A tide of good news has uplifted the Canadian lumber industry, and investors have taken notice.
The softwood lumber industry has been a staple of Canada for years, but a combination of factors including the 2008 global recession, rising softwood prices, and a trade dispute with the US brought much of the sector down.
But 2020 has brought with it some welcome relief and optimism. The big kickoff started Feb. 4 as reports circulated that the US government was
looking to reduce duties on softwood lumber imports. The reduction, which would take place in August, affects each lumber producer differently based on the US government’s calculations of dumping and subsidies the producers incur.
Softwood producing stocks rallied in the news, but they were
each impacted differently. BC-based producers like
Canfor Corp. (
TSX:CFP) and
West Fraser Timber Co Ltd. (
TSX:WFT) posted large gains as they were forecasted to see the biggest drop in duties, while Eastern producers like
Resolute Forest Productions (
TSX:RFP) gained minimally on marginal duty decreases.
Another company that gained was
Western Forest Products Inc. (
TSX:WEF), but what started as an impressive leap turned quickly into a massive surge. The BC-based producer was suffering from a historic eight-month-long strike from more than 3,000 employees on its Vancouver Island facilities, but on Feb. 10, reports emerged that a
tentative deal had been struck between the company and its employees.
Though the strike severely impacted both the local community and the company,
the resulting deal has reignited interest in Western Forest Products and dulled a
disappointing fiscal quarter result (caused largely by the ongoing strike).
And as discussions continue to happen between the lumber industry and government officials for ways to compete with cheaper Asian and European lumber, private investors see a significant upside. That’s why Canfor saw private holdings company
Great Pacific Capital Corp. of the
Jim Pattison Group offer to privatize the lumber producer for an $16 per share in August 2019. The offer price was almost a 100% premium on share prices at the time, but minority shareholders must be expecting the same upside as they
turned down the deal in December.
With further actions expected from Canadian governments to shore up the industry, including the ratification of a new trade deal with the US that would see the reduced lumber duties likely included, the tide seems to be finally turning in favor of Canadian lumber.
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