Canada's Lumber Industry Races to Meet US Demand

RESTRICTIONS on the use of land used for timber in the United States has meant rising profits in the Canadian lumber industry.

Because of rising demand in the US housing market, hundreds of Canadian woodlot owners and small sawmills are rushing to supply lumber at sharply higher prices.

"We're open six days a week instead of five and I have 15 men working here instead of 10," says Guy Champigny who owns and operates a small sawmill in Mansonville, Quebec.

Lumber prices have risen as much as 85 percent since last October. You can take the measure of that by looking at the simple two-by-four, the mainstay of the house-building business. The price for an eight-foot-long two-by-four is $2.41; a year ago it was $1.33.

The way the industry measures it, that is $450 per 1,000 board-feet. Analysts say it could rise to as much as $600 per 1,000 board-feet.

"We've never had this type of shortage," says Richard Kelertas, an analyst with McLean McCarthy Securities.

It is great news for people such as Mr. Champigny, who can sell everything he can get through his mill. "The demand is very strong," Champigny says. So is the supply. The yard in front of his sawmill in southern Quebec is clogged with trucks bringing logs from the nearby forests. One morning this week, trucks were arriving every couple of hours to take the cut lumber to market.

Champigny deals in hardwood and softwood. The hardwood, such as maple and birch, is used in flooring and furniture. His biggest seller, maple, is made into flooring at mills in Quebec; the best cuts are shipped to Europe.

Demand for softwood - pine and spruce - has risen steadily because of US construction activity. This is good news for an industry that had suffered from a drop-off in housing starts during the latest recession.

Increased lumber sales to the US and Europe are part of the reason for Canada's export-led economic recovery. Statistics Canada, the federal government agency, reported that exports hit a record $14 billion (Canadian; US$11.26 billion) in December.

The lumber boom will affect the US housing industry. "Typically, we can say that every $100 hike in lumber prices translates into a $1,000 increase in the cost of a house," Mr. Kelertas says.

The lumber issue is one of the thorniest in the Canada-US Free Trade Agreement. The American lumber industry has said Canadian firms receive unfair subsidies. The International Trade Commission of the Commerce Department ruled last year that imported Canadian softwood does receive subsidies. Canada is appealing two rulings. Yet with demand at its current level, duties on Canadian lumber - as suggested by the ITC - would be passed on to consumers.

ENVIRONMENTAL restrictions similar to those in the US are being developed in Canada. But they are not yet in place and may not be as severe as those in the US. Canada's share of the US lumber business has risen to 31 percent from 26 percent in recent years.

In the province of Ontario, high lumber prices have brought a response from the left-of-center New Democratic government: a windfall-profits tax. "I'm sure there will be some sort of special fee," said Howard Hampton, Ontario's minister of natural resources. He said the province has to deal with "... issues like what ought to happen when the price of lumber or the price of paper soars to a very high level and as a result very lucrative profits are being made."

According to Marie Rauter of the Ontario Forest Industries Association, "many of our companies are still struggling."