B.C. lumber producers are accustomed to boom and bust cycles, but the past two years have been astonishingly volatile for the industry.
Lumber prices plunged at the start of the COVID-19 pandemic, then soared to record highs, only to plummet again and rebound.
Protests that began in 2020 by environmentalists against old-growth logging on Vancouver Island attracted international attention. In 2021, the B.C. government announced plans to restrict logging in old-growth forests, nearly three decades after the Clinton administration clamped down on timber harvesting in the U.S. Pacific Northwest.
Amid tightening supplies from British Columbia, North American lumber markets are headed for a third consecutive year of wild price swings, though forecasters don’t expect an encore of the record highs in 2021.
Cash prices – what sawmills are charging to sell to wholesalers – hit a record high last May of US$1,630 for 1,000 board feet of two-by-fours made from Western spruce, pine and fir (SPF), according to Random Lengths, an Oregon-based company that monitors wood markets.
After markets peaked last May during the do-it-yourself boom by consumers who snapped up material for decks and renovations, prices tumbled 75 per cent over the next three months, before staging a rebound.
Lumber prices rose US$75 last week to reach US$1,120 – nearly tripling over the past five months. During the latest upswing on the commodity’s roller-coaster ride, lumber prices have doubled over the past two months, after B.C. flooding disrupted supply chains in mid-November, and U.S. tariff rates on most Canadian softwood producers doubled starting in early December.
Investors have been cautious because it’s unclear how long this current phase of lumber mania will last. The share prices of B.C.-based producers have risen relatively modestly since mid-November during the latest lumber rally, with West Fraser Timber Co. Ltd. increasing 11 per cent, Canfor Corp. gaining 17 per cent and Interfor Corp. climbing 36 per cent. All three companies are major producers within B.C., but they have also diversified operations to other parts of North America over the years, including in the U.S. South.
Lumber prices in 2022 are forecast to remain much higher than prepandemic levels in 2019, when they averaged US$360 for 1,000 board feet of Western SPF.
On the demand side, analysts are skeptical that the momentum of robust U.S. housing starts will carry into 2022, given the prospect of rising interest rates eroding the purchasing power of home buyers. On the supply side, a key factor is the B.C. government’s November announcement on plans to defer logging in the most at-risk old-growth forests on up to 2.6 million hectares of public lands.
“There’s enough going on that there’s room for price swings – wild price swings,” said Peter Barynin, principal economist for timber at Fastmarkets, which publishes Random Lengths.
In B.C., where the provincial government estimates logging in old-growth forests accounts for 27 per cent of the annual harvest on Crown timberland, uncertainty hangs over how much lumber supplies will be scaled back.
Mr. Barynin estimates the impact of harvesting restrictions in old-growth forests could result in a 12-per-cent reduction in B.C. timber production on Crown land.
Lumber production has been on a declining trend in B.C. since peaking in 1987, long before the provincial government’s recent proposals, which also include more harvesting rights for First Nations.
High prices, however, have spurred increases in production capacity outside B.C., including new supplies from the U.S. South that could help send prices back down, analysts say.
On Sunday night, CIBC World Markets Inc. analyst Hamir Patel raised his forecast for the average price for Western SPF to US$725 for 1,000 board feet in 2022, compared with his previous estimate of US$600. That would be down from the US$870 average in 2021, but still higher than US$550 in 2020. Raymond James Ltd. analyst Daryl Swetlishoff envisages prices averaging US$585 in 2022, while RBC Dominion Securities Inc. analyst Paul Quinn estimates US$675.
Despite wildfires in 2017 and 2018 that further depleted supplies of available wood fibre in B.C., the province remains Canada’s largest softwood lumber producer, accounting for 40 per cent of the country’s output and 14 per cent of North American production.
The B.C. Forests Ministry estimates the province’s old-growth forests formerly covered areas spanning 25 million hectares dating back roughly four centuries. Old-growth areas have fallen to 11.1 million hectares, or 20 per cent of B.C.’s 56.2 million hectares of public forests. The ministry said 3.5 million hectares are already protected.
The B.C. government has cautioned that 4,500 direct forestry jobs could be at risk from proposed harvesting restrictions, or 9 per cent of the total direct employment in the provincial sector. The BC Council of Forest Industries, or COFI, believes 8,600 direct jobs are at risk. COFI argues that more than 18,000 forestry-related jobs – or what economists call direct, indirect and induced jobs – could be lost, or 18 per cent of forestry-related employment in the province.
Forestry consultant David Elstone, managing director at Spar Tree Group Inc., paints a gloomy picture for B.C.’s lumber industry, with ripple effects such as fewer wood chips for pulp and paper. He warns that employment in B.C.’s forestry sector could decline by as much as 44 per cent.
COFI president Susan Yurkovich said lumber producers are harvesting at a sustainable level, though the B.C. government’s attempts to overhaul a range of forestry policies are already having a dampening effect on investment in the province. “It’s really created a lot of uncertainty in the sector,” Ms. Yurkovich said during a podcast interview with Bridgitte Anderson, president of the Greater Vancouver Board of Trade.
COFI estimates up to 20 lumber sawmills could be closed, or 16 per cent of the total in B.C. “That’s very difficult for families, for workers and for communities,” Ms. Yurkovich said.
Environmentalists say the B.C. government isn’t acting fast enough to protect old-growth trees, which vary widely in size and attributes depending on the age and location.
In 1994, then-U.S. president Bill Clinton introduced the Northwest Forest Plan, targeted at protecting federal public lands and the northern spotted owl in Oregon, Washington State and northern California.
The U.S. Pacific Northwest went from having 13.3 million hectares of old-growth forests in the early 1940s to 4.2 million hectares in 1992, after companies extensively logged for five decades in the region. “Under the Northwest Forest Plan, most of that remaining old growth was basically pushed off limits in 1994,” said Ken Wu, founder of Vancouver-based Endangered Ecosystems Alliance.
The best grades of old-growth lumber from B.C. are coveted by niche buyers willing to pay premium prices for cedar from natural forests. Cedar lumber graded as “clears” – free of knots – goes into the manufacturing of high-end wood products, including specialty doors, indoor panelling and outdoor furniture.
Western red cedar “clears” for export from B.C. to the U.S. fetched prices in mid-2021 that were four times higher than the value of Western SPF for house framing.
Mr. Wu said B.C. needs to do more value-added processing with second-growth timber, and he supports protesters who want companies to halt old-growth logging on public timberland such as the Fairy Creek watershed and central Walbran on Vancouver Island. “We need stronger forestry practices codes to end old-growth logging because these are endangered ecosystems,” Mr. Wu said. “Private lands remain less regulated than public lands.”
Crown timber accounts for 95 per cent of B.C.’s forested lands, while just 5 per cent is private. But an analysis by Mr. Barynin and Fastmarkets economist Sima Ghasemi shows that private timberland is supplying an ever-larger percentage of B.C.’s annual tree harvest, hitting 16 per cent in 2021.
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