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Lumber sector feeling pinch
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by GORDON HOEKSTRA Citizen staff
Lumber prices have increased slightly in the past week, but the benefit has been eroded by a loonie that climbed above 94 cents US on Friday, a 30-year high.
A combination of low lumber prices, the rising Canadian dollar compared to the U.S. currency and a 15-per-cent export tax on shipments to the U.S. have created extremely difficult operating conditions for lumber producers, causing a spate of shutdown announcements in the past month in north and central B.C.
While Prince George-based Brink Forest Products is continuing to operate, it is keeping a close eye on the market, company president John Brink said Friday.
While lumber prices are up marginally, Brink said he believes the gain has been eaten up by the increase in the Canadian dollar.
Because Canadian lumber is sold in U.S. dollars and lumber producers pay their costs in Canadian dollars, an increase in the value of the loonie, directly eats away at a company's bottom line.
"It's a struggle, and the rapid rise of the dollar, which seems to be on track to reach par, isn't helping," Brink said.
The last time the Canadian dollar reached 94 cents US was July 25, 1977, and the last time it traded at par was in November 1976. The loonie had been as low as 63 cents in 1998.
Lakeland Mills president Keith Anderson said the Prince George sawmill is "hanging in there," but also watching the market closely. "We're just taking it one day at a time," he said.
Dunkley Lumber manager Blair Mayes had a similar message. He said they have no plans to take down time, but are watching the market carefully. He also noted that any uptick in lumber prices is being eroded by the increase in the loonie.
Other sawmills have had to take down time, some in significant measure.
Canfor announced last week it is shutting down its Mackenzie sawmill indefinitely when it exhausts the current log inventory, likely in mid August.
Lytton Lumber also just announced it is shutting its mill down indefinitely beginning on Monday. The company also cited poor lumber markets for the decision.
Stuart Lake Lumber in Fort St. James is also closing indefinitely.
Other temporary closures have been announced by Tolko, Pope & Talbot and Abitibi in north and central B.C.
The slide in the price of lumber is a result of a slump in the U.S. housing market, which has fallen to about 1.5 million housing starts from a high two years ago of 2.1 million starts.
The mood of lumber buyers in the U.S. is not good, observed Madison's Lumber Reporter publisher Laurie Cater. He said nobody he has talked to in the industry thinks there much steam left for prices in 2007.
Madison's pegged the benchmark 1,000 board feet of random length spruce-pine-fir two-by-fours at $278 US this week, an increase of five per cent over last week, and a jump of 22 per cent from a month ago.
However, Cater said he thinks the increase is more of a product of Canadian lumber companies trying to push prices up to make up for the increase in the loonie.
The demand for lumber just isn't there, he said.
"It's a very difficult time for the industry, just made worse by the addition of an increasing Canadian dollar, which I can't believe," added Cater.
Most analysts are not predicting a quick turnaround in the lumber market, a point noted in a report this week by the Credit Union Central of B.C. which said the consensus forecast is that U.S. housing starts will remain near the current low level of about 1.5 starts through 2008.
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