Production has been low according to recent reports, with some regions’ lumber production data being better than others, both in Canada and the U.S. This was due to poor logging conditions, forest fires, tornados, mill closures, and some facilities controlling output for periods of time which all resulted in shortages for certain species, even though demand had not improved greatly. International markets were also reported as slow. With the shortage of certain key items, like Red Oak and Hard Maple, prices are being affected. Some suppliers stated they are having depleted stocks of upper grade Hard Maple, and Red and White Oak. They added that inventories are declining for other grades as well.
Ash supplies are noted as meeting current market needs, although shipments of this species have contracted for certain areas. The decline is reported as less for this species than compared to others. It is one of the better-selling species for many contacts with prices holding. On the other hand, some sawmills are not producing green Ash, while others are. Supplies match the needs and prices are stable.
As Aspen is often used as an alternative to other higher priced species, demand for it is on a firm foundation for certain applications. It is, however, receiving strong competition from plywood, MDF and other non-wood products. Demand for Hardwood finished products has also dropped at this time.
Sales of Hard Maple are noted as being driven by supply rather than demand. Secondary manufacturers are still struggling with sales of finished goods and so their requirements at this time have substantially declined for Hard Maple. Green Hard Maple is also not doing as well as kiln-dried stocks, it was reported, and it is not flooding the markets either, so prices are stabilized.
Supplies are limited for Soft Maple, and buyers and wholesalers advise that inventories of kiln-dried Soft Maple have declined and obtaining No. 1 Common and Better grades is challenging. A better seller for this species, they noted, is Sap and Better grades which is noted as decent.
Although demand is not high for Birch, said contacts, it remains relatively steady. Contacts noted that Basswood is not performing well at this time due to slow finished good sales and competition of other products taking its market share. Kiln-dried inventories are reported high relative to buyers’ needs. It is difficult to find orders for green production, with cants and low grade lumber a challenge to move.
Red Oak exports are down since the beginning of the year for many regions for producers and wholesalers. Business for this species is steady, but at a slow place on domestic markets. Production of Red Oak is limited, with a tightening of kiln-dried supplies being reported, along with firming prices, particularly for upper grades.
As for White Oak, competition is intense for quality logs, which is limiting the volume of sawn lumber for end users. Inventories of kiln-dried FAS is noted as thin, with prices rising, while the Common grades’ demand is keeping pace with production.
According to a September Royal Bank of Canada’s (RBC) Economics report, headwinds from higher interest rates and a slowing global economy are building. Canadian GDP edged 0.2 percent lower in Q2 this year with early reports pointing to another decline in Q3. Some factors that weighed on output in Q2 will prove “transitory” – including wildfire disruptions and the federal workers’ strike in April. The report notes other indications that the “mild” economic downturn may have already begun. Economic growth already looks dramatically softer in the context of a surging population. On a per-person basis, Canadian GDP has declined for four straight quarters.
The 0.5 percentage point increase in Canadian unemployment rate over the last four months is the largest outside of the pandemic since the 2008/09 recession. Since the 1970s, there were six periods when the jobless rate rose by that much in a short timeframe prior to this year—four of them were during recessions. This time, the rise in unemployment has come via slower hiring (relative to surging population and labor supply growth) rather than faster firing. Though employment growth has slowed, it was still up 19,000 per month over the last four months. But the number of job openings is drifting lower, signaling that labor demand is flagging, continues the report.
World economies, notes the report, are also losing steam. GDP growth in Europe was slow over first half of the year, and unemployment in the U.K. is beginning to rise. Manufacturing outlook globally has darkened, with manufacturing PMI surveys across most economies pointing to a pullback in activity.
RBC notes, the Bank of Canada (BoC) remains with its policy mandate of hitting a 2 percent inflation target. Price pressures remain “sticky” in Canada. Amid a softening in GDP growth and labor markets, RBC expects BoC to stay on sidelines, holding rates steady into 2024. RBC expects the Fed will also do the same keeping interest rates at current levels into 2024. RBC predicts the first cut to the overnight rate from BoC in Q3 of 2024.
Consumer spending was essentially unchanged in Q2 and look for a further slowdown in both Q3 and beyond. Spending on goods has softened significantly; retail sales volumes fell 3 percent at an annualized rate in Q2. Though spending on services was strong, it’s showing signs of slowing down.
Aggressive interest rate increases over the last year and a half will continue to ripple through to consumers, pushing household debt payments (and delinquency rates) higher. Business investment is also showing signs of slowing and housing markets have cooled again after bouncing back sharply in the spring when the BoC temporarily paused interest rate increases.
Except for Newfoundland and Labrador, economic growth is moderating across other provinces this year. With decades-high interest rates already constraining spending and investment, natural disasters and unfavorable growing conditions posed an added challenge. RBC expects some of these setbacks to hit Quebec (+0.5 percent) and B.C. (+0.5 percent) harder, keeping both provinces at the back of provincial growth rankings for 2023 and 2024.
Strength in the Ontario manufacturing sector has partially offset weaker spending and investments – setting the province up to narrowly outpace the Canadian average at a rate of 1.1 percent, notes the report.
As expected, Ontario’s economic momentum is losing steam. After soaking up 475 basis points worth of interest rate hikes (since March 2022), and decade-high levels of inflation, consumer spending has finally waned. Amid higher borrowing costs, residential investment has also dropped to decades low. RBC expects a more resilient manufacturing sector to partially offset these downturns, keeping their growth projection for Ontario in 2023 at 1.1 percent. As momentum slows further, Ontario’s economic growth is expected to trail behind all other provinces in 2024 (+0.2 percent).
As in most provinces, the large inflow of international immigrants has been a boon for Ontario’s labor market. Though wages continue to escalate at runaway levels, businesses have (somewhat) benefited from easing skilled worker shortages and smoother operations. This has been especially beneficial for Ontario’s manufacturing sector which has seen above average job gains (+3.0 percent annual change in year-to-date job growth). Despite this resilience, however, RBC expects a drop in demand to take some steam out of Ontario’s manufacturing sector. In fact, they’ve already seen an uptick in the number of manufacturing business closures (+10 percent between Q1 2022 and Q2 2023) in the last year.
For residents, the rate hikes of June and July effectively halted the housing market revival in its tracks. Amid escalating debt burdens and deteriorating affordability, residential investment continues to nosedive—after picking up even more speed earlier this year. They expect shrunken profit margins to keep housing starts muted in 2023 (94,400) before ramping up to 98,800 in 2024. Fuelled by falling interest rates and government incentives, next year’s expected housing start activity would represent the largest addition since the mid-1980s.
Quebec’s economy lost substantial momentum this year. It likely contracted slightly in the second quarter amid mine closures, markedly softer construction activity, and a stalling manufacturing sector. The province is expected to continue to walk a thin line between positive and negative growth through the remainder of this year, and into 2024. The growth forecast is at just 0.5 percent overall in 2023— down materially from 6.0 percent in 2021 and 2.6 percent in 2022—and further decelerate to 0.4 percent in 2024.
One clear outcome of the slowing pace is an easing labor market tightness. Job vacancies and employment are down so far this year—falling 36,000 and 7,000, respectively, since January—with all the loss in employment among full-time workers. The unemployment rate is trending higher, reaching 4.3 percent in August from a modern-day low of 3.9 percent at the start of this year.
The job outlook erosion, mixed with sharp increase in cost of living, is beginning to take a toll on consumers. Quebecers’ spending at retail stores has weakened since spring, especially on things like furniture, building materials, sporting goods and garden equipment. And they’ve been pulling back a little at food and drinking places too. RBC expects that toll to grow heavier in the short-term while high interest rates maintain intense pressure on borrowers in the province.
Wildfires in June also hammered the province. Several mines were forced to suspend or halt production. Though most have resumed operations, it’s unlikely the province will be able to make up the loss over the second half of the year.
That pressure is plainly visible in the housing market where demand—while recovering from pandemic lows—continues to be soft. Housing construction has slumped as a result. Residential construction investment was off 31 percent in the first half of this year, and housing starts were down 40 percent. RBC believes a further (slow) recovery in the housing market and policy efforts to narrow the supply gap will reinvigorate home building activity to some degree next year.
With all of these events and recent natural disasters across the country, it has certainly taken a toll on the Hardwood industry in all sectors. It is harder for businesses to keep going and survive, remain operational, and eke out a profit, as they face more and more obstacles in these challenging times.
(Editor’s note: all financial and economic data reported in this article represent the most current data available at the time of this writing.)