A report released Thursday morning reveals that, while lumber and particle (OSB) board prices momentarily reached four-year highs in Canada in the second quarter, Canadian forest and paper producers are still manoeuvring through an extremely volatile period.
According to PricewaterhouseCoopers LLC’s summary of the forest industry’s second quarter, results for lumber and paper producers improved in the second quarter as buyers replenished low inventories and the construction industry experienced a seasonal spike in activity.
As well, demand from China and the disruption to the global supply caused by the Chilean earthquake pushed pulp prices to record levels as it surpassed US$1,000 per tonne in the quarter.
But the report said that demand for building materials, particularly from the U.S., remains well below industry capacity and prices consequently remain volatile.
After reaching four-year highs mid-quarter, average monthly lumber and OSB prices fell 34% and 42%, respectively, from April to June.
Further evidence of volatility is found in the pricing mechanisms in the 2006 Softwood Lumber Agreement between the U.S. and Canada: the spike in lumber prices reduced the export tax levied on U.S.-bound shipments from 15% to 0% by the end of the second quarter.
In July, the export tax had returned to 15%.
Mike Armstrong, director of PWC’s forestry and paper practice in Vancouver, told BIV Thursday morning that lumber prices have continued to fall in the current quarter.
“Volatility will continue for sure,” he said. “Unfortunately the true demand [for lumber] isn’t there, which is different than the situation with pulp, where there’s strong demand from China – there is the true underlying fundamentals there.”
He added that while demand from China and Japan for lumber is increasing, the market is still largely reliant on the U.S. housing market, which remains stagnant.
Western Canadian forestry companies reported a second-quarter loss of $255 million, but that figure includes $302 million in asset impairment, severance and closure costs associated with the closing of Catalyst Paper’s Elk Falls paper mill and Coquitlam paper recycling plant.