The province is blaming an expected drop in forestry royalty revenues in the coming year on an unforeseen glut of wood on the market.
Natural Resources Minister Denis Landry says that means companies will log less in the coming year, which will translate into less revenue for the government.
Landry says sawmill yards are full of cut boards they can’t sell, and logs they don’t want to cut, until there’s some movement.
“The saw wood material is there, the lumber is there, it’s not going out at the pace it was supposed to go, and by that fact, they’re not buying anymore and they’re going to slow the cut,” he said.
The Canadian dollar is low and the U.S. housing market is rebounding, which normally would make New Brunswick wood easier to sell across the border.
But Mike Legere of the industry association Forest NB says a slump in the Chinese market means wood normally sold there from the west coast of the United States is instead flooding the domestic market, meaning less demand for New Brunswick lumber.
“It’s nothing to be panicked about,” he said, because the forecast for construction permits in the U.S. suggests the market will pick up even more in the coming year.
“We’ve got good wood supply here to take advantage of the positive forecast moving forward into 2016-2017,” he said. “We’re sitting on the fence, waiting to move forward.”
PCs calculate $19M drop, province says $11M
Earlier this week, the Progressive Conservative opposition calculated that royalty revenues for the province would drop $19 million in the coming year.
But Legere says that amount is based on last year’s initial budget projection, not the final amount. Using the final number, the anticipated drop in the coming year is $11 million.
Still, the decline is not what was predicted in 2014 when the then-PC government unveiled its forestry plan, which included new logging quotas intended to boost the economy.
Landry says the companies haven’t hit their higher quotas because of the slack demand. “At this point in time this number hasn’t been reached,” he says. “It’s going to be far from there.”
“The industry basically pulled out all the stops and went wild,” he said.
Landry says so far, the glut doesn’t seem to have affected any of the mill expansions still to come under the forestry plan, “but you never know in the future what could happen.”
Last July, J.D. Irving Ltd. announced it was postponing construction of its new $15 million sawmill in Doaktown, a project originally scheduled to start last spring.
The company said in a press release at the time it would instead construct the new mill this year to “balance our resources for this year and next” and to give time to its engineers to finalize their plans.
The company did not respond on Friday to a request for a comment on the glut of wood on the market and an update on the Doaktown mill.