Key Takeaways
- The Canadian lumber industry is in a unique position to leverage America’s need for lumber as officials review the Canada-United States-Mexico Agreement (CUSMA) in the New Year.
- The U.S. relies heavily on Canadian lumber, with Canada producing about 25% of all U.S. lumber demand, and nearly 90% of softwood lumber being exported to the American market.
- Softwood lumber tariffs have reached a combined 45%, but Canada is well-positioned to make a deal with the U.S. due to the country’s need for Canadian lumber.
- The Canadian government has announced initiatives to support the lumber industry, including the Green Construction through Wood (GCWood) program and a $1.2 billion package to assist struggling softwood lumber companies.
Introduction to the Canadian Lumber Industry
The Canadian lumber industry is facing a critical period as officials review the Canada-United States-Mexico Agreement (CUSMA) in the New Year. According to Daryl Swetlishoff, senior managing director and head of Canadian research at Raymond James, Canada is in a unique position to leverage America’s need for lumber. The U.S. relies heavily on Canadian lumber, with Canada producing about 25% of all U.S. lumber demand, and nearly 90% of softwood lumber being exported to the American market. This dependence on Canadian lumber is expected to continue, with Swetlishoff stating that "the good news is they need our wood. We think that there’s an ability to make a deal at some point."
The Impact of Tariffs on the Lumber Industry
The Canadian lumber sector is currently facing massive tariffs following accusations of unfair trade practices by American lumber companies. Softwood lumber tariffs have reached a combined 45% after the U.S. added a 10% tax to existing anti-dumping and countervailing duties. These tariffs have had a significant impact on the industry, with British Columbia, which accounts for 50% of Canada’s exports to the U.S., seeing sawmills close. Swetlishoff notes that "you’re seeing cash losses throughout the U.S. south, and we’re going to see curtailments manifest itself in that region as well." The tariffs have also affected the valuations of lumber companies, with many seeing near all-time lows.
Opportunities for Growth and Investment
Despite the challenges facing the industry, Swetlishoff believes that there are opportunities for growth and investment. He recommends companies like Canfor, Doman, and Stella Jones due to their strong balance sheets, good margins, and potential growth through acquisitions. "The bad macro makes their targets quite attractive, and we see them all growing their top and bottom line through mergers and acquisitions over the next 12 to 18 months," said Swetlishoff. These companies are well-positioned to take advantage of the expected increase in demand for lumber, and their strong financial positions make them attractive to investors.
Government Support for the Lumber Industry
The Canadian government has announced several initiatives to support the lumber industry. The Green Construction through Wood (GCWood) program will invest over $9 million in projects to accelerate the adoption of innovative Canadian wood products such as mass timber. Additionally, the federal government has announced a $1.2 billion package to assist struggling softwood lumber companies, including a $500-million increase from the Softwood Lumber Guarantee Program. This program provides businesses with essential access to government-backed loans, which will help them navigate the challenges posed by the tariffs.
Conclusion and Future Outlook
In conclusion, the Canadian lumber industry is facing a critical period, but it is also well-positioned to leverage America’s need for lumber. The industry is expected to continue to face challenges, including tariffs and competition from other markets. However, with the support of the Canadian government and the expected increase in demand for lumber, there are opportunities for growth and investment. As Swetlishoff notes, "we have a very efficient large industry and the reality is the U.S. will be the home for the lion’s share of our market for the foreseeable future." With the right strategies and support, the Canadian lumber industry can continue to thrive and remain a significant player in the global market.
