Canada: Ontario's wood industry faces new market realities
According to an article in a Canadian lumber trade publication, the secondary and value-added lumber manufacturing industry in Ontario and elsewhere has faced a myriad of challenges lately, ranging from weather setbacks such as forest fires and tornadoes to economic pressures such as mill closures and controlled production . These events have led to significant reductions in certain species such as red oak and hard maple, creating a chain reaction of shortages and price volatility.
Particularly affected by these shortages are high-grade hard maple, red oak and white oak, where stock depletion is becoming more common. Although not as severely affected, shipments of ash trees were down, although it remains one of the more stable woods on the market, with prices holding steady. Demand for Aspen is strong, although it faces competition from non-wood alternatives such as plywood and MDF. Similarly, birch demand is stable, but basswood is struggling due to competition and excess kiln-dried inventory.
On the export side, red oak has been depressed since the start of the year, particularly in certain regions, while white oak has faced stiff competition from quality logs, which has impacted sawtimber production and led to thin kiln-dried FAS stocks and higher prices.
The Royal Bank of Canada's (RBC) September economic report painted a broader picture of a slowing economy. Canadian GDP declined slightly in the second quarter, and initial indications are that it will decline again in the third quarter. The unemployment rate rose, the largest increase outside of the epidemic since the 2008/09 recession. With the global economy losing momentum and domestic challenges such as rising interest rates and a slowing labour market, the Bank of Canada expects to keep interest rates stable until 2024 and may cut rates in the third quarter of that year.
Consumer spending has stalled, business investment is showing signs of deceleration and the housing market has cooled after a temporary boost. These conditions are particularly pronounced in Québec, where economic growth is expected to slow significantly. Despite these headwinds, Ontario's manufacturing sector offers some comfort, with the sector showing some resilience.
Ontario's manufacturing sector has been a relative bright spot, with employment growth and partially offsetting the effects of weaker spending and investment. Nonetheless, manufacturing closures have increased and the recovery in the housing market has been halted due to interest rate increases and deteriorating affordability.
Overall, the challenges facing the secondary and value-added lumber manufacturing sector are complex and intertwined with broader economic trends. While the RBC report highlights ongoing challenges, companies within the sector need to navigate these waters with strategic caution and pay close attention to changing market and environmental conditions.
