Forestry has been a bright spot for B.C.’s economy during the pandemic after being hammered in 2019 when low prices, trade frictions and supply constraints resulted in mill curtailment and permanent closures in the province.
Further deterioration was expected, with the onset of COVID-19 pandemic leading producers to further cut capacity, but demand surprised on the upside amid firm U.S. and Canadian housing starts and strong renovation demand.
Recent manufacturing and export sales data has highlighted this trend. Dollar-volume wood product production rose strongly after a weak early-year performance.
Year-over-year sales in September were up 46% year-over-year, although year-to-date sales through three quarters were still 1.3% lower than 2019 due to a declining trend into 2020.
Forestry prices rose 64% year over year in September to a record nominal high, according to the Bank of Canada’s commodity price index, leading producers to ramp up production. Underlying lumber production has also contributed but not to the extent of prices. Softwood lumber production has rebounded sharply after an April bottom, and September sales rose 18% year over year and 9% from August. That said, overall production is still down 13% through nine months. Compared with 2018 trends, levels are down about 20%.
Buoyant market conditions look to have waned in the fourth quarter as supply catches up and renovation demand peaks. Troubles with COVID-19 may also be factoring into demand. The forestry price index has declined about 25% from peak September levels, and year-over-year growth narrowed to about 25%, which will likely dampen sector momentum. Over the longer term, forestry production will continue to be hampered by timber availability, reflecting the long-term effects of the mountain pine beetle infestation.
Experimental measures of provincial economic activity from Statistics Canada showed improving economic conditions through the summer months.
B.C.’s index of economic activity rose for a third straight month in August after a May bottom.
Following a February-to-May decline of 17% in the index, the gap has narrowed to 6.7% in August and mirrors the severe pandemic-driven drop-off in the economy and the subsequent recovery phase as sectors restarted.•
Bryan Yu is deputy chief economist at Central 1 Credit Union.