The weak market conditions that prompted Canfor's announcement this week of production curtailments\u00a0at its B.C. and Alberta sawmills will last until about midway through next year, two forest industry watchers are predicting.<\/p>\n
By then, price of western spruce, pine or fir two-by-fours\u00a0should have bounced back to the break-even point.<\/p>\n
Some analysts estimate that level\u00a0to be between US$500-$550 per thousand board feet, well above the current level of US$365.<\/p>\n
Starting December 19, curtailments lasting from one to four weeks will be invoked.\u00a0In a statement,\u00a0Canfor CEO Don Kayne\u00a0cited\u00a0\"significant decrease in demand for solid wood products and challenging economic conditions\" as the reasons.<\/p>\n
The curtailments - during which no lumber is processed - will be in place at Canfor's\u00a0PG Sawmill and Plateau operations\u00a0for four weeks and its Polar operation for three, Canfor\u00a0communications director Michelle Ward\u00a0said.<\/p>\n
The company said it\u00a0anticipates the majority of its B.C. sawmills will operate below full capacity in the new year, indicating its Alberta operations will be back to running at current levels by early 2023 while those in this province will not.<\/p>\n
That's a function of the difference in the way stumpage works in the two provinces. Whereas it's adjusted on a monthly basis in Alberta,\u00a0it's\u00a0updated annually and quarterly in B.C. creating a lag effect.<\/p>\n
As a consequence, Canfor made \"outrageous profit\" when the price of lumber was high and stumpage low, only to then endure stumpage that is too high relative to the market.<\/p>\n
Alberta mills rarely shut down due to stumpage costs because there's no lag. Whereas the B.C. mills, especially the publicly-traded companies, is they have to record their windfall profits in one quarter because of low stumpage and the next quarter with very high stumpage\u00a0rates and low market prices, they have to show their shareholders they won't burn cash so they have to look at curtailments so that becomes the problem.<\/p>\n
There are doubts the system used in B.C. will be changed anytime soon. It's been this way since 2004 when the whole formula was devised around the U.S. softwood lumber deal.<\/p>\n
The price is expected to stabilize at $600-$800 but it will take awhile to reach that mark and it might take until halfway through 2023 to know whether the so-called \"new normal\" will be reached.<\/p>\n
Some analysts have doubts the price will remain this low for much longer and expect to see the price cycle back up to a more sustainable level while the stumpage rate should ease off and provide the industry a bit more breathing room.<\/p>","protected":false},"excerpt":{"rendered":"
The weak market conditions that prompted Canfor’s announcement this week of production curtailments\u00a0at its B.C. and Alberta sawmills will last until about midway through next year, two forest industry watchers are predicting. By then, price of western spruce, pine or … Continue reading