Canadian foresters warned to expect more "blood"

VANCOUVER, British Columbia (Reuters) - Canada’s lumber industry, already battered by the weak U.S. housing market and the strong Canadian dollar, was warned on Thursday to expect more “blood on the floor.”

A pile of cut logs sit on Spanish Banks in Vancouver, British Columbia April 26, 2006. REUTERS/Andy Clark

The industry will likely not see a lumber market recovery until at least 2010, and financial returns for firms based in western Canada will hit record lows this year, said Craig Campbell, a forest industry advisor at PricewaterhouseCoopers.

The North American lumber market is still oversupplied “even though it seems like we’re reading an obituary weekly for a sawmill,” Campbell told an industry gathering in Vancouver.

“There’s going to be more (closures), more cash burn, more blood on the floor,” Campbell said.

Canada supplies about one third of the softwood lumber such as spruce, fir and pine used for housing construction in the United States, and about half of that comes from the western province of British Columbia.

The industry conference was also told not to expect a recovery in the U.S. housing market in the near future, because of the large inventory of unsold homes and overall weakness of the U.S. economy.

Patricia Croft, chief economist at the Canadian investment firm Phillips, Hager and North, said she believes the U.S. fell into a recession in December and recovery will take longer that many people predict.

She thought the weak U.S. dollar, which has also hurt the profits of Canadian export firms, would recover slightly through the year.

Campbell said more lumber production cuts were needed, but he acknowledged some firms face a difficult time idling mills because of strong demand for skilled labor from the energy industry in Alberta’s oil sands.

“A lot of mills don’t want to shut down for a month or two because they don’t want to lose the workers,” he told reporters.

British Columbia’s sawmills are also under pressure to process trees killed in the province’s massive mountain pine beetle infestation before the timber becomes unusable.

Avrim Lazar, chief executive of the Forest Products Association of Canada, acknowledge the Canadian industry’s short term prospects were tough, but said its long-term prospects remained strong.

Rising food demand will make it more difficult to producers in areas such as South America to use agricultural land for tree plantations, increasing demand for trees from northern forests that are too cold for farming, he predicted.

Editing by Renato Andrade