British Columbia is sharply increasing the cost of trees for lumber producers just as wood-product prices slump and Canadian sawmills expand in the U.S.
Lumber producers will pay $94.54 (US$76.22) per cubic meter of coniferous saw log from the province’s interior in the third quarter, a 74 per cent jump from this quarter and more than triple what they paid a year ago, according to a government website.
The forest-rich Canadian province’s tree prices decrease the ability of lumber producers to compete against sawmills in the U.S. Producers could be further encouraged to shift operations south of the border because of rising costs, reduced timber availability due to mountain pine beetles that destroyed 15 years of log supplies and the possibility that the U.S. will double its softwood lumber tariff later this year.
Canada is a top exporter of softwood lumber, with British Columbia leading shipments to the U.S. The province’s rates were designed to provide stability against a volatile market, at a lag of two to three months.
The price increase follows a yearlong rally that vaulted U.S. lumber futures to a record high in May -- more than quadrupling in 12 months -- on a home building and renovations boom that gave producers record quarterly revenues. Futures have since tumbled about 55 per cent but remain at historically high prices.
“North American production growth is constrained by log availability in multiple regions, particularly British Columbia,” West Fraser Timber Co. said in an emailed statement. “We believe the U.S. south is the region with the most potential for production growth over the long term.”
The Vancouver-based company is the world’s biggest lumber producer, and has already shifted 48 per cent of its North American capacity to the U.S. South. It also plans to invest US$150 million to expand five of its U.S. mills to meet strong home building demand.
Burnaby, British Columbia-based Interfor Corp. recently said it will buy four U.S. sawmill operations from Georgia-Pacific LLC as part of its U.S.-focused growth plan, which will see 77 per cent of its capacity south of the Canadian border “with no duty exposure,” the company said in a presentation.
In neighboring Alberta, which accounts for about 15 per cent of Canada’s softwood lumber production and where rates are updated monthly, stumpage costs have increased more than 11-fold in the last year.
“Right now, log prices in B.C. are about triple what they are in U.S. South. They are so far gone on a log-cost basis from what’s going on in the U.S. south, it’s literally like they’re operating in two industries,” said Matt Fine, portfolio manager for Third Avenue Management in New York.
“It’s really tough in B.C. on a relative basis, which is why you’re seeing virtually no investment in B.C.”
While much of Canada’s harvestable timberlands are government owned, southern yellow pine plantations in the U.S. are largely private.
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