June 19, 2016 - 10:30 AM
MONTREAL - Canadian jobs and sawmills across the country are increasingly at risk because of fading prospects they will avoid a new round of U.S. duties on imported softwood lumber, according to an industry analyst.
RBC Capital Markets analyst Paul Quinn says he expects the United States will impose duties of at least 25 per 1cent in mid-2017 and that will put pressure on Canadian producers.
"They'll be mills shut right across Canada because nobody's making the kind of money that they'd have to pay in the duties," Quinn said in an interview.
He expects at least five mills to be affected in British Columbia but declined to say how many sawmills or jobs could be impacted in other provinces.
Quebec-based producer Resolute Forest Products (TSX:RFP) said jobs would also be at risk if Canada accepts a U.S. proposal that would put a 24 per cent quota on Canadian imports.
"We don't have a big enough market in Canada to sell our product and so what ends up happening is there is a greater risk of capacity having to be closed," said spokesman Seth Kursman.
The company, which operates about 20 sawmills in Canada, believes the federal government should push for free trade because Quebec's forestry system is now market-based and Ontario subsides are inconsequential.
"We believe that Canada shouldn't be rushing to the U.S. and asking for an agreement. Canada is negotiating against itself right now."
Kursman said western producers are in a different situation than their eastern counterparts because they own 39 sawmills in the U.S. south and have developed markets in Asia, which give them a hedge against U.S. trade restrictions.
Quinn doesn't see the 100-day negotiating timeline set in March by President Barack Obama and Prime Minister Justin Trudeau bearing any fruit. Obama and Trudeau will meet in Ottawa on June 29 during the so-called Three Amigos Summit with Mexican President Enrique Pena Nieto.
The B.C. Lumber Trade Council says it believes a new agreement, if properly designed, could provide certainty and stability for lumber producers on both sides of the border.
"However, if a reasonable agreement cannot be reached, we are also prepared to work alongside the Canadian government to defend the industry against any potential punitive trade actions brought by the United States, as we have done successfully in the past," said council CEO Susan Yurkovich.
Federal Trade Minister Chrystia Freeland and U.S. Trade Representative Michael Froman acknowledged the challenges in reaching a deal in a news release issued by Freeland's office on Friday.
"While significant differences remain between us, this period of intensive engagement has helped define shared goals and explore options for several key components of any new agreement," the release said, adding that the two sides have vowed to continue talks to reach a "durable and equitable solution."
Failure to reach a deal by Oct. 15 — the one year anniversary of the expiry of the old nine-year agreement — would allow U.S. producers to petition Washington to impose new duties.
Quinn said in a report that reducing Canadian sawmill capacity and lowering shipments across the border would help to raise prices but would not fully offset the impact of the expected duties.
The analyst has downgraded several Canadian producers — West Fraser Timber, Western Forest, Conifex, Canfor, Tember and Resolute Forest Products — saying their share prices will be weighed down by the export tax overhang. The exception is Interfor, which has dramatically increased its U.S. footprint.
Quinn foresees an impasse continuing for years, especially because of the protectionist positions espoused by presumptive presidential nominees, Republican Donald Trump and Democrat Hillary Clinton.
News from © The Canadian Press, 2016