Wildfires pose a “persistent and growing risk” to the Canadian forestry sector, as they destroy timber resources, shut down sawmills and hamper supply chains, warns a QBE report.
- The trend is toward larger and hotter fires that spread more rapidly
- Even before the record 2023 wildfires, Canadian wood product output was forecast to decline
- Tighter monetary policies in the US and Canada lead to lower housebuilding demand
Wildfires pose a “persistent and growing risk” to the Canadian forestry sector, as they destroy timber resources, shut down sawmills and hamper supply chains, warns a QBE report.
While fires have become less frequent over the past 25 years, they have also become more damaging, as the area they burn almost tripled over that time. The report expects that trend to continue.
Even before the 2023 season destroyed a record five million hectares, Canadian wood product output was expected to decline by 5% this year because of forestry’s reliance on the housebuilding industry and the US market.
Housebuilding activity, which is the primary driver for demand, is expected to decline in both Canada and the United States in 2023. Because higher interest rates increase the costs of mortgages, wood manufacturing is especially vulnerable to tightening monetary policy, warns the report.
In addition, two thirds of the softwood lumber produced in Canada is exported. The United States is the number one destination, receiving 89% of Canada’s manufactured wood products. This means that a depreciation of the US dollar against the Canadian dollar or greater US protectionism will have significant negative implications for the industry.
The 2023 risk forecast for the Canadian forestry sector notes that the long-running dispute over softwood lumber between the two countries remains difficult to resolve.
The report suggests various ways to mitigate these risks, the first of which would be to build new customer bases outside the US. In emerging markets such as India, interest is growing regarding wood as a housebuilding material.
In addition, wood manufacturing businesses could look to extract more value from trees. Harnessing innovative technologies, they could diversify into higher value markets that make high-end industrial and consumer products. Converting ‘waste’ wood products into heat, plastics, and non-toxic chemicals could also be an advantageous option.
Ben Hunter, Director of QBE Canada, commented: “Wildfires have caused massive destruction and disruption, with potential consequences on people’s health. For the forestry sector, fire is one of the risks that needs to be taken into account, alongside other macroeconomic factors that may pose challenges.
“Still, as a renewable resource, wood offers great business prospects over the long term. If the forestry sector manages to enhance its resilience, it will benefit both the economy and the environment.”
Wood manufacturing employs 97,000 people and contributes C$20 billion to the Canadian economy.
The data for the QBE report was collated by Control Risks and Oxford Economics.