Fastmarkets webinar recap: southern yellow pine and lumber futures

Fastmarkets hosted an insightful webinar on the future of southern yellow pine and its potential impact on the North American lumber industry. For those who missed it, here's a breakdown of the key takeaways

The Fastmarkets future of southern yellow pine (SYP) webinar featured distinguished speakers, including Allison Coughlin from CME Group and Dustin Jalbert from Fastmarkets. Watch the full webinar recording here for a thorough understanding of the points made.
Watch the webinar

Demand outlook: a promising future for southern yellow pine

The webinar began with Dustin Jalbert, who gave an overview of the North American lumber market and the drivers that will impact its anticipated short-term growth.

He commented on the robust demand for lumber in the US and that Fastmarkets projects US lumber consumption to grow by 18% through 2027. It was highlighted that this growth was primarily fueled by residential construction and repair and remodeling activities.

His forecast also projected steady growth in demand for SYP over the next five years, increasing its market share over the decade. An expected increase of about 9 billion board feet is anticipated, driven by factors such as an underbuilt housing market and the availability of home equity.

Southern yellow pine is instrumental to the evolution of the market that we’re seeing. It runs in contrast to what we’re seeing in the rest of the supply side of the North American lumber market.

Dustin Jalbert, senior economist at Fastmarkets.

The versatility of SYP, combined with its potential for further market share growth, makes it an increasingly attractive option in the lumber industry.

Softwood lumber supply challenges: confronting the constraints

Another theme discussed was the supply challenges within the broader North American lumber market. Adverse factors such as the declining annual allowable cut in British Columbia, pine beetle impact, wildfires and policy changes have led to many mill closures and constrained production.

Despite these challenges, the US South has seen a historic build-out and capacity expansion in SYP, effectively compensating for the capacity losses in British Columbia. Its proximity to the residential construction market has played a significant role in this success.

Jalbert highlighted the US South as a crucial player in meeting the growing demand for SYP. Blessed with abundant mature timber, the US South is also seen as having a natural cost advantage, making it an ideal location for increased production.

The chart below reveals that the South’s expansion in recent years has more than compensated for these capacity losses in British Columbia. “This is going to continue at a pace of about a billion board feet per year,” Jalbert said.

Unraveling the unique characteristics of southern yellow pine

This section of the webinar focused on the unique features of SYP, which are driving its adoption, but also present challenges for the industry. Dominant in treated applications, Jalbert pointed out that SYP allows for smaller, more frequent volumes and faster delivery.

Given its traditional truck market distribution and its capacity for direct-to-market distribution models, Jalbert was able to underscore its potential. However, the industry must navigate certain challenges associated with SYP, such as stability issues when moving through different humidity zones.

Its unique market characteristics result in distinctive price differentiations. This reinforces the need for a separate evaluation of its market dynamics going forward.

Creating new lumber futures contracts

Alison Coughlin from CME Group delivered the final segment of the webinar. This section outlined the intricate process of creating a new lumber futures contract.

Coughlin emphasized that the journey to creating a new futures contract begins with the customer. The most successful products originate from customers’ expressed needs for a specific new product. Market research then begins to understand the size, makeup, natural longs and shorts, transportation system, key pricing points and supply and demand fundamentals of the market.

She also highlighted the importance of considering price correlation with existing products. One might prefer a less precise hedge in a very liquid market, versus a precise hedge in a less liquid one.

Finally, Coughlin discussed settlement methods. There are two options: physical delivery and cash settlement. For instance, with a lumber (LBR) contract, there is a physical exchange of acceptable species at expiry. This method necessitates deep liquidity to establish trust.

To see every key point and insight raised in the discussion, you can watch the full webinar recording here. Visit our dedicated market pages for more information on lumber news, prices and short or long-term forecasts.

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No feedback was received during the consultation period and therefore no changes will be made to the methodologies at this stage. This consultation sought to ensure that our methodologies continue to reflect the physical market under indexation, in compliance with the International Organization of Securities Commissions (IOSCO) principles for Price Reporting Agencies (PRAs). This includes […]