CBC Report Forecasts Heavy Fall in Lumber Prices and Profits

SEATTLE (Scrap Monster): The recent report published by the Conference Board of Canada (CBC) forecasts weaker increases in lumber prices. The report titled “Canadian Industrial Outlook: Wood Products Manufacturing- Autumn 2017” states that lumber industry profits too may witness modest decline in the near term.

According to the report, the tailwinds that led to surge in lumber prices to new heights are likely to dissipate over the next few years. This may lead to deterioration in lumber sector financial performance. The recent jump in US domestic lumber production coupled with increased lumber imports by the US from countries elsewhere may result in lesser demand growth for Canadian lumber. As a result, the industry revenue growth is expected to remain capped at 1.8% per year during the five-year period from 2018 to 2022.

Michael Burt, director, industrial trends, CBC noted that several factors contributed to high lumber prices in 2017. It must be noted that lumber prices rose nearly 6% in 2017, touching the highest levels since 2004. The supply constraints in the B.C on account of widespread summer wildfires, heightened US demand on the back of recovery in the US housing market and rebuilding activities in the hurricane-affected areas are cited as the main reasons for the run up in prices. The jump in lumber prices has provided big relief from the negative impacts caused by imposition of duties on Canadian lumber by the US.

As per estimates, the Canadian lumber providers have paid approximately $500 million in countervailing and antidumping duties. The higher lumber prices have helped to partially offset the costs of US duties. The lumber industry pre-tax profits are estimated to have totaled $2.6 billion in 2017. Further, the profits before tax are likely to drop sharply from $2.6 billion in 2017 to $1.7 billion by 2022.

Canadian sawmill export volumes have declined sharply during the year. Since Q1 2017, the exports have declined by almost 12%. Lumber duties are cited as the primary reason for the drop in export volumes. However, other factors including suspensions and closures of B.C mills on account of wildfires too impacted the industry production badly. Going forward, wildfires are projected to pose growing threat to Canada’s wood products industry.

The CBC Report foresees lumber industry production to inch up slightly by 0.4% during the current year. The industry production is expected to grow marginally by 0.6% per year between 2018 and 2019.