Viewpoint

Debugging the beetle kill argument

By P. Barynin Mon, Apr 26, 2010
Advertisement

The mountain pine beetle (MPB) kill in British Columbia is a catastrophe and the epidemic will affect the development of forest product markets. The scale and magnitude of the MPB infestation is so large that it warrants comparisons to the "spotted owl crisis" 20 years ago, which resulted in dramatic increases in western timber prices and eventually lifted prices and production in other US and offshore timber baskets.

Provincial estimates show the annual MPB kill peaked in 2005-2007, averaging 120 million m3per year, and over the next five years the kill is expected to average 40-55 million m3annually. This compares with an annual harvest of 74 million m3sustained in BC over the last decade. By the time the MPB epidemic peters out, the total volume of kill is likely to exceed more than 12 years of harvests. BC is considered a major supplying region in North America, supplying 18% of the US lumber market over the past decade and 7% of pulp produced in North America.

Some argue that the losses associated with the mountain pine beetle will support lumber prices in 2010-2012. The rationale goes along the line that beetle kill damage peaked in 2005-2007 and this wood needs to be processed within two years. Therefore, as markets improve (because we all know they will not stay this low forever!), the BC timber supply crunch will restrain the province's capacity to produce lumber. Given that BC accounts for a significant share of US markets, we should expect that lumber prices would spiral up. This argument is flawed.

To what extent will supply constraints in BC contribute to increases in US lumber and timber prices over the next two or three years? The answer is "not much." BC harvest levels are currently well below potential as measured by the Annual Allowable Cut (AAC), and therefore supply is not the issue. In 2010, BC harvesting is expected to be 50 million m3(approximately 45%) shy of the AAC (see Figure 1). Unless you believe US housing starts will return to 2 million within the next two years, demand on BC's forest resources will remain well below potential in the near term. In addition, many lumber producers contend that beetle-kill timber can be processed into marketable products beyond the two-year threshold.

Peter Barynin can be contacted by phone at: 781 734 8912 or email:pbarynin@risi.com. For more information about RISI'sTimber ForecastorLumber Forecastplease contact RISI atwt@risi.com.

 

All PPI publications and websites, including ppimagazine.com are copyrighted. Redistributing content or sharing user names are prohibited by law in virtually every country around the world and may subject you to fines. More detail on terms of use.