British Columbia is sharply increasing the cost of trees for lumber producers just as wood products prices slump and Canadian sawmills expand in the U.S.
Lumber producers will pay $76.22 per cubic meter of coniferous saw log from the province’s interior in the third quarter. That is a 74 percent jump from this quarter and more than triple what they paid a year ago.
Higher tree prices reduce the ability of lumber producers to compete against sawmills in the U.S. Producers could be further encouraged to shift operations south of the border.
Canada is a top exporter of softwood lumber, with British Columbia leading shipments to the U.S.
The province’s rates were designed to provide stability against a volatile market, at a lag of two to three months.
The price increase follows a yearlong rally that vaulted U.S. lumber futures to a record high in May – more than quadrupling in 12 months – on a home building and renovations boom that gave producers record quarterly revenues.
“North American production growth is constrained by log availability in multiple regions, particularly British Columbia,” West Fraser Timber Co. said in a statement.
The Vancouver-based company is the world’s biggest lumber producer and has already shifted 48 percent of its North American capacity to the U.S. South.
British Columbia-based Interfor Corp. recently said it will buy four U.S. sawmill operations from Georgia-Pacific as part of its U.S.-focused growth plan.
“Right now, log prices in B.C. are about triple what they are in the U.S. South; it’s literally like they’re operating in two industries,” said Matt Fine, portfolio manager for Third Avenue Management in New York.
“It’s really tough in B.C. on a relative basis, which is why you’re seeing virtually no investment in B.C.”
While much of Canada’s harvestable timberlands are government-owned, southern yellow pine plantations in the U.S. are largely private.