline in BC's SPF resource. With the combination of maturing volumes of pine from the managed plantations and the surfeit of merchantable sawtimber that has accumulated during the downturn, the South is well positioned to support an expansion in the softwood lumber industry.
  • Pine MSR lumber, J-grade and retail appearance products will lose market share to Eastern SPF, Douglas fir, or Hem-fir MSR, as well as visually graded Southern yellow pine.

FEA Principal Paul Jannke said that he was excited to deliver the first and only study on the Mountain Pine beetle issue that can be used as a comprehensive planning tool. Our study is the first attempt to place the impact of the epidemic within the wider scope of regions, grades and species that comprise the North American wood products and timber sectors.

FEA Partner Henry Spelter added that despite the barrels of ink that have been spent on the topic, we had yet to come across research that sets the impact of the epidemic in its continent-wide context using a bottom-up approach from the stump to the market place.

Rocky Goodnow, FEA's Director of Timber continued that this study delves deeper than a simple fiber supply analysis. The work we did on grade and species substitutability adds depth and perspective to our conclusions on which regions will benefit from the decline in British Columbia production.

About FEA:

FEA performs cutting-edge economic analysis on lumber, wood panels, timber, biomass energy and macroeconomics. Founded in 2009 and based in Westford, MA, FEA brings a fresh perspective to the forest products industry, providing insight to help clients make effective business decisions. Please click here for a comprehensive prospectus of "Beetlemania? North American Wood and Timber Markets in the Wake of the Mountain Pine Beetle Infestation"

For information on FEAs just-released Mountain Pine Beetle Study, go to our website, http://www.getFEA.com, or contact Brian Doyle at (978) 496 6338 or bdoyle(at)getFEA(dot)com.

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Brian Doyle

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