Major downsizing in British Columbia has left a sizeable gap within the North American lumber market. Over the long-term, this could yield strategic opportunities for European companies to export their products to the US.
North America is the global leader in softwood lumber production. Canada takes second place in production volume—with only the United States ahead.
But the dynamics of this market are changing thanks to a steady downtick in production in British Columbia. In the last five years, we’ve seen a 23% production drop from 48 million m3 of lumber in 2017 to 37 million m3 in 2022. In fact, 2022 sawmill output was down around 40% from its peak production of almost 60 million m3 20+ years ago.
Canadian forestlands cover 362 million hectares, encompassing 40% of the nation’s physical area. With 9% of the total worldwide forests, it goes without saying that forestry plays a big role in the country’s history.
Much of that history remains separated based on region. The eastern provinces of Canada have experienced a much different sawmilling story than British Columbia.
To put things into perspective, BC’s production encompassed nearly half of all Canadian lumber output from the years 2000-2016. However, trouble began emerging shortly thereafter.
Pine beetle infestation in BC started slowly in the late 1990s, but it quickly ramped up and wreaked havoc on the lumber industry. This impacted harvesting volume which led to downsizing throughout sawmill operations in the province.
Beetles still persist as a major problem in logging. We’ve seen ongoing issues with infestation across multiple global wood markets. Infestation problems have only worsened as wood markets further globalize with wider ranges of imports and exports.
Pest infestation was just one of many factors causing the lumber market to downsize in BC.
Per ResourceWise data, eastern provinces have maintained annual production of around 25 million m3. Conversely, British Columbia saw drops from 23 million m3 in 2016 to only about 13 million m3 in 2022. The falling numbers continued into the first quarter of 2023 with BC lumber shipments down 20% year-over-year.
ResourceWise data marks a much more historically stable market in eastern Canada compared to western. However, that is no longer the case after the harrowing wildfire season the region has experienced this year.
As of August 2023, 5,300+ fires burnt over 13 million hectares of Canadian forestland. These numbers reflect about 4% of the entire forest volume in the country. Such staggering numbers mark 2023 as the worst wildfire season in Canadian history.
With these enormous losses, we will assuredly see far less stability than the market has typically experienced. Lumber prices are already spiking as mills were forced to close and wildfire smoke and other fallout shuttered many operations.
ResourceWise will continue to monitor the eastern Canadian wood markets and how the wildfires continue to affect pricing, demand, and exports.
With BC lumber dropping in the west and wildfires halting production in the east, where does the North American market stand?
North America will likely experience a much tighter lumber supply with these developments. As a result, prices will strengthen in the US through the back half of 2023.
There may be opportunities to amp up sawmill productions in spaces like British Columbia. But sawlog availability could impede production potential with provincial restrictions on forests in this intense wildfire season.
Canada’s direct neighbor, the US, requires about 30% of its lumber from imported sources to meet wood consumption demand. In the past, US demand was met with Canadian lumber supplying about 90-97% of it. But as the above sections described, Canadian output has dropped enough to cause the US to import from other sources.
The most obvious choice comes from European sources like Finland. Global market shares across European countries have boosted 15% in 2023. This marks a major change from even just five years ago when European lumber only held a few percentage points.
With Canada facing a crisis in production, a clear gap has appeared in the market. It provides an ample opportunity for the European market to fill that gap and satisfy US lumber demand.
We could see a big shift in global trade flows within the global lumber market in the coming decade. Further compounding factors like climate change effects will also play a large part in where and how the markets move.