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GUIDELINES for . . .
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Wood chip prices

      The Ministry of Forests Revenue Branch collects data on private sector sales of residual wood chips from sawmills to pulp mills in the interior of British Columbia.9 The delivered chip prices in bone dry unit (BDU) are adjusted by the estimated freight haul cost to produce an estimate of the value of the material at the sawmill gate, for each appraisal point in the interior. These average market values are published quarterly and represent the average value over the preceding twelve-month period. Figure A1-5 shows the trend in whitewood chip average market values for the period January 1990 to June 1995.10 Chip prices were quite stable until the end of 1994 when price began to increase sharply. These price increases may be attributable to a robust pulp market and the rapidly increasing price of market pulp, coupled with an increasing shortage of chip supplies in the interior regions. However, these large price increases are likely unsustainable in the long-run as there will be an eventual down-turn in the price of market pulp, and the probability of a chip supply response to the current high chip prices.

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    Figure A1-5. Interior average market values for whitewood chips 1990-1995 (constant 1995 $/BDU).

        The graph in Figure A1-5 indicates that the rapid increase in the average market value of chips had peaked at the beginning of 1996. On the other hand, prices may not return to the range experienced prior to 1995. Some studies have concluded that the market for residual wood chips in the interior has not produced competitive prices due to the potential oligopolistic power of pulp mills relative to sawmills (for example, see Nelson et al. 1994).

        What means do we have then for estimating a long-run real wood chip price? Figure A1-6 illustrates the real price trends for North American wood chips over the period 1970-1995. The original data come from RISI (1994) and were expressed in nominal Canadian dollars per tonne for the Canadian markets, and in nominal U.S. dollars per short ton for the U.S. Pacific Northwest export market. Note the data for 1994 and 1995 are projections. These data were converted to dollars per BDU and then to constant 1995 Canadian dollars per BDU using the CPI and the Canada/U.S. exchange rate where appropriate.

    Graphic

      Figure A1-6. Trends in wood chip prices in North America (constant Canadian 1995 $/BDU).

        The average price/BDU for wood chips over the period 1970 to 1995 was $104.76 for the BC coast, $73.21 for the BC interior, $122.02 for Ontario, $122.25, for Quebec, and $143.58 for the U.S. Pacific Northwest export market.11 The price trends and averages for Ontario, Quebec and the U.S. Pacific Northwest are similar and could indicate that the world wood chip price level is currently between $110 and $130 per BDU (f.o.b. mill). Thus, the assumption of a long-run average price for whitewood pulp chips in BC of $110/BDU does not appear unreasonable.

        The BC interior average market values of western redcedar wood chips has ranged from $10 to $19 per BDU and has not been affected by the upturn in pulp market prices. Cedar chips are viewed as an inferior product by pulp mills, so it is unlikely they will increase in real value in the foreseeable future. Thus, the assumed long-run price for cedar chips is $15/BDU.

        9 Thus they exclude intra-firm transfers of wood chips within vertically integrated firms.
        10 Prices graphed are the arithmetic average of all appraisal point average market values as published by the Revenue Branch after conversion to constant 1995 dollars. Whitewood refers to all conifer species except western redcedar.
        11 Prices were f.o.b. mill for all regions except the U.S. PNW, which was f.a.s.


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Copyright 1999 Province of British Columbia
Forest Practices Branch
BC Ministry of Forests
This page was last updated January 1999

Comments to: Tim Ebata <Tim.Ebata@gems8.gov.bc.ca>