West Fraser takes over top spot

WOOD MARKETS’ annual survey of top Canadian lumber producers highlights the ongoing healthy market conditions coupled with mill expansions and capital expenditures—and a change in the country’s top lumber producer, with West Fraser coming out on top.

By Russ Taylor

For the sixth consecutive year, total North American softwood lumber shipments were up, rising by 5.3 per cent in 2016 versus 2015 (from 58.2 billion board feet to 61.3 billion board feet).

The steady growth in the U.S. housing market, combined with strong growth in residential repair and remodelling and a favourable export market in China, propelled strong production gains. As a result, Canada’s total shipments grew by 7.6 per cent (+2.0 billion board feet to 28.5 billion board feet), with total U.S. shipments up 3.3 per cent (+1.1 billion board feet to 32.8 billion board feet).

In Canada, shipments were up across all regions of the country, led by Quebec, with an increase of 834 million board feet to 6.3 billion board feet (+15.3 per cent); this was followed by B.C., up 478 million board feet to 13.6 billion board feet (+3.6 per cent), and Ontario, which saw a lift in shipments of 263 million (to 2.1 billion board feet; +14.3%).

The gains were due to a mix of mill restarts, upgrades and added shifts across the country. However, further gains in Canada are likely to be constrained by sawlog supply limitations in B.C. pertaining to the mountain pine beetle infestation, and from the implementation of U.S. duties on Canadian lumber exports to the U.S.

Canadian Top 10: Up 4.2 per cent

From 2010 through 2013, the top 10 Canadian producers consistently grew their shipments at a faster pace than the overall Canadian industry. However, in 2016 (as in 2015), softwood lumber shipments by the top 10 Canadian lumber producers grew at a slower pace than Canadian shipments as a whole (+4.2 per cent for the top 10 versus +7.6 per cent for Canada). As a result, the Canadian top 10 companies saw their output rise from 15.8 billion board feet in 2015 to 16.4 billion board feet in 2016.

The slower growth in the top 10 companies is likely an indication that the larger Canadian companies are consolidating production and retooling mills to optimize for anticipated changes in the log profile and projected reductions in overall timber supply (particularly in the B.C. Interior). This was evident in 2016 as Canfor (#2) and Tolko (#3) both recorded reduced production levels or closures, mainly from their B.C. operations.

However, Canadian mill investments in the U.S. South are proving to be very strategic due to the ample timber supplies and very high sawmilling margins (from low timber prices). As well, with the U.S. duties on Canadian lumber shipments commencing in May, Canadian mill ownership in the U.S. is looking to be a very astute move. While there was no U.S. acquisition activity in 2016 by Canadian companies, West Fraser, Canfor and Interfor’s current U.S. mill count of 39 provides for some excellent diversification for their sawmill business.

West Fraser overtakes Canfor for top spot

Turning to the ranking of the top Canadian firms, six of the top seven companies were based in Western Canada and their collective production was 12.2 billion board feet (42.7 per cent of Canada’s shipments). Production for the top four eastern Canadian producers was 4.25 billion board feet (14.9 percent of Canada’s shipments).

The order of the top five Canadian producers was as follows: West Fraser, Canfor, Tolko, Resolute and Western Forest Products. Of note, West Fraser surpassed Canfor as Canada’s top lumber producer, a position it last held in 2011.

Collectively, the top five Canadian producers raised their production to 12.2 billion board feet (43.0 per cent of Canadian lumber output), versus 12.0 billion board feet (45.1 per cent) in 2015. West Fraser inched up to the lead spot, increasing its output by 197 million board feet (to 3.80 billion board feet; +5.5 per cent) at its 13 mills. Canfor dropped to second position with 3.79 billion board feet and recorded a decline in output of 42 million board feet (-1.1 per cent) despite purchasing Wynndel Box & Lumber during the year. Tolko placed third, with its output falling by 63 million board feet to 1.90 billion board feet (-3.2 per cent); it cut production by half at its Quesnel, B.C. mill beginning in October, 2016 (and later closed its Merritt, B.C. mill in Q1-2017). Fourth-place Resolute gained 166 million board feet (+9.9 per cent) to reach a healthy 1.84 billion board feet. Western saw its output increase by 52 million board feet (to 943 million board feet) as capex upgrades at multiple sawmills in 2015 gave way to solid gains in 2016.

The wild card for 2017 is the imposition of U.S. duties on Canadian lumber starting on May 4, 2017. This is expected to negatively impact Canadian production (and U.S. exports) and benefit U.S. sawmills (and timberland companies). This will be discussed at length at WOOD MARKETS’ Global Softwood Log & Lumber Conference in Vancouver B.C. on May 11, 2017. The conference will also address ongoing supply shocks and dislocations coupled with steady growth in the U.S. market in conjunction with developments in Asian markets and the anticipated role of European and Russian exporters. More information on all of these events can be found at: www.woodmarkets.com/conference/global-conferences/

Russ Taylor is President of International WOOD MARKETS Group of Vancouver, B.C.

International WOOD MARKETS Group Inc. is a wood products consulting services firm. Its consulting team has provided industry and market expertise in the solid wood products field to its clients since 1993. The firm also publishes a number of strategic industry multi-client reports including its landmark WOOD Markets Monthly International Report (since 1996), the monthly China Bulletin (since 2007), and various five-year forecast reports. The company’s various conferences are key ways to inform producers, exporters and importers of key trends in global markets. Further information is available at www.woodmarkets.com