Quebec Business Trends – July 2024

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With summer upon us, and the construction break from July 21 to August 3, it will be a quieter time for the Hardwood industry at this time throughout the province.

Ash supplies are low report sawmillers. The Emerald Ash Borer has caused this reduced availability and reportedly, the Chinese are also highly demanding Ash logs. Therefore, some contacts note that orders of green lumber are harder to be filled. On the domestic market, things are a bit slower due to lower demand from end users and distributors note contacts.

Basswood sales have declined both on domestic and international fronts over the past year and a half. Most grades are slow sellers, but upper grades were attracting more interest than the common grades. Sales of kiln-dried Basswood are going to repeat customers, state contacts, with competition tough.

The regionally important Hard Maple remains a bestselling item for upper grades, No. 1 Common and No. 2A are of interest. For some, sales are obtained as a result of color specifications.

Contacts note that conditions for Soft Maple are more positive now. Upper grades have been in demand for a while, but not the case for the No. 1 Common grade. However, sales have recently increased for this grade.

Cherry sales have also declined, and purchases are based on color specifications, especially in the Appalachian region. Green lumber demand has eased, and so prices have softened slightly. Inventories of kiln-dried Cherry are moving up for certain suppliers due to slower exports to China.

Residential flooring and truck trailer flooring manufacturers are buying less lumber and being more cautious in their purchases for Red and White Oak. According to areas contacted, sawmills experienced mixed conditions for green Red Oak. Buyers were also more cautious with the purchase of stocks of green Oak as temperatures increased and care was required for staining issues. Demand was slightly steadier for White Oak, however, supplies were lower than normal for this time of year, noted contacts.

Supplies are adequate to meet demand for Poplar, as wholesalers, exporters and those in the moulding and millwork sectors steadily purchased this species. It was noted that conditions were better for kiln-dried than for green Poplar. Export markets improved this year with prices ranging from steady to firm.

Interest rates are at a 23-year high and the Bank of Canada said in May it was watching the ability of institutions and households to service their debts as well as monitoring the valuation of some assets, which appear to have become stretched.

The Canadian financial system remains resilient but the continuing adjustment to higher rates and possible shocks present key risks to stability, Bank of Canada Governor Tiff Macklem said.

Macklem made his remarks at the launch of the central bank’s annual Financial Stability Report.

“Canada’s financial system remains resilient. Over the past year, households, businesses, banks and other financial institutions have taken proactive steps to adjust to higher interest rates and to weather economic shocks,” he said.

“This adjustment still has some way to go and continues to present risks to financial stability.”

Most Canadian mortgages have a five-year term and one concern is what happens when households start renewing at sharply higher rates. Another is the increasing stress shown by renters and the growing rates of arrears on credit cards and auto loans for households without a mortgage.

Over the last year, the number of borrowers without a mortgage carrying a credit card balance of at least 80 percent – people the bank says are significantly likely to miss a future debt payment – edged up and is now at 23 percent.

“Higher debt-servicing costs reduce financial flexibility for households and businesses and make them more vulnerable in the event of an economic downturn,” stated the report.

At the end of 2023, over one-third of new mortgages had a mortgage debt service ratio greater than 25 percent, double the share of new mortgages with the same ratio in 2019.

Senior Deputy Governor Carolyn Rogers said evidence suggested households had the flexibility to continue servicing debts at higher rates, in part because they had set aside money and were also earning more.

Macklem said that the central bank was getting closer to being able to start cutting rates but has so far declined to give a timetable.

The report said price corrections could be large and abrupt if expectations about the path for rates changed significantly or the economic outlook worsened.

“Stretched asset valuations may not properly reflect risks to the economic outlook and therefore increase the likelihood of a disorderly price correction,” it said.

People and businesses have become more focused on the timing and scope of central bank rate cuts, driving renewed appetite for risk, the report said, noting that benchmark U.S. and Canadian equity indexes had reached all-time highs in 2024.

Valuations remain under pressure in part of the commercial real estate sector, particularly the office subsector.

“Not all asset managers have fully reflected these reduced valuations on their balance sheets, meaning that further adjustments may be necessary in the future,” the report said.

With this news, it may be more challenging for Hardwood businesses to eke out a profit this year, and to find new customers as people reign in their spending until interest rates go down, and economic conditions improve.

By Miller Wood Trade Publications

The premier online information source for the forest products industry since 1927.

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By Miller Wood Trade Publications

The premier online information source for the forest products industry since 1927.

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