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MWC 2021: no relief in sight for high lumber prices, tight supply, but ‘future is bright’

It’s been just over a year since the COVID-19 pandemic arrived in Canada. Since then, almost every aspect of life has changed. In the forest industry, it has impacted the way we build, the way we trade and source, and the way we live and work.

Appropriately, this was the main theme of this year’s virtual Montreal Wood Convention (MWC), known as the Montreal Wood Convention Experience, which took place on March 24.

The event consisted mainly of a panel discussion among four CEOs: Cees de Jager, CEO of the Softwood Lumber Board; Kevin Edgson, president and CEO of EACOM Timber Corporation; Craig Johnston, president and CEO of Forest City Trading Group; and Andy Goodman, president and CEO of Sherwood Lumber.

Booming markets

In response to the pandemic, most companies have transitioned to have as many employees as possible working from home. This is the case for each of the companies the panelists represent.

De Jager, who moderated the panel, posed a question: as vaccinations ramp up, will the changes to how we work be permanent, will we go back to work as it was before the pandemic, or will it be something entirely different?

Most of the panelists agreed that the future will likely include more flexibility when it comes to allowing employees to work from home, with some companies considering a hybrid model.

This change in how we work has also impacted the way we build. The trend has shifted from multifamily housing back to single family housing, de Jager said. Demand for non-residential construction – particularly for the hospitality sector – has diminished, and the repair and remodel market (R&R) is very strong. This has contributed to the spike in lumber demand and high prices that the industry has seen since last summer.

But are these trends a temporary response to the pandemic, or long-term?

There has been a pent-up demand for housing since the 2009 financial crash, and with millennials now representing the largest percentage of first-time home buyers, that demand is even higher and houses are in short supply, Goodman said.

There has also been a trend of families leaving the city for rural, “safer,” areas. But, cities always come back after crises like this, he said.

Johnston agreed, noting that we will see more people moving back into the cities as we recover from the pandemic, and that the multifamily sector will make a comeback.

“I think you have to start off by recognizing that the urbanization trend for the last 100 years has been pretty steady and those drivers haven’t changed,” Edgson added. “What’s happening now is more of a slowdown and a levelling-out of the rural-urban split. As the next generation comes on and the one after that, we’ll probably see a draw back into the cities.”

The strong R&R market is likely to last through 2021, even as the vaccines roll out. According to Johnston, the market may slow down in the summer, but demand for products will remain fairly steady as people look to finish projects they began planning months ago.

“R&R has always been a really steady part of our business,” Edgson added. “It’s a robust part of the market. It probably won’t be as robust as new home builds in the coming year, but I don’t see it waning.”

Education and engagement

However, it’s not all good news for the forest industry – the sector is still facing a labour shortage, even as unemployment comes back to pre-pandemic levels, de Jager said.

When asked by an attendee how the industry plans to increase the diversity of its workforce, Edgson admitted that the sector struggles with recruiting in its entirety.

“Therefore, the source of that solution is going to lie in parts of the population that are not currently well-represented in our industry, both in gender and visible minorities,” he said. “To engage those populations, we first have to recognize what it is about our industry that is not attractive and we have to make sure there is discovery of opportunities. It is an education and engagement process.”

Like any other forest products company, EACOM has felt the impact of the labour shortage. As a result, the company has been proactive in terms of its engagement, working to involve a broader population and introduce those who might not be aware of the industry to it, Edgson said. They are also recruiting foreign workers through the federal program.

“It’s a matter of education to us, in terms of what’s required to encourage people to come join us, and, quite frankly, us educating those people on what those opportunities are.”

An evolution in building

The labour crunch will also have an impact on how we build with wood. All of the panelists agreed that the lack of skilled workers has helped drive the trend from on-site construction to off-site, prefabricated construction. This type of construction allows you to schedule skilled workers more efficiently, in addition to being safer and more cost-effective, Goodman explained.

“At the end of the day, there has been an emphasis on all aspects of what we do in terms of control and quality,” he said. “And the control and quality of the work that comes out of off-site construction has proved to be better than on-site. So, I think it’s here to stay and it will continue to go higher.”

Johnston agreed, noting that his company has seen continued growth with their customer base in terms of off-site construction, and it is a growing segment of the market.

“I think this is an evolution that will continue to grow and people will continue to be drawn to the opportunities that softwood lumber provide,” Edgson added. “Mass timber is a good example of that.”

Speaking of mass timber, the panelists agreed that this is a growing trend that has multiple benefits. But, there are some challenges to its adoption, including architect and contractor knowledge, and reliability of supply.

“I think it’s an evolution that’s going to happen,” Johnston said. “That education about mass timber in construction is imperative.”

Understanding across the supply chain is improving and will continue to improve in the coming years, de Jager added. Although lumber supply is currently tight, mass timber is part of a longer-term trend that will take hold in Canada and the U.S., he said.

European market is ‘empty’

But, currently, the increased demand for lumber, along with lower interest rates in the U.S., has created pressure on the full supply chain.

So, the question now is where will the wood come from? One place it will not be coming from is Europe, said Reinhard Binder, owner and CEO of Binderholz, who shared a European perspective of the North American lumber market in an interview with Sven Gustavsson, manager of softwood and value-added lumber for the Quebec Wood Export Bureau.

According to Gustavsson, in 2020, the volume of imported lumber to North America grew from 3.5 million cubic metres in 2019 to five million cubic metres in 2020. The Forest Economic Advisors (FEA) has estimated consumption in the region would grow by 10 million cubic metres in 2021, and by an additional three million in 2022.

However, “the European market is empty,” Binder said.

“The U.S. is booming, but in the far east, like in China, the consumption of wood products is rising. China went to eastern Europe to buy logs and other materials for the packaging industry. We are completely without lumber,” he explained.

‘Tapped out for Canada’

Consequently, the North American lumber market will need to look for supply from other sources to meet demand.

Johnston believes some of this supply will come from the U.S. south. A new sawmill recently came online in the region, capable of producing three million mbf per week, he shared.

Goodman agreed, adding that there is a desire from the U.S. government to see if sawmills can produce more lumber using their existing operations.

But, “I think we’ll be challenged with the high prices and certain supply channels that are drying up,” he said. “There’s nothing that I can see that will provide short-term relief.”

To address supply shortages in the near future, he believes builders will begin using substitute products, such as different species of lumber or prefabricated lumber. Eventually, he hopes to see an equilibrium between supply and demand.

It’s not just the lumber traders and customers who are impacted by the tight global supply. Lumber manufacturers, such as EACOM, are struggling to find the logs they need to meet the demand.

“In terms of the Canadian context, all of the sawlog supply is pretty much allocated,” Edgson said. “We might see incremental improvement as we improve optimization, but there isn’t a basket of sawlog quality.

“There are areas of additional cut, but we’re looking at low-grade logs that might be more attuned to biomass or pulp and paper,” he continued. “We’re really tapped out for Canada.”

Looking ahead, the panelists agreed that while the current lumber market situation is abnormal, things will not return to the way they were before the pandemic.

“The new normal will be a different type of operating environment, but we’ll adapt,” de Jager said. “But, I think the future is bright for all of us on this.”