Lumber companies in British Columbia and northern Ontario were boosted by surging lumber prices as floods and fire ravaged the province this summer.
A March report by the Finance Department forecast lumber prices would fall 23% to $577 per 1,000 board feet this year, but spot prices in the United States soared 75% in the past two months. The previous month, the index was $381, up 50%.
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“This downturn was unwarranted and should be reversed now, as the market has caught up to the positive fundamentals in the Canadian export market,” RBC economists said in a report.
Lumber companies are setting records – hardwood lumber futures were at their highest level in more than four years on Friday, touching $850 US per 1,000 board feet.
“The conditions in Western Canada have come back. We don’t need it in China,” said Justin Roth of Overland Wood Products, one of the largest privately held lumber companies in western Canada.
The total volume of lumber shipped between western Canada and China was 1.3m board feet last year, up 53% from 2016, according to Statistics Canada.
In mid-August, a heavy rainstorm hit British Columbia, causing levees to overflow on the banks of the Fraser river and flooding 50,000 acres of forest.
Winds, drought and wildfire also affected the province, helping send lumber prices surging. About a quarter of northern Ontario’s forests have been destroyed since June, and about 5m acres have been lost to wildfires, according to the Canadian government.
The surge in the benchmark lumber prices comes despite positive factors such as the US going through its own housing market crisis and slumping sales in China, which buys about 60% of Canada’s lumber exports.
Even though the United States has imposed tariffs on billions of dollars of Canadian steel and aluminum, economists said a strong dollar and the weak housing market – in part because of higher construction costs – are helping the lumber sector.
“Supply is limited with huge volumes pulled out of the market in recent years,” said Jonathan Teves, an analyst with RBC Capital Markets.
The rebound also is being aided by an improvement in the housing market in the United States, with sales and new construction climbing this year, Teves said.