Punitive duties averaging 27 per cent on lumber exports from Canada to the U.S. could put Central Interior mills into a desperate cycle of shutting down and running full as the lumber market fluctuates, says the head of the Northern Forest Products Association.
NFPA president Greg Jadrzyk said that with the hefty duties eating into lumber producer’s bottom line they will be forced to curtail production when the price of lumber isn’t high enough to cover the tariff, then run full-out when it is.
“It’s completely dependent on where the lumber market is at any point in time. A 27 per cent duty is a horrendous amount to pay and if the market goes below about (US)$250 you’ll see mills shutting down,” said Jadrzyk. “We could have a cycle of mills running when prices are high and shutting down when prices are low.”
The long term picture is even more grim. Mills simply don’t run with a 27 per cent profit margin over the course of a business year, said Jadrzyk. While lumber prices are traditionally high over the summer months when housing starts in the United States are up, they tend to start sinking in the fall. Averaged over a year, most mills can’t operate with a 27 per cent gouge into their profits. And with U.S. and European producers eager to muscle Canada out of the market, B.C. which provides more than half of Canadian lumber exports to the U.S. could be relegated to a second-class lumber supplier.
“When market demand in the U.S. is low, the Americans can supply their own lumber needs and duty-free European production is increasing,” said Jadrzyk. “We’ll become what’s known as a marginal supplier. We’ll only be called on when they can’t meet their lumber needs from other sources.”
Another shadow is hanging over the Central Interior’s lumber producers. On June 1 the next quarterly adjustment to stumpage the price charged by the province to lumber producers for harvesting Crown timber is set to come into effect. That adjustment is based on recent lumber prices, said Central Interior Logging Association general manager Roy Nagel. And with prices good in past months, stumpage will likely go up, adding more costs on top of the duties.
“We expect we’ll see stumpage rise significantly June 1 and that will put a damper on any work being done in the bush,” said Nagel. Many of the CILA’s 5,000 member loggers and haulers could sit idle during normally busy summer months. “I expect we’ll have a pretty quiet summer on the logging front.”
Efforts to harvest wood infected by the mountain pine beetle could be the saviour of the logging sector, said Nagel. If the province approves measures to increase the harvest of beetle wood before the bugs fly again in late July and August it could provide much-needed summer work. But that would only be a short-term reprieve.
“Everyone in the industry is resigned to the fact we’re into a long fight and not much will change before the fall,” said Nagel.
Approximately 17,000 people are employed in mills and in logging in northern B.C., and 90,000 province-wide.