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Will oil glut be boon or bust for timber industry?

Started by chain, December 12, 2014, 05:22:54 PM

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chain

On the one hand, everyone pleased of almost a decade low  in petroleum costs. From housewife to high usage energy companies a new day is dawning!

Or is it? What will lower energy costs mean for the timber industry?

Will sawmills over buy, over cut, possibly forcing stumpage prices down, down, down?

Or, will the good 'ol Law of Supply & Demand hold the line?

Southside

I don't see mills overbuying, as they still need a market to sell the final product and it just is not that strong.  Not a good move to transfer cash into yard inventory that will just sit there.   Maybe all those along the line can turn a bit of a profit from the lower operating cost for a short time is probably the reality.

I would be more concerned with the looming market adjustment that is coming when interest rates begin to climb, then we will know pain. 
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tule peak timber


from my chair...with lower fuel prices I have a load in on Monday at sky high prices, Tuesday through Friday at higher then high prices ( we shall see how it settles ) I see this as make up time for log guys that have been beat up on for the last few years. I can pay the price or just sell what inventory I  have - and just wish....No short term gain at all ..............Rob
persistence personified - never let up , never let down

Andries

Thinking that the law of supply and demand will hold steady.
Printing paper demand will stay down because of the Internet and re-cycling programs. If nobody wants to buy the product, it can't be profitable to make no matter what the production costs are. Paper and buggy whips; not big sellers anytime soon.
Timber demand may hold steady or slightly increase. Depends on consumer confidence in the housing markets and whether the banks decide to hike interest rates (not likely).
The big effects will be geo-political and long term (such as Russia busting a move 'cause the petro-Ruble is tanking)) and immediate effects will be a tankful for the truck won't hurt you and I quite as much.
. . . but then, if my crystal ball was so great I wouldn't be hanging around here, now would I?
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Ron Wenrich

I don't see oil prices doing much for the timber industry.  Some costs will go down, and that will be put in someone's pocket, not spent.  Many owner/operators will just see a raise in pay, to help offset the lean times that were in the industry in the past.

One thing to look at is that the oil price slide has to do with too much oil supply.  The Saudis are pushing prices down.  That is to help dry up the oil glut.  Fracking and horizontal drilling are not profitable above $60/bbl.  Tar sands need around $70-75/bbl to be profitable.  With oil at this price, they will slow down drilling and exploration.  Saudis will hold out long enough to get control of the market again.  With low oil prices, will pipeline construction pressures be lowered?

The bigger problem is that we're seeing asset deflation.  Grains are down.  Corn has dropped to half what it was a couple of years ago.  Soybeans are down about 50%.  Gold has dropped 35%, as has silver.  Mines are not profitable.  Sugar, cotton and other ag products are down in value.  Why would timber be any different?

The dollar has increased in value.  That makes exports more expensive.  The better lumber gets exported to Europe.  They're on the verge of recession.  China was a viable market.  Now they're slowing down.  They have lots of empty apartments due to their building boom.  Those all crimp export activity, which hurts our timber markets.

Where would the extra demand come from?  People will realize savings at the pump on the order of maybe $100/mo.  Are they going to rush out and buy a new house with that?  Doubtful.  People aren't spending like they used to.  Average household net worth is down by 50%.  Bottom line is that no one is borrowing money.  That's why interest rates remain low.

I look at oil prices at being more of a symptom of world economics rather than a boom to our industry.  Enjoy the low prices while they're here. 
Never under estimate the power of stupid people in large groups.

Corley5

Quote from: Ron Wenrich on December 13, 2014, 05:47:22 AM
Enjoy the low prices while they're here.

Yup.  As soon as S.A can get exploration slowed up in N. America the prices will go back up.
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LeeB

The slow down has already started. Most operators have already cut next years budget by 20 - 40%. It will however take a good while longer for production in the US to slow down. Projects from 2014 and earlier are only just now coming online. Cheaper oil is better to a point. We all like a few bucks left in our pockets after a fill up, but with domestic production slowing down our money now goes out of the country instead of remaining at home. A double edged sword for sure.
'98 LT40HDD/Lombardini, Case 580L, Cat D4C, JD 3032 tractor, JD 5410 tractor, Husky 346, 372 and 562XP's. Stihl MS180 and MS361, 1998 and 2006 3/4 Ton 5.9 Cummins 4x4's, 1989 Dodge D100 w/ 318, and a 1966 Chevy C60 w/ dump bed.

Swatson

I was of the train of thought (me not being a rocket surgeon mind you) that if oil stays low for a while it may be good for timber if low fuel prices cause the housing market to pick up and it will be good for producers with lower operating expenses.   It will hurt the domestic production of oil here in the US, which may be the goal of these oil cartels in the long run. 

But I am just gonna enjoy the low prices at the pump while they last.  I am sure before too long their will be some crisis somewhere to ramp prices back up. 
I cant figure out which one I like better: working with wood or making the tools to work with wood.

tule peak timber

Well....When someone does have a good view into his crystal ball, please let me know. I'm pushing ahead in any case.....Rob
persistence personified - never let up , never let down

submarinesailor

Quote from: LeeB on December 13, 2014, 08:48:25 AM
It will however take a good while longer for production in the US to slow down. Projects from 2014 and earlier are only just now coming online. Cheaper oil is better to a point. We all like a few bucks left in our pockets after a fill up, but with domestic production slowing down our money now goes out of the country instead of remaining at home. A double edged sword for sure.

Lee - I agree completely with your statement about the cheaper oil being a double edged sword.  If the US product does down too far because of the cutbacks, we will pay more at the pump.  I hate to say it, but I would like the see oil prices run about 75-85 dollars at WTI, making it about 85 to 90 at Brent.  My GUESS would be that prices at the pump would be about $2.75 to $3.25 nation wide.  For those who disagree with this. Remember that just about all of the easy oil has been found.  Now it's time for the hard oil -read that as "expensive oil".  NOTE:  Natural gas is the same way and I love heating my house with CHEAP natural gas.

Bruce

LeeB

The only countries really benefiting from this are the non producers. The US does not depend on oil money for it's economic livelihood. Most of the OPEC countries along with Russia and a few others do. They might be able to get it out of the ground cheaper, but have a lot more riding on the price than we do. Almost half of Russia's economy is based on oil. They are already in a financial whirlpool. With the global tensions at the levels they are now, economic stress could light off a firestorm no one can deal with. Much as I hate to pay the cost, a little bit high price would not be an all bad thing.
'98 LT40HDD/Lombardini, Case 580L, Cat D4C, JD 3032 tractor, JD 5410 tractor, Husky 346, 372 and 562XP's. Stihl MS180 and MS361, 1998 and 2006 3/4 Ton 5.9 Cummins 4x4's, 1989 Dodge D100 w/ 318, and a 1966 Chevy C60 w/ dump bed.

Banjo picker

Looks like someone would figure a way to store the stuff.  Buy all they will sell at the low price and conserve what in the ground here for harder times. 
Never explain, your friends don't need it, and your enemies won't believe you any way.

LeeB

Someone has. It's called the SPR (Strategic Petroleum Reserve). The reserve has been allowed to dwindle over the last several years. You are correct that now would be a good time to top up. It would also help our domestic drillers. Tens of thousands of jobs could be lost by the weak prices.
'98 LT40HDD/Lombardini, Case 580L, Cat D4C, JD 3032 tractor, JD 5410 tractor, Husky 346, 372 and 562XP's. Stihl MS180 and MS361, 1998 and 2006 3/4 Ton 5.9 Cummins 4x4's, 1989 Dodge D100 w/ 318, and a 1966 Chevy C60 w/ dump bed.

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