Global sawmilling costs continue to drop in most countries, while log costs vary widely
VANCOUVER, BC, December 14, 2005 — Sawmills on the West Coast of the United States are the most profitable in the world, with 2004 earnings1 at average mills2 almost three times greater than the overall global average earnings of USD 24/m3 (USD 45/Mbf – nominal count). Mills in Australia held the number two spot with earnings of USD 58/m3, followed by British Columbia’s Interior region sawmills at USD 55/m3 (almost USD 90/Mbf – nominal). The lowest ‘average sawmill’ earnings in 2004 occurred in European countries as well as parts of Russia where they ranged from around break-even to a high of USD 15/m3 in the Baltic States. These and other findings were released today in a lumber and sawnwood cost benchmarking report covering over 250 sawmills in 24 major forest products producing countries or regions of the world.
The Global Lumber/Sawnwood Cost Benchmarking Report—2004 Basis was researched and produced by International WOOD Markets Research Inc. (WOOD Markets), PricewaterhouseCoopers LLP (PwC), and the Beck Group (Beck). The authors analyzed and compared operational and financial data from sawmills in Canada, United States, Brazil, Chile, South Africa, Europe and Scandinavia, Russia, China, Australia and New Zealand. A similar survey was produced by WOOD Markets and PwC in 2003 based on 2002 industry cost data.
The average cost of logs delivered to mills, the largest component of sawmill cost structure, was USD 56/m3 (about USD 300/Mbf – Scribner scale) in 2004. The lowest delivered log costs at average mills in the regions surveyed were found in Russia at under USD 25/m3. By contrast, Finland reported the highest average delivered log cost at over USD 85/m3. In Canada, the Prairie region posted the lowest log costs, and the BC Coastal Region had the highest at over USD 60/m3. The US West Coast region, with the highest average sawmill earnings in the world, still reported one of the highest delivered log costs at over USD 75/m3.
Compared to "average mills", top quartile sawmills in each region surveyed produced much lower total costs and higher earnings – a key attribute of the report is profiling the significant sawmill operating and financial differences.
“The US West and BC Interior sawmills have been bright spots in the industry’s financial picture over the last couple of years,” said Craig Campbell, of PwC’s global forest and paper industry practice, and co-author of the report. “However, our report points to emerging threats from Russia, with the world’s lowest cost timber, and China, with the lowest sawmilling cost—where workers earn on average about USD 100 per month. Currently China produces only small volumes of lumber, but as they ramp up, it may be extremely tough for mills producing commodity lumber in other parts of the world to compete on price, especially in China’s own domestic market.”
The report found revenue from lumber was highest in Australia, one of the strongest markets over the last five years. The United States Inland West region and West Coast region, which have a more unique species mix, held the second and third spots in terms of lumber revenue, both in the USD 250/m3 range (USD 400/Mbf – nominal count). The lowest lumber revenue found by the report occurred in Siberia – achieving only half the results of the US West. The lower revenues were due, in part, to weak domestic prices and small volume of exports.
“Sawmills in BC, Washington or Oregon, especially those running three shifts, are recording the largest annual lumber output, but European countries can boast both the largest two-shift capacity mills and the lowest operating costs in the world of the commodity sawmills surveyed” said Russ Taylor, Managing Director of WOOD Markets. “The European sawmilling process is also more flexible and can produce commodity or specialty orders of lumber in almost any size or length. In contrast, most North America mills surveyed are limited to producing 2-inch dimension lumber and continue to be pushed out of lucrative export markets such as Japan by more customer-focused European mills.”
Bill Mitchell, Vice President of Beck added: “This year’s report clearly shows how the competitive position of sawnwood lumber producers in several countries or regions changed between 2002 and 2004. This was particularly true for Western Europe, Australia, New Zealand and Canada. Much of this difference was due to significant changes in currency exchange rates relative to the U. S. dollar. This shift in competitiveness emphasizes the need for producers to continually focus on improving performance.”
Key report findings include:
- The earnings1 for an average sawmill in the 24 regions surveyed was USD 24/m3 (USD 45/Mbf – nominal count).
- Sawmills in North America generally had a good year in 2004 in terms of operations, and benefited from the near-record high North American prices. While there are some regional differences, Canada’s sawmilling industry revenues are roughly on par with the global industry at or near the a global average of USD 209/m3 (USD 335/Mbf – nominal basis). With the exception of the BC Coast, the country’s delivered log costs remained below the global average of USD 56/m3. Again, with the exception of the BC Coast, Canada’s sawmills were among the most profitable in the report. The US South, Inland West and West Coast regions all had revenues and earnings exceeding the global average. The average mill on US West Coast posted the highest earnings in the report, at almost double the global average of USD 24/m3. The US regions all reported higher than average delivered log costs.
- The growing demand for wood products in China drove an increase in imports of raw materials, production and exports of finished products. Most of the imports are logs and lower grade commodity wood products, and, in many cases, some of the finished goods (such as furniture) are re-exported back to the country of origin of the raw materials. While China has the lowest cost sawmills in the world, the scale of these operations is tiny. However, the number of sawmills in China is huge and growing, accounting for significant lumber production gains.
- The rate of construction of new European sawmills outstrips the rest of the world as incremental timber supplies are developed in the region. Greenfield sawmills using European technology are among the lowest cost sawmills in the world, especially when they are located in lower labour cost regions. At top quartile mills, all but one European country had lower sawmilling costs than the lowest cost regions in North America. However, higher log costs are becoming the Achilles heel in some European countries.
- Logging and sawmilling operations in Russia are gaining momentum. Russia enjoys the lowest cost of delivered logs at about one-half of the global average of USD 57/m3. There are many older, inefficient mills in Russia but the best new mills are led by Japanese joint-venture companies or are European-owned operations that are modernizing to be more competitive or to offer kiln dried and planed lumber to export markets.
Notes: 1. ‘Earnings’ is earnings before interest, taxes and depreciation allowance (EBITDA). 2. ‘Average mill’ refers to the average or typical mill surveyed in each country or region. ‘Top quartile’ mills have lower costs and even higher earnings and are also profiled in the report.For more information on the Global Lumber/Sawnwood Cost Benchmarking Report—2004 Basis, or to arrange an interview with one of the co-authors to discuss the findings, please contact: Jim Nelson, PricewaterhouseCoopers LLP, at (604) 806 7047; Russell Taylor, International WOOD Market Research Inc, at: (604) 801 5996; or Bill Mitchell, The Beck Group, (503) 684 3406.
About International WOOD Markets Inc.
International WOOD Markets Group ( www.woodmarkets.com ) comprises both wood products industry, market and business consulting for clients (R.E. Taylor & Associates Ltd.) with data-base services and a variety of industry or market specific multi-client reports (International WOOD Markets Research Inc.). Strategic business assessments matching the timber resource to the global wood products market coupled with our feasibility analyses of timber processing options are trademark skills of the firm. Our ability to conduct in-the-field investigations coupled with our global network of contacts and comprehensive data-base delivers strategic results for clients looking to review or expand their domestic or global business.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using Connected Thinking to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 4,300 partners and staff in offices across the country.
(Unless otherwise indicated, “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership. PricewaterhouseCoopers LLP, Canada, is a member firm of PricewaterhouseCoopers International Limited.)
About The Beck Group
The Beck Group is an established, highly experienced forest products-based planning, consulting and benchmarking firm. Key personnel at Beck have extensive forest industry experience. The firm has assisted more than 150 forest products companies at more than 250 locations. While the company focuses primarily on the US, it also has significant international experience, including projects in Eastern and Western Canada, Finland, Chile, New Zealand, and South Africa.
Beck is an industry leader in Competitive Assessment (benchmarking) studies for the forest products industry. The company has completed numerous studies for various segments of the industry, including hardwood lumber, oriented-strand board (OSB), softwood lumber, plywood, particleboard, and medium density fiberboard (MDF).
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