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By Gordon Hamilton, Vancouver Sun,

VANCOUVER — Lumber prices are expected to soar next year before hitting all-time highs in 2014, bringing a flood of cash to B.C. sawmills and restoring health to provincial resource revenues, according to a report by the Vancouver consulting group International Wood Markets.

Wood Markets president Russ Taylor said the dynamics have been in place since 2008 for a so-called “super-cycle” that will push lumber prices into the stratosphere. The only missing element, he said Tuesday, has been a recovery in U.S. housing starts. Barring a broader economic calamity, such as failure to resolve the fiscal cliff, the U.S. housing sector has begun that long-awaited recovery, he said.

“We are already seeing some of this happening already. We are seeing the highest prices in six years right now — the middle of December, which is usually when you see the lowest prices of the year. The supply chain is very tight.”

The Wood Markets report covers the years 2013 to 2017, a period during which U.S. housing starts are expected to double. At the same time, North American timber supplies are expected to be constrained by issues like the mountain pine beetle in B.C., and harvesting cutbacks in Quebec, leading to a supply-side crunch. Further, the distribution chain in the U.S. has been reduced by half because of the recent recession. Many of the companies that survived are on credit watch, Taylor said, and are unable to buy enough lumber to rebuild their inventories.

Those North American factors are playing out in a global wood products market where China is taking a stronger role. China now accounts for 25 to 30 per cent of lumber shipments from the B.C. Interior, a market that didn’t exist the last time the U.S. housing market was strong.

Lumber prices have already jumped significantly in 2012. The composite lumber price — the price used to set the rate for the softwood export tax — is now hovering around $360 US a thousand board feet, up $100 from the beginning of the year. Taylor expects a 10-per-cent increase in 2013, and a further 10-per-cent jump in 2014, which would mean a record $440 US per thousand board feet of lumber.

Further, the softwood tax drops to zero above $355 US, which means, beginning in January, B.C. companies will be paying no tax, an added bonus.

Higher lumber prices will also mean the B.C. government collects more tax revenue through stumpage, said Taylor. The current provincial government forecast for stumpage revenues is $352 million for the year ending March 31, 2013. The 2014 budget anticipates a 13-per-cent increase to $415 million. Taylor expects stumpage rates to triple, if prices hold. Lower production rates because of the mountain pine beetle will eat into that revenue, but he still believes there will be a substantial increase in the government’s forestry revenues.

The year is ending on a positive note for B.C. lumber, said Joe Heath, general manager of North American sales at West Fraser Timber. But he tempered his optimism by saying many factors are at play that could affect the recovery. Recovering markets do not follow a straight line up, he said.

Nonetheless, the last three months of 2012 have been unusual. West Fraser is running all its B.C. mills.

“We have seen a run this last six to eight weeks that we didn’t forecast. I think it has taken a lot of people by surprise. We are questioning what is really driving it. A lot of it has to do, I am sure, with the percentage of product that is going offshore. I think North Americans always thought they had a supply readily available to them and yeah, things are changing a little bit out there.”

He said wholesalers normally run their inventories down at this time of year, but this time they ran them too tightly.

“It doesn’t take much of a scare for people to buy a little more than they need,” he said. The unanswered question for Heath is whether the extra lumber inventory coming in the front door is also going out the back door as sales.

“Can we really sit here and say this is the beginning of a huge ride? I would be careful.”

Bruce McIntyre, consulting partner at PWC, said that although there are still uncertainties, he agrees with Taylor that a strong recovery is underway.

“All the signals are heading in the right direction,” he said.

He said that the recovery means stronger stumpage prices in B.C., which will translate into increased resource revenues for the provincial government. And a stronger forest industry will mean more people being put back to work.

McIntyre speculated that increased government revenues from the forest products sector could provide the provincial government with the flexibility it needs to deal with the reforestation of timber stands damaged by the beetle.

“It’s all good news. Will it hold? That’s the question. But everyone is optimistic that the U.S. is finally coming out of the hole.”