West Fraser Timber Co. Ltd. president and CEO Sean McLaren told investors that the complexity of the operating environment in B.C. continues to take a toll on sawmilling capacity in the province.
“Rapid policy change and uncertainty regarding decision-making on the land base have constrained available timber supply, resulting in a lack of access to economically viable fibre,” he said.
The B.C.-based company reported its fourth-quarter results this week, posting a loss of US$153 million compared with a US$94 million loss a year earlier.
So far this year, the company has announced the permanent closure of its Fraser Lake, B.C. sawmill and its sawmill in Maxville, Fla., as well as the indefinite curtailment of its Huttig, Ark. sawmill.
The decision to close Fraser Lake after having reduced its capacity in 2022 reflects these realities, McLaren said, warning of further contraction in the B.C. forest sector without “significant policy change.”
Also causing challenges in Western Canada this winter was unusually warm weather, said McLaren. The weather has hampered logging activities, affecting inventories at some mills, and could constrain West Fraser’s ability to manufacture and ship lumber.
It’s hard to predict what the impact of this will be, he said, but the company is flagging it as a potential risk for the second quarter.
“In our view, challenges to meaningful supply additions in the North American lumber industry will persist for the foreseeable future,” he said. “And as such, we remain optimistic about our portfolio of assets, our capital allocation strategy and our long-term prospects for our lumber business.”
Last year the company announced the sale of three of its pulp mills, one in B.C. and two in Alberta. McLaren said the company expects these sales will help reduce the variability of future earnings and help the company concentrate its resources.
He said he expects the company will continue to experience unpredictable challenges such as inflation risks and labour constraints.
However, he told analysts during the company’s earnings conference call that West Fraser is encouraged by lower mortgages rates in the U.S. and the continued easing of inflationary pressures across much of the supply chain.
“While demand markets were challenging in 2023 and there are near-term uncertainties across our business,” said McLaren, the company is optimistic about continued demand growth for the products West Fraser makes.
In the earnings release, McLaren said the fourth quarter saw continued weakness in demand for the company’s North American lumber and European panel products.
In financial documents, the company explained that changes in new home construction in the U.S. are a significant driver of demand for certain products like lumber.
With new housing construction levels beginning to rebound as 2023 drew to a close amid a pause in interest rate hikes, the company said it expects a combination of low home supply and a large cohort of the population entering home-buying age to support demand over the longer term.
McLaren spoke to analysts about the difficulties that lumber companies have faced in recent years.
“We have now been through a 10-year period in which total North American lumber supply has been essentially flat, with shrinking supply in British Columbia, offsetting the gains in the U.S. south. And this has occurred during a number of strong up years for lumber demand and pricing,” he said.
“We’ve spoken about the many constraints the lumber industry faces when it comes to adding capacity, and first and foremost of these as accessibility and availability of economic fibre.”
Sales for the quarter ended Dec. 31 were US$1.5 billion, down from US$1.6 billion.
Loss per diluted share was US$1.87, compared with US$1.13 a year earlier.
Shares in West Fraser closed up 1.8 per cent on Thursday at $108.47.
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