CLICK to download a pdf of this article
Outlook is positive for Canada's lumber producers
By Jim Stirling
Canada’s recent lumber and wood byproduct marketing diversification strategies should help the more progressive forest companies weather the next two or three years. Two recent reports lead to that conclusion.
The International Wood Markets Group in 2014 took the brave step of preparing its five year lumber demand forecast. The company’s intelligence estimates the bellwether U.S. housing starts will slowly climb from a little more than one million units in 2014 to 1.46 million by 2019. International Wood Products predicts British Columbia lumber production of 12.6 billion board feet in 2015 (up from 12.3 billion last year) with a price of U.S. $362 per thousand.
The trend is predicted to continue its improvement in 2016 with B.C. lumber production of 12.8 billion board feet and a price of U.S. $377 per thousand. But unlike the past, B.C.’s sawmills won’t have the luxury of simply ramping up production to meet the U.S. lumber demand peaks. Instead, the mountain pine beetle’s bite will sink deeper. The sawlog fibre quantities simply won’t be there.
As a consequence, International Wood Markets expects B.C.’s lumber production to dip to 12.5 billion board feet in 2017 and prices will reflect the fibre situation, reaching about U.S. $425 per thousand. By 2019 and the end of International Woods Products’ time frame assessment, B.C. producers’ share will have shrunk to 11.8 billion board feet, although the price will remain high, at U.S. $400 a thousand.
A non-beetle factor affecting predicted prices comes from Quebec. The company said the provincial government there has reduced Crown timber harvesting levels to meet its conservation goals.
Interestingly, although not specifically mentioned in International Wood Markets’ analysis, the possibility exists in B.C. of an opposite move to Quebec’s. The B.C. Liberal government has indicated it might consider removing areas of timber currently under varying levels of protection from industrial activity to help counter the fibre shortage impacts of the beetle infestation.
Fortunately, B.C. is no longer a one trick lumber market pony. There’s Asia and hard work to thank for that. China especially has forestalled some interior mills from closure. Chinese lumber demand is not what it was, rating lateral to dipping. But it maintains a significance.
Japan, Korea and other regional markets have their issues but will likely help B.C. lumber producers who have done their homework in the region and proven themselves reliable shippers of quality products.
All in all, according to International Wood Markets Group’s analysis, market-wise, the outlook is short term positive for Canada’s lumber producers.
Meanwhile, the export outlook for biomass energy production looks predominantly rosy for the next several years.
“The markets are growing at a tremendous rate. It looks like global consumption is going to double in the next few years,” pointed out Gordon Murray, executive director of the Wood Pellet Association of Canada in a report late last fall.
The demand is being driven by political resolve in Europe and latterly in Asia. Some European countries are committed to weaning their industries off a traditional reliance on coal-fired power in favour of renewable sources. Some European countries have signed on to European Union commitments to reduce greenhouse gas emissions by 20 per cent from 1995 levels by 2020.
Generous European subsidies help make the importation of wood pellets from jurisdictions like B.C. a viable option, despite the formidable transportation challenges. B.C.’s wood pellet manufacturers have been quick off the mark to capitalize on the situation. Currently, 13 wood pellet manufacturing plants produce approximately two million tonnes of product annually, mainly for export. Cheap natural gas drives the domestic Canadian heating market despite wood pellets’ availability and advantages.
Canfor Corp. will add to B.C.’s wood pellet manufacturing capacity when its new plants in Chetwynd and Fort St. John come into production. The plants, adjacent to the company’s existing sawmills at each location, will manufacture wood pellets from sawmill residues and capitalize on surplus capacity to generate electricity for the B.C. grid, thereby creating an additional revenue stream.
Korea and Japan are following Europe’s lead toward more renewable power and wood pellet shipments. While these shipments are relatively modest today, these countries have air quality targets that auger well for Canadian pellet manufacturers.
The wood fibre is available in B.C. to support the predicted growth. The trick is to secure access to a steady supply of low grade fibre at prices acceptable to major licencees and the biomass industry. The B.C. Ministry of Forest, Lands and Resource Operations has said it will introduce supplemental forest licences to help facilitate the process. Timber allocated under the licences would be classified as uneconomic for lumber production. The licences would, among other advantages, give the wood pellet manufacturing industry a bargaining chip when negotiating with licencees for long term fibre supply contracts.
The Canadian forest industry is however never short of issues that can derail the best of predictions. Last year’s Supreme Court of Canada’s decision in the Ts’ilhqotin Nation claim could prove a case in point. What the Court’s decision means for the day to day functioning of the forest industry remains unclear. The possible ramifications range from minimal to catastrophic. Most First Nations groups are wisely holding their counsel and assessing their options.
But what is clear from the Court’s decision is that failure to show deference and respect to First Nations on land access and use issues will have its consequences.
This page and all contents ©1996-2015 Logging and Sawmilling Journal (L&S J) and TimberWest Journal.