According to the Wood Resource Quarterly, during the first half of 2017, production cost margins for sawmills in Brazil, Finland, and Russia have fallen due to the relatively higher cost of raw material and lower lumber prices.
Over the past three years, income from lumber and sawmill residues have declined more than costs for sawlogs for sawmills, however. As a result, the cost margin in the second quarter for 2017 was 26 per cent lower than the in the second quarter of 2014 when back to the U.S. dollar. Likewise, in the local currency, the cost margin has fallen dramatically over the last two years after hitting a record high in late 2015.
In Finland, lumber prices and income from residues fell faster than log costs between 2014 and 2017, leading to a decline in the cost margin by 25 per cent when backed to the U.S. dollar. In the local currency, however, the decline has been a more modest eight per cent over the three years.
Wood raw-material costs for sawmills have increased faster than prices of lumber over the past 18 months in Easter Russia, on the other hand, leading to declining cost margins in the region. However, current margins have remained higher than the average for the past 13 years.
But in the United States (U.S.) South, they rose to their second highest level in 13 years in the second quarter of the year, the result of slightly declining sawlog costs and rising lumber prices thanks to higher wood demand in the domestic housing sector.
However, as wood costs are the largest and most important cost component when manufacturing softwood lumber, accounting for an estimated 65 to 70 per cent of the production costs, it is essential that sawmills control the wood cost/lumber price ratio as it determines a lumber company’s competitiveness.
The sawmill cost margin, defined as the difference between the cost of wood raw material and the revenue from lumber and sawmill residues, is a reliable indicator of the changing trend of the profitability of a region’s sawmill sector.