Cost increases forecast to exceed revenue growth for wood products

July 16, 2015

By: Pulp and Paper

Canada’s wood products industry is benefiting from the ongoing recovery in the U.S. housing and a weaker Canadian dollar, according to The Conference Board of Canada’s latest outlook for Canada’s wood products industry.

“The continued recovery in the U.S. housing market is supporting increased demand for Canadian wood products, leading to a 8.7 per cent increase in export volumes this year,” said Michael Burt, director, industrial economic trends, The Conference Board of Canada. “However, while production should remain strong over the next five years, growth is set to eventually slow due to timber shortages in B.C. and softer growth in demand from China.”

Rising production and higher prices mean industry revenues are set to reach nearly $29 billion by 2016, according to the Conference Board. Industry production is expected to grow by 6 per cent in 2015.

However, rising production and material costs are expected to drive strong cost growth in the industry. Overall, industry costs are set to rise by 8.7 per cent in 2015. The industry will need to find cost-cutting initiatives to help support its bottom line, states Conference Board.

With cost increases forecast to exceed revenue growth, the Conference board expects pre-tax profits in the wood manufacturing industry to fall 0.2 per cent to $1.4 billion in 2015.

Various risks cloud the outlook over the medium term. Timber supply constraints (a result of the mountain pine beetle infestation) will continue to limit domestic production. These supply problems will plague lumber companies operating in British Columbia’s interior, says the report, and could lead to plant closures.

In addition, the current Canada-U.S. Softwood Lumber agreement is set to expire this October, which will likely affect Canadian softwood lumber producers’ access to the U.S. market, the report concludes.

By: Pulp and Paper

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