still Canada’s top lumber producer

By Russ Taylor

FEA Canada/WOOD MARKETS’ 2018 annual survey of top Canadian and U.S. lumber producers features mixed production trends, partly as a result of alternately spiking and crashing U.S. lumber prices in 2018.

With a few mill acquisitions by smaller companies (and one large company: West Fraser’s mid-2017 acquisition of Gilman in the U.S. South), most of the production gains in 2018 were facilitated by improvements at existing mills.

Given ongoing industry consolidations, it is important to note that our complete survey now focuses on the top 15 lumber producers. Our early surveys, conducted in the 1990s, covered the top 30 companies; this illustrates how much the industry has changed in the last two decades. In our shortened Top 20 Canada list in 1998, only six firms on the list are still under the same ownership today!

An excerpt from the full survey on Canada’s “Top 10” lumber producers is outlined here.

Total North American softwood lumber shipments inched their way higher for the ninth consecutive year in 2018, increasing by about 320 million board feet (+0.5 per cent) versus 2017 (to 62.14 billion board feet from 61.8 billion). While growth in the U.S. housing market slowed, there was good activity in residential repair and remodelling, as well as favourable demand in other segments.

Export markets were unsettled, with U.S. exports increasing slightly and Canadian exports (including to the U.S.) decreasing by around one billion board feet. Logistics disruptions in western North America interacted with other events, leading to lumber market shortages in the first half of the year, followed by excessive field inventories in the second half. As a result, Canada’s total shipments declined by 2.4 per cent (-680 million board feet to 27.36 billion board feet), with total U.S. shipments gaining 3.0 per cent (+1.0 billion board feet to 34.78 billion board feet).

The Top 10 Canadian producers saw their shipments grow at a slightly slower pace than the overall Canadian industry in 2017 and again in 2018, the softwood lumber shipments of the Top 10 decreased at a greater pace than Canada as a whole (-3.0 per cent for the top 10; -2.4 per cent for Canada). The Canadian Top 10 saw their output decline to 15.7 billion board feet in 2018 from 16.2 billion board feet in 2017, and their share of national production decreased slightly, moving from 57.6 per cent in 2017 to 57.3 per cent in 2018.

The drop in shipments are a function of a range of supply and market factors. The spectacular ramp-up in prices through June, and the subsequent crash by autumn, led to numerous mill curtailments. The implementation of import duties on lumber shipments to the U.S. finally took a hard bite out of Canadian mills’ margins (particularly those in the B.C. Interior due to rising log prices and forest fires; projected reductions in the overall SPF timber supply in that region will ultimately compound the challenges). As a result of the duties and weaker sawmilling economics, Canadian mill investments in the U.S. South are proving highly strategic due to ample timber supplies in the area and high sawmilling margins (the result of subdued timber prices due to oversupply). Currently, the collective U.S. mill count of West Fraser, Canfor and Interfor (46 mills at the end of 2018) enables their sawmill operations to enjoy excellent diversification on both sides of the border.

Turning to the ranking of the Top 10 Canadian firms, six were based in Western Canada, and collectively they produced 11.35 billion board feet (41.5 per cent of Canada’s total shipments); this was down 340 million board feet (-3 per cent) from 2017. The four largest Eastern Canadian mills produced 4.32 billion board feet and 15.8 per cent of Canada’s total shipments.

The Top 5 Canadian producers in 2018 had the same respective rankings as in 2017: West Fraser, Canfor, Resolute, Tolko and J.D. Irving. Together, these producers accounted for 11.6 billion board feet (43 per cent of total Canadian lumber output), versus 12.1 billion board feet in 2017.

West Fraser retained its top spot, but total Canadian output inched down to 3.79 billion board feet (-0.4 per cent) at 13 Canadian mills. Canfor remained in second position with 3.55 billion board feet, recording a small output decline of almost 200 million board feet (-5.2 per cent) at its 13 western Canadian mills.

Resolute stayed in third position but dropped its output by 165 million board feet (-8.2 per cent) to 1.85 billion board feet. Tolko, ranked fourth, saw its output fall by 165 million board feet to 1.46 billion board feet (-10.2 per cent).

Finally, at #5, J.D. Irving reported 950 million board feet of production (+3.3 per cent), the only company in the Top 5 to record an increase.

The four largest North American softwood lumber producers (West Fraser, Canfor, Weyerhaeuser and Interfor) all have operations in both the U.S. and Canada.

The wild card for 2019 is a recovery in demand that would allow for more stable U.S. lumber prices. For Canadian firms, relatively high prices will be needed to offset the 20 per cent import duties to the U.S.

With reductions in Canada lumber production anticipated again in 2019, lumber prices will need to be high enough to attract offshore exports (especially from Germany and Sweden); this is despite of the dozen new sawmill projects planned for the U.S. South in the next few years. U.S. lumber production is likely to continue expanding, with incremental offshore imports still needed to meet U.S. demand.

This topic will be examined at length during our Global Softwood Log and Lumber Conference, to be held in Vancouver May 8–9, 2019.

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Russ Taylor is the Managing Director for FEA Canada (WOOD MARKETS; www.woodmarkets.com ) based in Vancouver. International WOOD MARKETS Group was purchased by Forest Economic Advisors LLC (www.getfea.com ) in August 2017 and now operates as FEA Canada.