U.S. hardwood lumber exports fell to a 4-month low of 99 million board feet (MMBF) in June. Shipments were 15 MMBF below May, with China accounting for almost two-thirds of the one-month decline. Despite the June slowdown, exports are still on pace to reach 1.21 billion board feet in 2011, which would be a 5-year high and the 6th best total on record.

Chinese purchasing will increase only marginally in September, driven largely by discounted price offerings, especially on Red Oak. By mid-October, however, lumber inventories at Chinese distribution yards and manufacturing plants will be thinner, and purchasing should pick up strongly for a couple of months before it slows again in advance of Chinese New Year.

We are bullish about Mexican demand for U.S. hardwoods over the next 6-12 months. Higher labor costs in the Far East will push more wood products manufacturing back to Mexico. Mexico imported 24 MMBF of U.S. hardwood lumber during Q2 2011, the best quarterly total in three years. We expect to see more quarters at or above that level over the next year, and perhaps beyond.

Robust year-on-year growth in U.S. hardwood lumber exports to Saudi Arabia (+51%), the United Arab Emirates (+51%) and Turkey (+100%)—along with a modest increase in exports to Israel—have more than offset a 36% decline in shipments to Egypt, keeping total exports to the Middle East and North Africa (MENA) ahead of last year. Egyptian purchasing will gradually improve after Ramadan, and total exports to the MENA region in 2011 will likely surpass 30 MMBF for the first time ever.