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Where is the supply for increased
SPF lumber going to come from?
It’s simple: Alberta
By Jim Girvan
and Murray Hall
Having recently attended the Truck Loggers Association Convention in Vancouver, talk of the pending lumber “super-cycle” permeated many discussions and presentations. Growing U.S. housing starts, a lack of workers and the lingering effects of the mountain pine beetle in the B.C. Interior were the major drivers of discussions.
With the potential for a significant rise in demand for softwood lumber on the horizon, will the sawmill sector in western Canada be able to rise up and meet the demand?
Let’s have a look.
In the B.C. Interior, lumber production peaked at about 15 billion board feet in 2006. This volume was produced from an aggregated 72 medium and large-sized sawmills, with a plethora of smaller miscellaneous lumber producers spread out across the Interior.
But as early as 2007—as markets began to fall—the devastation of the Interior sawmilling sector began as mills reduced production, curtailed shifts and in many cases closed, never to be re-opened. By the bottom of the cycle in 2009, 17 sawmills had closed, some permanently, and B.C. Interior aggregated lumber production had fallen in less than three years to below nine billion board feet—or 60 per cent of the peak year.
However, despite growth in the demand for lumber from both the U.S. markets and more importantly China, and the re-start of some mills as markets improved, sawmills continue to close in response to the beetle. The most recent casualties, Canfor Quesnel and West Fraser Houston, will take close to 700 million board feet out of capacity. While these closures were reported as a “surprise” to many in the media, those close to the issue know that these closures were predicted well in advance, and that more mill closures stemming from the fallout of the beetle are still in store.
That said, 2013 saw B.C. Interior lumber production rebound, with close to 11 billion board feet from the mills that remain in operation.
So what is next in the B.C. Interior and how will it all settle out from a lumber production perspective?
Based on our most recent forecasts from the B.C. Fibre Model that consider the potential for annual allowable cut (AAC) reductions, sawlog availability and growing competition for logs, we see another four to five sawmills being at risk of closure, along with a veneer production mill (or two). Mid-term lumber production from the B.C. Interior is forecast to settle out at about 9.5 to 10 billion board feet, or about 65 per cent of that seen in 2006.
With forecasts of growing lumber demand and reduced log supply, where might the supply of additional structural lumber come from?
Well, it could be coming from the next province over—Alberta. In a proactive move to ensure that ongoing policy discussions that affect natural resource development are considered and with full knowledge of the impacts that decisions may have on the forest industry, the Alberta Government undertook a project in 2013 to ensure their understanding of the Alberta forest industry.
The resultant Alberta Fibre Model has allowed the Ministry of Environment and Sustainable Resource Development (ESRD) to fully understand log supply, mill demands and the relationships between fibre producers and consumers as natural resource decisions and new industry developments are considered.
The Alberta sawmill sector is made up of 32 small, medium and large sawmills that in aggregate have an operational capacity of more than four billion board feet, about 45 per cent of the forecast B.C. Interior sawmill capacity in a post-mountain pine beetle world.
Alberta’s lumber output in the last year was approximately 3.5 billion board feet, suggesting an average industry operating rate of 85 per cent. Considering the lacklustre performance of the U.S. housing recovery (a critical market for its Alberta industry, which has more limited access to China markets given their location), this is seen as reasonable performance, with room to grow as markets are forecast to improve.
The current Alberta coniferous AAC of close to 19 million cubic metres could easily accommodate the log demand seen in the past year even after allowance for coniferous logs used in the production of pulp chips. Even with the sawmill and pulp mill sectors operating at capacity levels, coniferous log demand is still forecast to be below the AAC, suggesting ample room for improvement in Alberta’s lumber production level as the demand for lumber grows.
As we look forward, though—and as in B.C.—the Alberta coniferous AAC may have the potential to fall in response to the multiple resource considerations that constantly threaten the ongoing availability of softwood, not just in Alberta, but in all parts of Canada.
The eventual level of Alberta’s AAC as ESRD balances multiple resource interests may dictate the potential for growth in the Alberta softwood lumber industry. But with a current AAC less than demand at capacity, it suggests a strong Alberta response to growing demand for softwood lumber globally.
Jim Girvan, RPF, MBA, is the principal of MDT Management Decision and Technology of Ladysmith, B.C., where he provides consulting support in the areas of timber supply and fibre flow modeling and analysis, industry forecasting, statistical analysis, licence acquisition and forest policy. Murray Hall, BComm, is the principal of Murray Hall Consulting Ltd. of Duncan, B.C., where he provides consulting support in the areas of residual fibre analysis, fibre quality and strategic assessments of wood supply.