A flicker of hope for growth in Canada's troubled wood products industry

The Canadian Press ~ The News
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TORONTO - After 13 consecutive quarters of declining production, Canada's troubled wood products industry saw its first sign of growth in the third quarter of 2009 and appears to be on the mend.

A Canadian Industrial Outlook report issued Thursday forecasts that while prices will remain weak, production is expected to increase by almost 10 per cent and the industry will return to profitability in 2010.

"After years plagued by bad news, the wood products industry is on the road to recovery," associate director of Canadian Industrial Outlook Michael Burt said.

The industry has been devastated by the mountain pine beetle outbreak, severe housing market declines, softwood lumber disputes and job losses.

Some 9,400 wood products workers lost their jobs in 2009, bringing total job losses since 2005 to 66,500, the report said.

It forecast a loss of $253 million for 2009, but a huge leap to profitability of $661 million in 2010, partly due to cost-cutting measures put in place this year.

Revenues are expected to decline for the fifth straight year in 2009, down 22.7 per cent to $16.8 million, with exports down 17.4 per cent and domestic demand down 24.8 per cent.

But the report indicates the industry will fare much better in 2010 with revenues growing 12 per cent to $18.8 million in 2010 as real GDP in wood products expands 9.8 per cent.

"The combination of rising prices and climbing production will lead to revenues averaging increases of 10 per cent annually over the next five years," it said.

The report predicts that housing starts will continue to ramp up in 2010 after experiencing their worst year since record keeping began.

As a result, residential construction will experience strong growth in 2010, which will drive strong demand for wood products.

"The current weakness in the market will give way to strong growth. But even though the housing market is overdue for a strong rebound, it will take several years before the market is completely recovered," the report said.

The outlook said adoption of the harmonized sales tax in Ontario and B.C. will reduce production costs and result in investment in new technologies and machinery, which will help the Canadian industry gain an advantage over other forestry exporters.

Progress has been made in marketing wood products to Chinese contractors, the report added.

But it noted that the push for more environmental protection of boreal forests, the world's largest carbon storing ecosystems, could present challenges for the industry.

"...Nonetheless, the expected improvement in demand coming from both the U.S. and Canadian housing markets, along with record low interest rates and government incentives from both governments, suggests a bright future for the wood industry for years to come."

Geographic location: Canada, TORONTO, Ontario B.C. U.S.

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