Wood products outlook rosy for 2016, darker for 2017

Likelihood of softwood lumber import duties will weigh on bottom lines.

OTTAWA — This year will be profitable for Canada’s wood products manufacturers but the likelihood of US duties on softwood lumber next year is another matter, according to a Conference Board of Canada industry outlook report.

The Ottawa-based think tank says wood products manufacturers are on track to post pre-tax profits of $1.4 billion this year – their highest levels since 2004. But the imposition of US duties on softwood lumber will slow export growth and weigh on the industry’s bottom line.

“With no end in sight for the longstanding trade dispute between the US and Canada on softwood lumber and increasingly protectionist sentiment south of the border, it’s more likely Canadian producers will face trade action by the US and heightened restrictions in the coming year,” said Michael Burt, director, industrial trends, who warned import duties would increase the costs of exporting to the US.

“With softwood lumber accounting for more than half of industry’s wood product exports to the US, various producers must evaluate whether they can continue to export to the US profitably,” he said.

In the near-term, duties are expected to cut Canada’s shipments to the US; however, the severity of the production cuts will depend on factors such as the location and size of the sawmills.

The report identifies producers in Central and Eastern Canada as heavily dependent on US demand. In Ontario, more than 95% of wood exports are destined for the American market. And smaller firms with less ability to redirect production to other markets will face greater difficulties adapting to the new import duties.

Western Canadian producers will be challenged by a new tariff, but the Conference Board says BC producers are diversifying their trading partners, sending more than one-third of its exports to markets other than the US.

And large companies have been mitigating their exposure by investing in US mills.

Economic conditions will also come into play. A healthy US economy is helping the housing market with starts expected to grow to 1.79 million units by 2021. The Conference Board says US producers would likely only satisfy 65% to 70% of domestic lumber demand. As a result, the US will continue to need to import lumber.

Click here for more information about the Canadian Industrial Outlook: Canada’s Wood Products Manufacturing Industry.

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