Largest Canadian Lumber Producer Cutting Output

The largest Canadian lumber producer—Vancouver-based Interfor, which has operations across North America—is cutting lumber production by 17% in response to slowing demand.

Interfor said deteriorating economic conditions and market uncertainty are reducing demand for lumber as interest rates rise and housing starts plunge. The Canadian forest products giant said it is reducing output by 17% of its quarterly capacity, which equals about 200M board feet.

Interfor characterized the reduction as “temporary output cuts” that will be spread across the company’s North American operating regions and timed around the US Thanksgiving and Christmas holidays, according to a report in the Toronto Star.

In February, Burnaby, British Columbia-based Interfor became the largest lumber producer in Canada—and the fourth largest in the world—with its acquisition of Eacom Timber Company, which operates mills primarily in northern Ontario and northwestern Quebec.

Interfor now has the annual capacity to produce 5B board feet of lumber.

In early October, US lumber futures—the US is largest single buyer of the $8B of softwood lumber exported from Canada—closed at $410 per thousand board feet—which is back to where they started when the pandemic began.

The US cost of two-by-fours has plunged more than 70% from this year’s peak of more than $1,400 per 1K of board feet in March.

The collapse of lumber prices—actually the second collapse in two years—is been a leading indicator of a sharp slowdown in construction across the US, a harbinger of the recession that appears to be unfolding in Q4. It’s also a solid sign that the Fed’s campaign of 75 bps rate increases is beginning to crimp inflation.

Wood-pricing service Random Lengths reported that its framing-lumber composite index, which tracks cash sales, fell in September to $529, down more than 60% since early March.

Surging demand from the housing and remodeling boom in 2021—combined with supply-chain disruptions—lifted lumber prices to a stratospheric record of nearly $1,700 per 1K board feet during Q2 2021. This was followed by a crash that took prices down to $500 in less than a month.

Lumber prices surged again in Q1 2022, but they began another rapid retreat when the Fed began its campaign to raise the cost of debt in March.

Building permits for new housing plunged 10% in August from the revised July rate, which was down 14.4% from a year ago. Home builder confidence fell in September for the ninth-straight month to the lowest point since early 2020.