Rising costs to offset strong revenue growth in forest industry
OTTAWA—Canada’s wood products industry is benefiting from the ongoing recovery in the U.S. housing and a weaker Canadian dollar, according to the Conference Board of Canada’s latest outlook for Canada’s wood products industry.
Despite the positive news, with cost increase forecasts outpacing revenue growth, the industry’s overall pre-tax profits are expected to fall 0.2 per cent to $1.4-billion in 2015.
“The continued recovery in the U.S. housing market is supporting increased demand for Canadian wood products, leading to a 8.7 per cent increase in export volumes this year,” said Michael Burt, director of industrial economic trends at the Conference Board of Canada.
With rising production and higher prices, industry revenues are expected to grow 6 per cent in 2015 and reach nearly $29-billion by 2016. However, rising production and material costs are expected to drive costs up 8.7 per cent in 2015. The industry will need to find cost-cutting initiatives to help support its bottom line, the Coference Board of Canada found.
“While production should remain strong over the next five years, growth is set to eventually slow due to timber shortages in B.C. and softer growth in demand from China,” Burt added.
Various risks also cloud the outlook over the medium term. While production will continue to increase, timber supply constraints, which are partly a result of the mountain pine beetle infestation, will continue to limit domestic production. These supply problem will plague lumber companies operating in British Columbia’s interior and could lead to plant closures, the Conference Board of Canada said.
In addition, the current Canada-U.S. Softwood Lumber agreement is set to expire this October, which will likely affect Canadian softwood lumber producers’ access to the U.S. market.