The largest lumber producer on B.C.’s coast believes it is in a better position to weather the storm of a softwood lumber dispute with the U.S. than it was in the early 2000s, when punitive damages on exports crippled the company.
Don Demens, chief executive of Western Forest Products, said the firm is not happy about being in the position of once again facing the prospect of having duties imposed on exports to the U.S., but he’s confident the company can handle it.
“We think we are in better position than we ever have been before, but we think this is a difficult time and we will have to work our way through it.”
The 2006 Softwood Lumber Agreement expired in October 2015. In the absence of a trade agreement, the U.S. lumber industry last fall filed anti-dumping and countervailing duty complaints against the Canadian industry. In them, the U.S. industry alleges the Canadian softwood industry is unfairly subsidized and dumps lumber into the U.S. market.
As it has over the years, the Canadian government and industry disputed the charges. Over the years that stance has led to drawn-out disputes and, in some cases, punishing tariffs charged on Canadian exports to the U.S.
Demens said Western has a strong balance sheet, has significantly diversified its markets so there’s no reliance on the U.S. and has invested millions into sawmill operations to ensure they are efficient.
“A flexible mill is able to produce a wider variety of products and we would hope and expect that would allow us to manage our way through any kind of duty regime the Americans might put on our lumber,” he said.
After the last softwood lumber agreement was finalized in 2006, Western received $124 million in refunded softwood lumber duties it had paid to ship to the U.S. That money was used to help pay down its mountain of debt.
The company looks very different now. Western, which last year reported revenues of about $1.18 billion and a profit of $94 million, has just $15 million in long-term debt.
Its seven sawmills have been modernized and new lumber markets have been opened up around the world. Western employs just over 2,000 people and has most of its logging and sorting operations on Vancouver Island, including eight mills.
Western’s largest market is Canada, which gets 42 per cent of all lumber products, while the U.S. gets about 24 per cent. Western ships 14 per cent to Japan and 12 per cent to China.
Demens said while they may be well situated they don’t welcome any kind of trade dispute.
“I would say we are very concerned by the prospects of not being able to reach an agreement because the U.S. market is a large lumber market,” he said. “It’s not our biggest market, but it’s still very important.”
In many ways, the fight with the U.S. is not Western’s fight, nor is it the fight of any of the coastal lumber producers.
U.S. lumber producers are concerned about the spruce, pine and fir used for home construction and renovation that is exported from B.C.’s Interior and Eastern Canada.
The west coast’s producers tend to cut red cedar, hemlock and Douglas fir used in appearance wood that ships at a much higher cost than the structural timber.
“The issue for coastal businesses is most of our products are very high value and so the application of a duty on top of your sales price turns out to be a significant number, so therefore the coast and coastal products become disproportionately affected by this,” said Demens. “The question becomes what will the consumer pay and we won’t know until we get there. The coastal product mix is not the target here, but that doesn’t make us feel great.”
Susan Yurkovich, president of the B.C. Lumber Trade Council, echoed those sentiments.
“Unfortunately, we are here, but have been readying ourselves and preparing for litigation for 16 months now,” she said. “We always like to think that sane heads will prevail. It’s not, in our mind, a good use of time, energy and resources to fight the legal battle.”
Yurkovich said she would rather the Canadian and U.S. lumber industries work together to sort out North America and open new markets together around the world. “To create a bigger pie and not fight over it,” she said.
However, like the coastal producers, Yurkovich said, B.C. Interior producers have over the years worked to diversify their markets.
About 30 per cent goes offshore with more planned for China, India and Southeast Asia.
Yurkovich said she doesn’t know how this latest fight will develop, but holds out hope given the president of the U.S. is a businessman. “Trump is a developer and understands the material costs of input and he’s interested in the middle class,” she said.
“We see U.S. housing starts picking up, and they will require more lumber.” She said that restricting Canadian lumber supply could increase the cost of homebuilding as the U.S. industry cannot meet demand.
