Skip to main content
forest products

Douglas fir posts at the Interfor mill in Delta, B.C. In July, the value of B.C. exports of softwood lumber to the United States surged to $216.8-million, up 61.1 per cent from the same month last year.DARRYL DYCK/The Globe and Mail

Forestry executive Steven Hofer has grown accustomed to getting the cold shoulder during sales trips. But on a swing through the U.S. Midwest two weeks ago, orders for softwood lumber began pouring in.

During a visit to St. Louis, managers at wood distributors and retail lumber yards told him what he has been waiting years to hear – American consumers are back in the market for new homes and developers are building multi-unit residences again. The pattern of healthy orders for lumber repeated itself at other stops made by Mr. Hofer, vice-president of sales and marketing for International Forest Products Ltd.

The U.S. housing market is finally showing signs of recovery after collapsing during the 2008-09 recession and hurting demand for building materials across the board. Now, Vancouver-based Interfor and other B.C. lumber producers are gearing up for what they hope are the early stages of a sustained housing revival south of the border. The forestry companies are hoping the momentum will carry into 2013 and translate into a badly needed turnaround for their industry, which has had to rely on Asian customers to diversify revenue in recent years.

"A lot of those U.S. Midwest cities got hit hard, but they're certainly seeing an improved business environment now," Mr. Hofer said. "The lumber market has been very strong through spring and summer, and that has been driven both by improvements in demand in the United States, as well as further growth in China."

In July, the value of B.C. exports of softwood lumber to the United States surged to $216.8-million, up 61.1 per cent from the same month last year and also the highest monthly value of such exports to U.S. markets in nearly five years, according to Statistics Canada figures compiled by BC Stats. By contrast, the value of B.C. exports of softwood lumber to China grew to $82.8-million in July, up a relatively modest 5.4 per cent over the same month in 2011, but still nearly 12 times higher than five years ago. Japan, however, remains a wild card.

Prices are on a tear. In August, spot prices averaged $310 (U.S.) per 1,000 board feet for Western lumber produced from spruce, pine and fir, a gain of 24 per cent over January's average of $250. The amount of lumber shipped is also climbing. In the first eight months of this year, Canada's two largest railways transported more than 96,000 carloads of lumber and wood products, up 9.1 per cent from the same period in 2011.

Lumber prices should climb sharply in North America over the next three to five years, with increased orders from China, pent-up demand in the United States and tight supplies in Canada, said CIBC World Markets Inc. analyst Mark Kennedy.

The United States, which is on pace to have 746,000 housing starts this year, could see 900,000 starts next year, said Mr. Kennedy, who added that if the figure were to rise to 1.4 million annually, lumber prices could surge above $400 per 1,000 board feet.

There has been a broad-based recovery in U.S. residential markets after excess housing inventory gradually got soaked up after the recession. That's been followed by increased buying from older members of the baby boom echo – children born from 1980 to 1995, Mr. Kennedy said, adding that demand is climbing in places from Texas to North Dakota, and even in hard-hit states such Florida and Arizona.

Improvements in lumber orders should also appear in repair and renovation of homes. RBC Dominion Securities Inc. estimates that 30 per cent to 40 per cent of North American lumber goes into new homes, while 25 per cent to 30 per cent is used to repair and renovate houses.

Demand in Asia, however, will be uneven. The value of B.C. exports of softwood lumber to Japan slipped to $46.5-million (Canadian) in July, down 8.9 per cent from the same month in 2011. And while the industry can't expect China's voracious demand to last forever, the overall picture remains bright.

"We see the overall demand in China continuing to grow, but at a more moderate pace," Mr. Hofer said. "With China participating on a consistent basis and with the improved demand picture in the U.S. and the industry operating mostly at capacity, we have seen lumber prices increase significantly. We're seeing a new price level established."

Industry experts say prices for lumber in the near term could pull back given the strong rally. But given supply constraints, they expect improved prices later this fall and into 2013.

On the supply side, any increases in lumber production will be muted because of the lingering effects from mountain pine beetles decimating forests in British Columbia's Interior, said Kip Fotheringham, senior vice-president of sales and marketing for Vancouver-based Conifex Timber Inc. "The industry just can't bring back a whole bunch of sawmills quickly. The wood fibre isn't there in the B.C. Interior. And Ontario and Quebec face provincial constraints in the annual allowable cut," he said.

Follow Brent Jang on Twitter: @brentcjangOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story

Your Globe

Build your personal news feed

Follow the author of this article:

Check Following for new articles