By: Business Financial Post
With the U.S. Lumber Coalition free to file a new trade case against Canadian lumber producers as early as October 13, share prices across the sector are expected to come under pressure.
West Fraser Timber Co., Canfor Corp., Interfor Corp, Resolute Forest Products Inc., Western Forest Products Inc. and Conifex Timber Inc. are all vulnerable, as the market reacts to potentially negative developments relating to yet another lumber dispute, according to CIBC World Markets analyst Hamir Patel.
He warned that following the expiry of a one-year standstill agreement, duties may come in earlier and higher than previously expected.
Patel downgraded Western Forest Products to sector performer (from sector outperformer), but maintained a $2.50 price target on the stock.
He pointed to the growing risk of more severe log export restrictions as early as the second half of 2017 (if the NDP wins the next provincial election in B.C. ), and uncertainty about how duties will impact pricing for cedar, which accounts for nearly half of the company’s lumber sales.
“While there is always a possibility (a very small one in our view) that the U.S. Lumber Coalition’s petition will specifically exclude high-value products in its allegations of injury, given that there is a small Cedar industry in the U.S., it is not clear why the U.S. would be inclined to do anything to help the B.C. coastal lumber industry,” Patel told clients.
The analyst also downgraded Interfor to sector performer (from sector outperformer), and maintained a $17 price target.
“…Following substantial share price appreciation, we no longer see sufficient upside remaining…” the analyst said.
While Patel thinks Interfor will actually be a net beneficiary from the trade dispute, since roughly 64 per cent of its lumber capacity is in the U.S., he noted that retroactive duties are negative for any company with a Canadian sawmill, and cedar accounts for about 12 per cent of its lumber sales.