February 21, 2005

Looming shortage of raw supply in east may force restructuring

Lumber producers expect another strong year

MONTREAL

Despite the softwood lumber dispute with the U.S., the Canadian lumber industry is looking forward to another good year thanks to the ongoing construction boom in North America, says the chairman of the Canadian Lumbermen’s Association.

Martin Michaud said that continuing strong housing starts in the U.S. and Canada will keep up prices for construction lumber.

“It was a very good year for softwood producers,” he said in an interview with The Canadian Press during the association’s annual convention. “We had record prices and a buoyant market.”

However, Michaud said the softwood dispute, which has dragged on for years, con- tinues to squeeze producers.

“The only cloud was the countervailing duties that are still there after so many positive decisions; we are still being dealt in an unfair way with our neighbours to the south,” he said.

Michaud’s comments came as provincial trade officials met last week in the Toronto area with U.S. Commerce Undersecretary Grant Aldonas. Aldonas reportedly told the group that he planned to go back to the U.S. to confer again with industry leaders and hopes to come back to Canada for further talks.

Meanwhile, B.C. For- ests Minister Mike de Jong said B.C. wants the U.S. government to adhere to various trade rulings that have sided with Canada in the trade dispute.

“At this point what we are looking for are some very tangible signs out of the U.S. that they are prepared to abide by the obligations that they assumed when they signed on to the NAFTA treaty,” he said from B.C.

As for the national housing market, the Canada Mortgage and Housing Corp. estimates residential construction in Canada will moderate from 2004’s 17-year high of 233,431 new housing units to reach 216,300 starts this year.

The federal Crown corporation believes residential construction will continue to ease in 2006 with national housing starts dipping seven per cent to 201,100 units, as a result of higher interest rates and higher housing costs.

Lumber prices also reached record levels, helping to compensate for the duties. The price of western construction studs, an industry benchmark, was on average $393.35 (U.S.) per 1,000 board feet in 2004, according to a spokesman at Madison’s Canadian Lumber Reporter, an industry newsletter.

This is well above the average price of $269.15 (U.S.) in 2003,

Michaud warned, however, that timber is going to become more scarce in Quebec and Ontario as those provinces continue to remove cutting rights to forested areas and old growth is logged out.

“The challenge that has emerged in 2004 is the lack of raw wood supply that’s appearing in the east,” said Michaud, who is also senior financial analyst at forest company Tembec Inc. “That’s going to carry into 2005 as a major issue that will have to be dealt with.”

The industry is concerned by a Quebec provincial commission that has just recommended the allowable timber supply for sawmills be cut back by 20 per cent, to make forestry sustainable in the long term. In addition, the province wants to increase the land surface that would be off limits to logging, currently at four per cent of the total land mass.

Ontario recently set an off-limits target of 12 per cent, Michaud said, considered a world benchmark.

Michaud said the eastern Canadian lumber industry has to go through a rationalization, like its counterpart in British Columbia did in recent years. Encouraged by de Jong, small mills were closed and grouped into large-capacity mills.

“If you look at B.C. now, they’re the low-cost producer; they’re going to be tough competitors when we hit our next down cycle,” he said.

The Canadian Lumbermen’s Association represents hardwood and softwood lumber producers, kitchen cabinet and glass manufacturers located in Ontario, Quebec, the Maritimes, 18 U.S. states and the United Kingdom.

The Canadian Press

‘That’s going to carry into 2005 as a major issue that will have to be dealt with’

Martin Michaud

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