Higher prices help offset impacts of softwood lumber duties

OTTAWA, Dec. 19, 2017 /CNW/ - Canada's lumber industry has been able to survive the impacts of preliminary duties, largely thanks to soaring lumber prices. While industry production will remain virtually flat this year, industry revenues are on pace to grow by 8 per cent, according to The Conference Board of Canada's Canadian Industrial Outlook: Wood Products Manufacturing – Autumn 2017.

"Lumber prices are at their highest levels in over a decade due to a perfect storm of factors, including supply constraints in B.C. from the wildfires this summer, and increased demand from a recovering U.S. housing market and rebuilding efforts in hurricane-affected regions," said Michael Burt, Director, Industrial Trends, The Conference Board of Canada. "The surging lumber prices are providing a welcome relief from the costs of the lumber duties imposed by the U.S., but this is not likely to last." 

Highlights

• Canadian lumber producers will pay an estimated $500 million in countervailing and antidumping duties this year, since the U.S. Department of Commerce announced an average duty of 21 per on Canadian softwood lumber.
• Lumber prices reached their highest levels since 2004, rising by 5.6 per cent this year.
• Higher lumber prices will help offset some of the costs of the U.S. duties, and industry pre-tax profits are forecast reach $2.6 billion this year.

Lumber tariffs on Canadian shipments of softwood lumber to the U.S. have resulted in a sharp decline in sawmill exports, which prior to the duties, had been the key driver of the industry's strong performance. Sawmill export volumes have declined by 12 per cent since the first quarter of 2017. On a more positive note, Canadian producers are receiving higher prices for the lumber they are selling, and nominal exports have fallen by only 7 per cent.

Lumber duties were not the only reason for the drop in Canada's lumber exports. British Columbia accounted for over 80 per cent of the decline to nominal lumber exports since the start of the year, although the province accounts for only 60 per cent of Canada's total lumber exports. This suggests that mill suspensions and closures resulting from the wildfires in B.C. negatively impacted industry production this year. Going forward, wildfires will pose a growing threat to Canada's wood products industry as they become increasingly common.

Were it not for the exceptionally strong Canadian housing market, which underpinned demand for an array of wood products, the industry would likely have been on pace to contract this year. In all, the industry is forecast to see production inch up by 0.4 per cent in 2017, compared to average annual gains of 5.3 per cent between 2010 and 2016. Unless the industry is able to replace lost U.S. demand with markets outside of North America or there is a favourable outcome to softwood lumber negotiations, industry production is expected to average growth of only 0.6 per cent per year between 2018 and 2019.

The industry's financial performance is also expected to deteriorate over the next five years as the tailwinds that drove lumber prices to new heights begin to dissipate. The high lumber prices are already prompting a pickup in U.S. domestic production. In addition, other countries are exporting more lumber to the U.S. to fill the gap left by Canadian imports, which are being priced out of the market by duties. Ultimately, these factors will keep a lid on future price growth. The weaker price increases, combined with modest gains in production, will hold industry revenue growth to just 1.8 per cent annually between 2018 and 2022. Meanwhile, industry pre-tax profits are expected to moderate from $2.6 billion in 2017 to $1.7 billion by 2022.

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SOURCE Conference Board of Canada

Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: [phone] ext. 221, E-mail: [email protected]; Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: [phone] ext. 431, E-mail: [email protected]