Over the last 12 months, logging companies were swimming in cash as lumber prices hit record highs. The price of 2 x 4s more than quadrupled during the pandemic.
Vancouver Island logging companies better have stashed some of that extra cash in their mattresses, because now they’re scrambling to cut costs.
Low-interest rates and the extra cash pumped into the economy in COVID relief led to an unprecedented house-building and home renovation boom on Vancouver Island and elsewhere.
The price of construction materials spiked. The rise in lumber prices alone added as much as 30 percent to the total cost of building a single-family home.
However, that was then, and this is now. There’s been a major price correction. Housing construction has slowed, and more buyers are priced out by a real estate bubble bursting at the seams. As a result, lumber prices have plummeted by a whopping 70 percent since May.
This hits VanIsle hard.
An estimated 14 percent of North America’s lumber comes from BC. But, according to a recent report in the Financial Post, Western Canadian logging companies that ramped up production during the boom are feeling it the most.
Not long ago, many mills were swimming in cash. Today some, like Conifex Timber Inc in Mackenzie, have to cut production thanks to plunging prices and soaring log costs.
Greg Kuta, chief executive officer of Westline Capital Strategies Inc., specializing in lumber-trading strategies, told the Financial Post that more companies will likely follow Conifex Timber’s lead.
“The market is still over-supplied…,” Kuta said. Adding,
According to Kuta, logging companies need to cut production “for price stability.” BC logger’s problems are made worse by increased production in the southern US, where timber plantations are plentiful, and log prices are lower.
In addition, the record-breaking forest fire season in BC has caused some mills to suspend operations because of evacuation orders, and railroad closures have interrupted shipments.
While the forest industry is reeling from the rollercoaster ride, the price correction is good news for DIY’ers heading to the local building supply store to buy lumber for home renovation projects.
In a story for Global News back in June, Werner Antweiler of UBC’s Sauder School of Business called pandemic-induced inflation “a short-term concern.”
“This is basically a set of temporary phenomena,” he said. “Markets need time to adjust, and eventually competition, once the markets get going again, will drive down prices to what they tend to be in the long run.”
Antweiler was right. That’s exactly what happened.
While the boom and bust caused by the pandemic have been top of mind recently, Antweiler says climate change is a much more important long-term disruption that will challenge BC’s lumber producers in the future.