Canada’s wood products manufacturers will see pre-tax profits shrink from $1.8 billion in 2016 to $1.4 billion this year and $1.1 billion in 2018, as the United States issues duties averaging 30 per cent on Canada’s softwood lumber.
“The Canadian wood products industry’s financial performance is forecast to deteriorate in the years ahead as import duties cut into shipments to the U.S. and act as a drag on industry growth,” said Michael Burt, director of industrial trends at The Conference Board of Canada. “Revenues that would previously flow into the pockets of Canadian lumber producers will now be diverted to U.S. Customs and Border Protection in the form of cash deposits. While Canadian producers will not bear the total cost of the new duties, revenues will be impacted and revenue growth is not projected to keep pace with cost increases in the near term.”
- Wood products manufacturers can expect to see pre-tax profits drop to $1.4 billion this year and $1.1 billion in 2018.
- Softwood lumber duties will cause production within the industry’s sawmills segment to contract in 2017.
- Non-lumber production will help the industry manage GDP growth of 0.3 per cent this year.
- Wood products manufacturers will continue to depend on the upturn in the U.S. housing market to drive production growth.
It is only due to a healthy outlook for non-lumber production (e.g., veneer, plywood, and other millwork) that the industry will expand, as GDP manages growth of 0.3 per cent this year and 1.8 per cent in 2018.
Recent increases in lumber prices support the notion that Canadian producers will be able to pass along a portion of the cost to consumers. Lumber prices are now 20 per cent higher compared to one year ago, as markets have begun to price in the effects of lumber duties. In addition, current market conditions suggest that upward pressure on lumber prices could continue as demand conditions south of the border improve and drive production growth.
Fortunately, U.S. housing starts are expected to grow from 1.2 million in 2016 to 1.7 million by 2018. In comparison, housing starts in Canada are expected to fall from 199,000 starts to 190,000 starts over the same period. And, while U.S. lumber duties will undoubtedly drive producers to explore other export markets, the ability to target these markets competitively will remain a challenge for many producers, particularly those with long-established logistical ties to the U.S. market.
“Although the U.S. remains the dominant destination for Canadian wood products exports, the new trade restrictions could encourage a further pivot toward Asian markets, particularly China where growing demand for wood products recently pushed imports of logs and lumber by this fibre-poor country to their highest level on record,” said Burt.