Higher prices help offset impacts of softwood lumber duties

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.”

Outlook highlights include:
• 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.
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