¢ Shortages of lumber production, especially in the U.S. west, will assure demand for lumber exports in that country.

by Doug Smyth,
Research Director
I.W.A. CANADA

During 1996 the recent U.S.-Canada
softwood lumber trade agreement will
have little effect on B.C. and Canadian
production and shipments to the Unit-
ed States. The agreement restricts im-
ports into the U.S. from British Co-
lumbia, Alberta, Ontario and Quebec
over the next 5 years by a combina-
tion of annual tax-free quotas and im-
port fees when those volumes are ex-
ceeded.

Over the past 3 months average U.S.

framing lumber prices jumped by $73
per thousand board feet, or 21 per-
cent, to equal the near-record levels
set in 1994. However, that increase
primarily reflects a shortfall in North
American timber supply and not the
recent bilateral lumber agreement,
which will have little impact on the
U.S. market during 1996. In spite of a
dramatic rise in imports of Canadian
lumber in the first 5 months of 1996
compared to the record levels that
were set during the same period a
year ago, U.S. prices surged from the
first week in March until mid-June.
Such a high level of imports would
have depressed the market if it had
not been for the serious timber supply
crisis in the U.S. West.

During 1995, weak U.S. and off-
shore lumber markets masked the
shortfall in western states sawtimber
which had become so evident over the
previous 2 years. However, the timber
shortage accounted for 70 to 80 per-
cent of the 1.8 billion board foot
(BBF) drop in lumber output through-
out the West between 1994 and 1995,
while the decline in demand account-
ed for the other 20 to 30 percent. The
weak U.S. market was caused primari-
ly by a 653 million board foot (MMBF)
drop in lumber consumption from
47.7 BBF in 1994 to 47 BBF in 1995.
That reduction took place in spite of
an 888 MMBF increase in imports
from Canada.

In 1996 total North American de-
mand will rise by over 1.1 BBF, in-
cluding at least 900 MMBF in the Unit-
ed States. During the first 5 months
actual U.S. single-family housing
starts jumped by 57,100 units over the
1995 level, and the full-year increase
is forecast to exceed 60,000 singles.

However, because of the growing
sawtimber shortage in the U.S. West,
lumber production will slip by 437
MMBF, one-fourth of the 1.8 BBF
drop between 1994 and 1995, At best,
a small rise in output in the U.S, South
will offset one-third of the 1996 de-
crease in the West. Altogether, total
U.S. production will fall by roughly
400 MMBF from the year-earlier level.
At the same time, total output in

Canada is predicted to fall by 120
MMBF, including 200 MMBF in British
Columbia. And because 450 MMBF of
Canadian shipments will be redirected
to supply modest improvements in the
domestic and offshore markets, that
volume will no longer be available for
U.S. consumption.

As a result of those supply with-
drawals, the United States will experi-
ence an initial shortfall of over 800
MMBF in 1996. That gap will eventual-
ly be filled by a combination of addi-
tional engineered wood products,
small volumes on non-wood substi-
tute materials such as steel, a slow-
down in the withdrawal of Canadian
imports, and some continuing im-
provements in U.S. sawmill recovery
and production. However, the exis-
tence of that initial shortfall between
lumber supply and demand will exert
upward pressure on prices throughout.
1996. And it primarily explains the
sharp runup in lumber prices that
took place between early March and
mid-June. The U.S.-Canada lumber
agreement, on the other hand, had no
effect during that period.

For the full year, U.S. lumber im-
ports from Canada are predicted to to-
tal 16.5 BBF, 450 MMBF less than the
record 16.950 BBF which was shipped
in 1995. However, because of the ex-
pected improvements in non-U.S. mar-
kets, additional shipments to those
destinations were already forecast to
reach 450 MMBF, even before the
U.S.-Canada agreement was imple-
mented. As a result, the agreement
will have little impact on B.C. and
Canadian softwood lumber produc-
tion during 1996. Although U.S. im-
ports from the 4 covered provinces
will exceed their 14.7 BBF annual tax-
free quota, many companies will con-
tinue to ship by paying fees of $50 and
even $100 (U.S.) per thousand board
feet. Because the sawmilling indus-
tries in the eastern provinces have
substantially lower wood costs, they
will generally be able to cover the ex-
port tax with the higher revenues gen-
erated by 1996 prices. And since over
90 percent of B.C. lumber will contin-
ue to enter the U.S. tax-free, the aver-
age incremental cost of the fees paid
would be just $7.00 (U.S.) per MBF.

Total Canadian production is ex-
pected to fall by 120 MMBF between
1995 and 1996, including 200 MMBF in
British Columbia. However, most of
that decline would have taken place
anyway because of the reduced de-
mand for residual pulp chips during
the first half of the year and the se-
vere winter weather conditions during
January. First quarter 1996 output in
B.C. fell by 219 MMBF from the level
during the same period in 1995.

Lumber production in eastern Cana-
da is predicted to rise by just 60

MMBF. Although output in Quebec
surged by 1.3 BBF between 1992 and
1995, it is now clear that domestic vir-
gin timber supplies and U.S. log im-
ports have both reached their maxi-
mum limits in that province.

It is clear that during calendar year
1996 the U.S.-Canada softwood lum-
ber trade agreement will have little
impact on Canadian production and
shipments to the United States. Be-
cause of production losses resulting
from severe winter weather and the
collapse of the B.C. residual chip mar-
ket in the first half of the year, and the
expected increase in shipments to

industry

non-U.S. destinations, the agreement
will have little effect. In future years
during depressed U.S. lumber mar-
kets, it could have a more significant
impact. However, by that time other
factors will have come into play, in-
cluding the decline in allowable annu-
al cuts in British Columbia and in-
creased investments in value-added
and offshore grade lumber produc-
tion. Moreover, the downtrend in the
availability of private lands harvests
will continue to depress lumber pro-
duction in the U.S. West.

As a result, during 1996 timber sup-
ply constraints in all major producing
regions in North America, particularly
in the U.S. West, will determine lum-
ber price trends in the U.S. market.

This article is based on a 340 page
study of timber supply and lumber
production by I.W.A. CANADA Re-
search Director Doug Smyth. The
study focuses on thé causes of the
timber supply crisis in the U.S. West.
It also examines the impact of the
tight fiber situation in all other ma-
jor producing regions in Canada
and the United States on the U.S.
lumber market during 1996. The
study has been summarized in a 3-
part Special Report in Madison’s
Canadian Lumber Reporter, and in
Wood Technology, the worldwide in-
dustry trade journal. It has been the
subject of exclusive articles in na-
tional Canadian and U.S. newspa-
pers and has been given notice in
major U.S. weekly trade journals.
And the study has been requested by
industry leaders in both the United
States and Canada, as well as in sev-
eral offshore countries.

|.W.A. says Canadian pension
plan rates must be increased

On June 10, 1966, the Federal/Prov-
incial/Territorial CPP Consultation
Secretariat completed its nation wide
tours at the Hotel Vancouver. Brother
Terry Smith, National Secretary-Trea-
surer was there to present the I.W.A.’s
position to a panel which included
NDP MLA Joan Smallwood, represent-
ing British Columbia, and Liberal MP
David Walker, representing the Feder-
al Government.

Brother Smith began by commend-
ing the Canada Pension Plan, now in
its 30th year, for providing a universal,
fully portable national pension plan
which has worked well to reduce
poverty among retired Canadians.

He went on to attack the crisis
myth being spread by the Federal
Government, big business, financial
groups and the media.

To say the Plan will go broke if
nothing is done completely ignores
that the CPP is a pay-as-you-go social
program. It is designed, through legis-
lation, to adjust contribution rates to
maintain a reserve fund at two years
worth of benefits, said Smith. This
means that, while contribution rates
will have to increase, this was con-
templated in the CPP’s design and is
not the crisis it is being made out to
be.

Brother Smith went on to attack
right-wing groups who are using the
CPP consultation to start an inter-gen-
erational war between today’s pen-
sioners and young Canadians. It must
be remembered that the return for
your CPP dollar is measured in social,
not financial terms. Should we choose
to neglect the elderly by slashing ben-
efits, we will simply face these costs
elsewhere - through increased poverty
among seniors and a greater burden

on Provincial Welfare and Health pro-
grams, he added.

In other words, the Canada Pension
Plan is a social program worth paying
for.

The I.W.A. was joined by other
labour groups in attacking the consul-
tation process itself. Jef Keighley, Na-
tional Representative for the Canadi-
an Auto Workers (CAW), told the
panel, that the mandate it has is both
too narrow in scope and too restric-
tive in time to fairly canvass the opin-
ions of Canadians on this important
subject.

The I.W.A. submission strongly re-
jected any cuts to benefits, restric-
tions on eligibility, or an increase in
the retirement age and focused on the
importance of CPP disability benefits
which, in conjunction with Long Term
Disability benefits, support many old-
er J.W.A. members.

Two thirds of Canadians don’t have
the benefit of private pension plans
and most of today’s working Canadi-
ans don’t have the employment or in-
come stability to make significant
contributions to RRSP’s. The CPP is
the only guarantee these workers
have for their retirement - attacking
this is simply not an acceptable solu-
tion, concluded Smith.

It takes 2/3’s of the nation’s
provinces with 2/3’s of the population
to make changes to the Canada Pen-
sion Plan. I.W.A. CANADA will be urg-
ing all provincial governments, espe-
cially the NDP governments in B.C.
and Saskatchewan, to fight to pre-
serve the Plan in upcoming
Federal/Provincial negotiations.

- Scott Lunny,
National Representative

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,,LUMBERWORKERMUNE 1996/3