CLICK to download a pdf of this article

The year ahead for the forest industry: it sure ain't going to be boring

By Jim Stirling

It’s just as well that the Canadian forest industry has learned to be durable and adaptable. Those attributes look to be in demand as 2016 progresses.

Predictions are fragile confections at best, influenced as they are in unexpected ways by outside forces. The forest industry needs to muster its resilience and reactions as those forces unfold. And the economic soothsayers need to keep their excuses close to hand.

Take a glance, for instance, at Canada’s non-domestic lumber markets. It really wasn’t long ago that market category primarily meant the United States’ demand for dimension lumber. That dependence has waned to more sensible levels, but the U.S. lumber market remains vital to Canadian lumber producers, as well as providing a useful barometer to economic health on a global scale. The much anticipated recovery from the depths of the last recession has been slower and more uneven than many pundits predicted.

But it is happening. The U.S. economy has been consistently recording quarterly growth in excess of two per cent for more than a year. The U.S. registered an annualized increase of 2.1 per cent in 2015’s third quarter gross domestic product figures. Canada’s growth averages around half that, attributable to our reliance on export commodities like oil and gas and minerals. U.S. housing starts—the key statistic to many Canadian lumber producers—are increasing like the overall economy, but oh so gradually.

Events elsewhere are sending their ripple effects into the U.S. demand equation. Quebec’s forest industry, for instance, has long developed traditional markets in Europe for wood products. But recent European currency value declines against the U.S. dollar erodes some of Quebec lumber manufacturers’ price advantages. Partly as a result of that, the province looks to increase shipments into the U.S. Europe is not the only market experiencing slowdowns in lumber demand. It’s a similar situation throughout the troubled Middle East and Asia.

Forest consultant and analyst Russ Taylor neatly summarized the U.S. market realities. “All the suppliers are trying to increase production two, three, five per cent and consumption is growing at about one to two per cent.” One interpretation from that is that it’s going to be tough to hang on to the U.S. market share under the present circumstances—let alone increase it.

Then, of course, there’s China: the market that kept many sawmills operating during the gloom of the recession, especially in British Columbia. But everyone knew—didn’t they?—that annual levels of demand for lumber in China during its heady days of double digit growth were unsustainable.

Taylor says homebuilding has declined by about 17 per cent during 2015. B.C.’s lumber shipments to China were 4.9 million cubic metres to the end of the third quarter of 2015. That represents a 14 per cent drop from the same period of 2014. “Flat” is the word Taylor used to describe the overall China lumber market prediction for 2016. Japan and other Asian markets aren’t yet in ascendancy and appear unlikely to register the sustained growth in economic activity that stimulates new lumber demand.

At the time of writing, there’s little measurable progress on re-negotiating a softwood lumber agreement with the U.S. The grace period for a new agreement expires at the end of October. The inaction contributes to further uncertainty for Canadian lumber producers and by extension the whole forest sector. Not knowing if there’s going to be a new deal or what shape it might take effects investment decisions for logging contractors and forest companies and negatively reverberates through small forestry town Canada.

In B.C. the uncertainty is further skewed by timber supply. The mountain pine beetle epidemic’s bite is destined to get deeper unequally through many pockets of the interior. Saw logs and their prices will be at a premium. More sawmilling capacity is likely to be lost as a result.

Aboriginal title and its impacts on resource extraction are lowering their own clouds of uncertainty. The Supreme Court of Canada’s 2014 ruling granting the Tsilhqot’in title to specified lands in their traditional territory captured everyone’s attention. The potential impacts were much analyzed but the on-the-ground ramifications for the forest industry have so far been relatively benign. One possible reason is the forest industry in B.C. at least has long had business relationships with aboriginal groups which, by and large, have worked harmoniously.

But another Supreme Court of Canada decision rendered last October represents a new element of uncertainty. Not to mention a potentially toxic can of worms. The Supreme Court in its decision effectively recognizes aboriginal title and allowed two First Nations the right to file a class action suit against a private company. The Saik’uz and Stellat’en First Nations took on Rio Tinto Alcan and the impacts of the company’s Kenney Dam on the Nechako River and their aboriginal rights. Aboriginal groups, which claim more than 100 per cent of the provincial area, in light of this latest Supreme Court decision, now have the right to sue private companies for damages, not just governments. Resource development is now even more firmly in lawyers’ hands, which is not a productive development for anyone else involved.

There is one prediction, however, that isn’t clouded with uncertainty: 2016 ain’t going to be boring.