Canada’s lumber giant stands firm against U.S.
West Fraser Timber says it’s ready to litigate in order to get ‘durable’ deal
Sabre-rattling and tariffs slapped on Canadian lumber by the Trump administration aren’t keeping the chief executive of North America’s largest lumber company awake at night.
“We’ve had duties put on us and we just reported record earnings in the second quarter,” Ted Seraphim, CEO of West Fraser Timber Co. Ltd., said from the company’s head office in Vancouver last week. “So we are under no pressure to settle.”
In fact, U.S. duties are a minor distraction compared with forest fires, Seraphim said.
He was just back from two days visiting four mills that West Fraser shuttered for three weeks. The worst forest fires in the province’s history forced evacuation of 800 families who work at West Fraser. “The fires have been a much bigger worry for me than the softwood lumber dispute,” Seraphim said. “I can’t even compare the two.”
This week the U.S. government announced a widely anticipated temporary reprieve from the 20-per-cent countervailing duties it imposed in April on lumber imported from Canada. A seven-per-cent duty will still apply. The U.S. Commerce Department will announce a final countervailing duty in November.
The duties vary by company. Since April, West Fraser has paid 30.88-per-cent duty on all Canadian lumber shipped to the United States. Seraphim said West Fraser has passed those costs on to its customers. The company reported earnings of $174 million in the second quarter, up 49 per cent from the second quarter of 2016.
“That’s an encouraging sign for our company,” he said.
Shares of West Fraser, with a market cap of US$4.83 billion, have surged 32.7 per cent yearto-date and rose 1.94 per cent to $63.73 on the Toronto Stock Exchange on Tuesday.
Seraphim said Canada should stand up to the United States on softwood lumber, refuse to cut a bad deal, and take the U.S. to court if need be.
“Our focus at West Fraser is we want a long term durable deal and if we can’t get one we’re prepared to litigate,” Seraphim said.
Philippe Couillard, premier of Quebec, another big lumber province, said this week that higher lumber prices have raised prices for American consumers buying new homes and hurt U.S., not Canadian, workers.
“The most threatened jobs by these policies are not Canadian but American jobs in several states, notably in the construction sector,” he said in Charlottetown.
West Fraser began operations in 1955 when brothers Sam, Pete and Bill Ketcham bought a sawmill in Quesnel, B.C. Hank Ketcham, the second generation, ran West Fraser until 2013, when Seraphim took over. Ketcham remains chairman, and the Ketcham family retains the majority of West Fraser shares.
From those modest beginnings West Fraser has built a forestry empire in B.C., Alberta and the U.S. south. In July, West Fraser announced a deal to buy the Gilman companies, with sawmills in Florida and Georgia, for US$430 million. With that deal, the U.S. now accounts for 43 per cent of West Fraser’s production. West Fraser employs 9,000.
Seraphim said West Fraser and its Canadian competitors, such as Canfor Corp., are buying mills stateside because U.S. timber is cheaper.
“The U.S. complains that Canada has subsidized wood costs,” Seraphim said. “We totally disagree. We just bought six (U.S.) mills. We are buying in the U.S. because wood costs in the U.S. south are much lower than they are in B.C. And in every single dispute we’ve had with U.S. we’ve won the case — that we are not subsidized. We don’t see the U.S. companies coming up to Canada to buy Canadian companies.”
On top of its U.S. buying spree, West Fraser has invested $1.6 billion over five years, mainly in modernizing its Alberta and B.C. mills. Since 1955 the company has planted 1.6 billion trees.
Seraphim is bullish about the future of the lumber business because of the improving U.S. housing market, strong demand from Asia — Canada shipped three billion board feet of lumber to China in 2015 — and, especially, because demand for lumber is growing faster than supply.
“We’ve had the mountain pine beetle (which has destroyed forests) in B.C. We’ve got cut reductions in Eastern Canada. The reason the outlook is so positive for lumber is that we don’t see production growing significantly in Canada,” Seraphim said. B.C. forest fires also reduced supply, pushing the July price of Canadian western spruce-pine-fur up 5.5 per cent to US$400 per 1,000 board feet.
Seraphim said much of the burnt B.C. forest had already been killed by the pine beetle, and thus won’t be missed. And he said his mills, as they recover from the punishing fires, are ready to get back to work.
“The people in the interior of B.C., between firefighters, community leaders, employees, neighbours, friends, I mean, I’m just so blown away by how everyone came together to support each other through this. It’s been very tough. Boy, the strength of these people is incredible. It was a very emotional two days, to be honest with you.”