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Rubber and Wood July 29, 2016 10:30:31 AM

US housing boom boosts Canadian lumber company profits

Carolina Curiel
ScrapMonster Author
The booming US housing market has sent lumber prices to new highs.

US housing boom boosts Canadian lumber company profits

VANCOUVER (Scrap Monster): The booming US housing market has sent lumber prices to new highs. The lumber prices have surged higher significantly during the past several months, reporting thier strongest rally in more than a decade. The Canadian lumber exports seem to have benefited the most with almost a third of lumber used in the US is imported from Canada. Consequently, Canadian lumber majors have reported increased profits during the gone-by quarter.

According to estimates provided by Bloomberg Intelligence, lumber exports from Canada accounted for much of the increased demand from the US construction sector during the initial four-month period of the year. The US reported an increased demand of 1.9 billion board feet of lumber during January to April this year. Out of this, 1.6 million board feet of lumber came in as imports from Canada.

The lumber demand from Asian countries have reported substantial decline over the past several months. As a result, Canadian lumber exporters have boosted their shipments to the neighboring US. As per government data, the Canadian lumber exports to the US surged higher by almost 20% during the initial six-month period of the current year to total 7.45 billion board feet.

However, the aggressive lumber shipment by Canada has already sparked opposition from local lumber producers in the US. It is feared that American administration may go ahead with imposition of high tariffs of up to 30% on imports, upon the expiry of the one-year grace period to the existing softwood lumber agreement, due in October this year. Meantime, not much progress has been made on renewal of the agreement. Reportedly, the US is likely to harden its positions in negotiations, as it is not interested in renewing the agreement under the current terms.

In case of failure to reach an agreement before October this year, the US will be entitled to impose tariffs on lumber imports from Canada as per US trade laws. The imposition of tariffs may increase the cost of imported lumber from Canada and may impact the lumber shipment volume of many companies including West Fraser and Canfor. Consequently, these companies are likely to see at least 5% earnings drop in next year.

Meantime, Canfor Corporation, while declaring the quarterly results, noted that the US South business continued to perform well for the company. The company’s lumber segment operating income recorded solid improvement in Q2 when matched with the previous quarter. The improved lumber segment results were mainly on account of higher Western SPF pricing across most grades, it noted.

The company reported net income attributable to shareholders of C$36 million ($27.7 million) for the 2Q 2016, compared to shareholder net income of C$26 million ($20 million) for the 1Q 2016 and shareholder net income of C$11.1 million ($8.5 million) for the 2Q 2015. For the six months ended June 30, 2016, the Company's shareholder net income was C$62 million ($47.7 million), compared to C$40.4 million ($31 million) for the six months ended June 30, 2015.

Earlier, West Fraser Timber too had stated that the increased US lumber prices and boost in sales had helped the company’s lumber operations to generate operating earnings of $78 million during the second quarter of 2016 as compared with the earnings of $63 million reported during Q1 this year.

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