Slow but steady growth forecast for forestry sector

May 13, 2015

By: Business Vancouver

Forget about a supercycle that’s going to boost lumber prices into the stratosphere. The recovery of British Columbia’s forest sector is now expected to be slow but steady growth.

 That’s the view coming out of PwC’s May 6 Global Forest and Paper Industry Conference in Vancouver.

“The general fundamentals are positive, but you’ve got to be patient,” said PwC partner Bruce McIntyre during a break in the daylong conference, which attracted 350 industry leaders from around the world.

Everything from changes in household formation in the U.S. – the condo and the urban lifestyle that goes with it are on the rise – to climate change and issues around resource scarcity will affect the global forest sector in the coming year, panellists told the conference.

And then for B.C., there’s the spectre of the return of the softwood lumber dispute. The 2006 agreement expires this October, and the U.S. lumber coalition is blaming Canada for current depressed lumber prices in its bid to squeeze more concessions in any future agreement.

“Nothing is ever a straight line in this business. It’s always a ragged recovery,” McIntyre noted.

But McIntyre and Kevin Bromley, Canadian leader of PwC’s paper and packaging practice, believe the B.C. forest sector is in a strong position to benefit from the recovery in the U.S.

Growth in the U.S. economy is forecast at 3% for this year. And U.S. housing starts were up 8.4% in 2014 over the previous year, which Bromley described in an interview as significant for the industry.

B.C. government statistics show the value of softwood lumber exports to the U.S. hit $299 million in March, the first time they have approached the $300 million threshold since 2007.

Despite the improving export performance, forestry stocks have been dropping in value this year, following a continent-wide drop in lumber prices. Lumber is down 26% this quarter alone, Bromley said. The consensus is that prices will improve as supply chains in the U.S. tighten. The outlook for pricing in other product sectors is generally good.

Pulp prices are strong and stable, and prices for oriented strand board, which is used for walls and flooring in North American housing, while weak, are likely at their bottom.

Further, the decline of the Canadian dollar and falling oil prices have provided the B.C. industry with key advantages. Wood products are priced in U.S. dollars, which translates into exports bringing in more revenue in Canadian dollars. Falling oil prices mean the cost of everything from fuel for logging trucks to pulp mill operations will be lower, said Bromley. Those two factors will have a positive impact in what Bromley expects will be a slow but steady recovery for the industry.

The key driver for lumber is the U.S. housing sector, which has not yet recovered from the recession to the long-anticipated level of 1.5 million starts a year.

One speaker said he doesn’t expect to see that level of starts until 2018. Changing preferences among homebuyers are a factor, said Tim Quinlan, vice-president and economist of the American bank Wells Fargo (NYSE:WFC).

“There are a lot of 20-somethings living at home right now, and a lot of those 20-somethings, when they do venture out, are preferring, at least for now, the urban core multi-family, mixed-use residential,” Quinlan said.

This year marks the 28th year for the conference, and one factor that jumped out for McIntyre was that every speaker on a global mega-trends panel delved into social and environmental factors, marking a shift in perceptions of what industry leaders now see as being most important.

Traditional concerns, such as return on capital employed, came behind trends such as climate change, accelerating global urbanization, demographic shifts and shifts in global power.

In B.C., McIntyre said, the forest sector has declined in overall importance as the economy has grown, resulting in its importance in urban centres not being recognized.

“But it’s very important for rural communities. They still live and die by the forest industry in many cases, and the resources sector in general. So it’s still a key element.” 

By: Business Vancouver

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