SEATTLE (Scrap Monster): Resource companies in Western Canada had a good year in 2022, which means provincial and federal governments had a good year, thanks to royalties and taxes.
But a series of federal and provincial government policies that are deliberately squelching growth in certain sectors, such as metallurgical coal and lumber – B.C.’s two most valuable exports – will mean lost opportunities for Canadian companies, analysts say.
Alberta oil and gas producers made windfall profits on high oil and natural gas prices and B.C. forestry majors banked some record profits on high lumber prices in 2022.
While it has predicted a price correction in the earlier part of 2023, Goldman Sachs (NYSE:GS) is still bullish for commodities in general in 2023. Wood Mackenzie, meanwhile, is predicting a general decline in prices for industrial metals like copper this year. But a fundamental lack of supply could drive copper prices as high as US$11,000 per tonne by the end of 2023, according to Goldman Sachs.
As of October 2022, the value of exports from B.C. increased 25 per cent to $56 billion compared with $45 billion during the same period in 2021, according to BC Stats. B.C.’s four most valuable export commodities are lumber, metallurgical coal, natural gas and copper.
In 2022’s first half, wood product exports from B.C. were worth $8.6 billion, according to BC Stats, representing 30 per cent of the value of all commodity exports from B.C. The outlook for B.C.’s forestry sector in 2023 is not so rosy, however.
Higher borrowing rates are expected to slow North American home construction, and B.C. is now in the position of being the first lumber-producing region in North America to curtail production when lumber prices fall.
Lumber prices dropped from US$1,400 per thousand board feet in March 2022 to US$360 per thousand board feet in December.
The break-even price for most sawmills in B.C. is US$450 to US$500 per thousand board feet, said Russ Taylor, president of Russ Taylor Global Wood Business and Market Consulting.
Several companies have already taken temporary curtailments at B.C. sawmills. Canfor Corp. (TSX:CFP) idled all its sawmills in B.C. and Alberta in December for at least four weeks, Aspen Planers temporarily curtailed operations in Merritt in mid-December and Western Forest Products (TSX:WEF) and Conifex (TSX:CFF) also announced temporary curtailments.
“This is all a function of a high-cost producing region at a point where prices are way too low,” Taylor said.
Thanks to all the regulatory barriers the B.C. government is placing on logging, Taylor expects two or three of the temporary curtailments could become permanent in 2023, depending on the status of the American housing market.
Taylor said new housing starts in the U.S. in 2023 are expected to be around 1.2 million – down from about 1.55 million in 2022. One major homebuilder in the U.S. is expecting new housing starts to be just one million, Taylor added.
“This is the second largest homebuilder in the U.S.,” Taylor said. “It sounds like it’s going to be worse than all the forecasters are thinking.”
Forecasters are calling for lumber prices to average between US$475 and US$595 per thousand board feet in 2023.
“I would say it’s going to be in the high 400s,” Taylor said. “I’m quite pessimistic for the year. I think it’s going to be much better a year from now, but we’re going to have to go through a tough time until we get supply and demand finally balancing out, and that’s going to take some low prices, I think.
“There are going to be a few more [permanent] curtailments because of all this endless government policy. Primarily it’s going to be the old-growth deferrals, all the caribou habitat protection that they have to still implement, they have all these tenure transfers … and then they’re introducing core landscape planning. Now there’s a commitment by the government to preserve 30 per cent of B.C. forests by 2030, up from 15 per cent currently. And on and on it goes.”
Sell Your Junk Car for CashGet an instant quote for your car on ScrapMonster.com