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Forisk Forecast: How Structural Changes in Canada’s Forest Industry Affect the Softwood Lumber Agreement (SLA) with the U.S.

This is the fifth in a series related to Forisk’s Q2 2015 forest industry analysis and timber price forecasts for the United States and Canada. This post includes an excerpt from the Q2 “Forisk Facts & Figures.”

Each issue, the Forisk Research Quarterly includes a “story in three slides” that addresses a topic of interest to forest industry executives and timberland investors. In Q1, the question was “what makes the South so magnetic to U.S. and Canadian firms?” This quarter, with the Softwood Lumber Agreement (SLA) between the United States and Canada set to expire in October 2015, the question is “how has North America’s softwood lumber industry changed since the SLA went into effect in 2006?”

Softwood lumber prices and volumes collapsed: 2006 was the first of four-consecutive declines in U.S. softwood lumber consumption, production and imports from Canada. Net imports went from over 36% of U.S. softwood lumber consumption to below 23% in 2011.

Canada’s ability to manufacture softwood lumber and harvest softwood logs declined: the housing market collapse coincided with rippling effects from the Mountain Pine Beetle on Canadian softwood forest supplies. Since 2006, Canada’s softwood lumber capacity shrunk over 16%. Canada no longer has the physical capacity to produce and import softwood lumber at levels reached from 1999 through 2007 while also meeting domestic demands. This period of time coincided with major investments by Canadian forest products firms in the U.S. South (see the Q1 2015 FRQ “Forisk Facts & Figures”).

SLA negotiations depend on U.S. housing markets and political elections: strong recoveries in regional U.S. housing markets could effectively make any SLA standoff moot, as U.S. softwood lumber production (and prices) increase. Alternately, the practical necessity of negotiating any U.S./Canada arrangement during a slower recovery could fail to capture sufficient attention or energy during the final year of the 2016 U.S. Presidential election cycle.


To learn more about the Forisk Research Quarterly (FRQ), click here or contact Brooks Mendell at bmendell@forisk.com, 770.725.8447.

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