Sawmills brace for job cuts as fate of US-Canada Lumber Agreement hangs in balance

VANCOUVER (Scrap Monster):  Analyst at RBC Capital Markets is of the view that the Canadian sawmills operations and jobs are likely to face increasing challenges, as fate of the bilateral Softwood Lumber Agreement (SLA) between Canada and the US still hangs in balance. Paul Quinn, analyst at RBC Capital Markets noted that failure to arrive at an agreement may lead to US companies imposing hefty duties on exports by Canadian producers. As a result, Canadian sawmill operations are likely to be affected. Sawmill jobs are also at risk, he added.

According to Quinn, the US is most likely to impose fresh rounds of duties by mid-2017, which may go up to even 25%. Many sawmill firms in Canada may find it extremely difficult to continue operations by paying such huge export duty. Although many Canadian sawmills have diversified their export destinations to other growing markets, the US continues to remain as key market for majority of them. The imposition of likely duty may impact exports to the US, thereby leading to mill shutdowns and sawmill job losses.

In B.C alone, five mills are likely to be impacted. However, he declined to comment on the impact on sawmill operations and jobs at other provinces. The acceptance of the 24% quota on Canadian imports as proposed by the US, would lead to serious implications, he noted. Quebec-based Resolute Forest Products (RFP) has already announced that jobs would be at risk if Canada agrees to accept the US proposal. According to Seth Kursman, spokesperson, RFP, the lack of adequate domestic market demand is likely to force the company to close certain capacities or restructure their operations. This in turn may lead to job losses. Kursman urged the federal government to push for free lumber trade between the two countries.

The mills in Western Canada are less likely to be impacted much as they own mills in the US South. Moreover, Western mills are unlikely to be affected by US trade restrictions due to the increased exports from these mills to Asian countries.

The bilateral agreement was signed by the two countries in September 2006, as an attempt to settle disputes regarding Canadian softwood lumber imports. As part of the agreement, the US must terminate collection of countervailing and antidumping duties on subsidized and dumped Canadian softwood lumber. Also, Canada must impose taxes and quantitative restrictions on lumber exports to the United States. In addition, the provinces were encouraged to move to a fully open, competitive, and non-subsidizing timber-pricing system. The SLA was a seven-year agreement with an optional two-year extension upon consensus by both parties. In 2012, the US and Canada had agreed to extend the deal for additional two years from 2013.

Earlier in March this year, U.S. President Barack Obama and Canadian Prime Minister Justin Trudeau had reaffirmed the governments’ initiative to resolve disputes between the countries on renewal of the lumber agreement.

The US authorities do not want the SLA to be renewed in its present form. According to them, Canadian producers are unfairly subsidized due to the fact that majority of timber in the country is owned by the provincial governments.

Quinn concludes the report by saying that reduction of sawmills capacity and drop in lumber trade between the US and Canada is likely to lead to surge in prices. However, the price hike may not be adequate enough to offset the burden of duties on exports. The report downgrades several Canadian producers including West Fraser Timber, Western Forest, Conifex, Canfor, Tember and Resolute Forest Products on likely impact of export tax. The only company which is likely to survive would be Interfor on account of its significant expansion in the US southeast region, notes Quinn.