March 31, 2008

Canadian and U.S. forest products industries suffer U.S. economic slump

PRINCE GEORGE, B.C.

The historic housing collapse in the United States will continue in 2008 before markets show signs of recovery in 2009, says a new forecast by the Western Wood Products Association.

The Portland, Ore.-based lumber trade association has forecast U.S. housing starts will reach just 968,000 in 2008, less than half the total in 2005, and making this the worst year for new construction since the Second World War.

Single-family starts will be off by 60 per cent from the 2005 total, when they peaked at more than two million, according to the forecast released Wednesday by the association, which represents lumber manufacturers in 12 western states and Alaska.

The association’s forecast matches the consensus among B.C. forest sector analysts, who have said 2008 will be another tough year, with little chance of a turnaround until 2009.

Analysts have noted the collapse in U.S. housing demand has also been exacerbated by the U.S. sub-prime mortgage crisis, which has made credit harder to get and sent ripples of uncertainty through Wall Street.

Northern Interior lumber producers rely heavily on the U.S. market for their exports.

With more than 40 per cent of lumber used annually in the United States in new home construction, demand is expected to decline to 45.3 billion board feet this year, the association forecast, down 19 billion board feet from 2005.

Association economist Kevin Binam said record home vacancies combined with the current credit problems will keep new home construction on the sidelines for most of the year.

“The next three or four quarters are going to be shaky for the U.S. economy,” said Binam.

“Housing is just going to limp along until foreclosures and the mess in the financial markets is cleaned up.”

Lumber production at U.S. western mills is forecast to drop by 11.5 per cent to 14.1 billion board feet, the lowest volume since 1982.

Mills in the U.S. South are expected to produce 15.4 billion board feet, down 10.5 per cent from estimated 2007 totals.

Lumber imports to the United States, which were off nearly 20 per cent in 2007, are expected to decline another 17 per cent to 15.3 billion board feet.

Canadian lumber shipments — which represent 95 per cent of U.S. imports — are expected to decline by six billion board feet from their peak in 2005.

The association said markets should begin to recover in 2009, with housing starts forecast at 1.17 million and lumber demand rising to 47.7 billion board feet.

“The slow recovery for housing and lumber markets should continue for the balance of this decade,” said Binam. “After this year, the worst should be behind us.”

Prices for the benchmark random length spruce-pine-fir two-by-four remained in the US$200 range this month, according to Madison’s Lumber Reporter. That’s well back from highs of $400 in 2004 and 2005.

Northern Interior producers are also being hit by a strong Canadian dollar, which erodes their bottom line on sales to the United States, and a 15-per-cent export tax on shipments to the U.S. market levied under the 2006 Canada-U.S. Softwood Lumber Agreement.

Most companies in the northern B.C. Interior have cut shifts, reduced work weeks or shut down sawmills indefinitely.

Canadian Press

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