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Duty free year for the lumber industry?

The random-length framing-lumber composite price index hit $355 in late November, and if it holds the softwood lumber export tax—part of the current Canada-U.S. softwood lumber agreement—drops to zero.

January 4, 2013  By Canadian Business

The elimination of the export tax would be a nice bonus for a forest industry that is quietly returning to health, University of British Columbia forestry professor David Cohen told Canadian Business. “That 5% goes straight to the bottom line,” he points out. The tax has already notched down to 5% from 15% thanks to the steady rise in lumber prices in 2012. Production is ramping up, too. In November, Canfor reopened its mill at Radium Hot Springs, while Interfor reported its highest quarterly lumber production ever.

Best of all, it’s unlikely there will be a repeat of 2010, when the tax hit zero and B.C. producers flooded the U.S. market with so much wood that the index crashed to $245, almost instantly resurrecting the entire 15% levy. There are three factors pointing to a more measured response this time around, says Cohen. One is simple seasonality; it’s tough to increase the tree harvest in winter. The other two relate to transformations within the industry. Some of the worst offenders in 2010 are no longer in business, and those that are don’t have the labour to boost output, due to a lost half-decade of career starts and the drift of forest workers to the mining and energy sectors.

Demand appears solid too, with U.S housing starts forecast to rise another 30% in 2013. “There’s a lot more upside potential than downside risk,” says David Elstone, an analyst with Gibsons, B.C.–based ERA Forest Products Research, who notes that those improved 2012 housing starts were still less than half of historical norms.

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