Industry News Markets
Divided we fall – Get ready for a softwood war

The thought of being hit with massive duties has many companies across the country worried. This is particularly true for small- and medium-sized sawmills in B.C. and mills that operate in Ontario and Quebec.

In a recent interview with The Canadian Press, RBC Capital Markets analyst Paul Quinn stated that he expects the U.S. to impose duties of a minimum of 25 per cent in mid-2017, and that those duties will force mill shutdowns across the country.

While larger companies out west, such as West Fraser, Interfor and Canfor have been able make significant investments in U.S. mills, which would potentially help them manage the costs associated with newly-imposed U.S. duties, many of the smaller mills in Western Canada simply do not have the kind of capital necessary to make these kinds of investments.

That said, the B.C. government and the province’s largest producers have been very clear that they would like to see an agreement ironed out that would be similar to the 2006 Softwood Lumber Agreement, so potential duties and costly legal battles can be avoided altogether.

On the bright side, one factor working to the advantage of the smaller B.C. mills is that they are in a position to export at least a percentage of their lumber to Asia, something that is not as easy an option for mills in Quebec and Ontario.

EACOM recently told The Timmins Press that it is hoping to avoid a new round of U.S. duties, since 95 per cent of Ontario’s forest products exports are headed south of the border.

But while EACOM wants to work with the provincial and federal governments to advocate for a new deal, one of Canada’s biggest forest products companies operating in Ontario and Quebec appears to be gearing up for war.

Richard Garneau, CEO of Resolute Forest Products, has been extremely vocal about his issues with the previous softwood deal, which he said aided Western Canada’s forest sector at the expense of Ontario and Quebec. Garneau appears to be willing to battle for free trade in the courts with the U.S. – a decision that the industry and government in B.C. has highly criticized. B.C. Premier Christy Clark stated, “It is beyond comprehension that anyone would think spending four years fighting this out in court is going to be good for jobs for Canada.” A fair statement since the only people who typically win when it comes to long, costly legal battles are the lawyers.

And let us not forget Atlantic Canada.

Since stumpage rates were determined through private auctions, the Atlantic provinces were able to avoid the 2006 SLA. But with the Province of Nova Scotia’s stumpage provision identified as a countervailable program by the U.S. Department of Commerce, one is left to wonder if those provinces will be left out of a new SLA.

So, let’s sum up the situation in Canada: B.C.’s larger producers want a deal similar to the 2006 SLA but have protected themselves to a degree against U.S. duties through investment in U.S. mills, while Western Canada’s smaller producers could suffer significantly from imposed duties; some Ontario firms want to negotiate a new deal, while Ontario and Quebec’s largest producer is ready to battle in the courts for free trade; and Atlantic Canadian producers may be forced into any new agreements.

While nothing about this situation is simple, and there is likely no one solution that will work for all Canadian producers, they need to come together and stand firm for an agreement that makes sense for the industry as a whole.

There’s a war coming, and standing divided only works to the advantage of the U.S. Lumber Coalition. Them, and the lawyers.