BUSINESS

Will A Low Loonie Prompt Anti-Canadian Protectionism? Tembec Says Yes

01/29/2016 08:14 EST | Updated 01/29/2017 05:12 EST
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Cut logs at a logging operation
MONTREAL — The boost Canadian lumber exports are getting from the falling loonie is certain to bring out protectionist forces in the U.S. lumber lobby, says the CEO of Quebec-based forestry company Tembec.

"I think that they're watching the Canadian dollar drop, particularly in lumber, and they're saying, 'This isn't fair,'" CEO James Lopez said Thursday before a company meeting with shareholders.

While groups like the U.S. Lumber Coalition didn't complain about the Canadian dollar when it was above parity, Lopez suspects they will use the loonie's slump to argue that American producers are now at a competitive disadvantage, particularly since the Canada-U.S. softwood lumber agreement expired in October.

"I'm sure that will be part of the discussion when the governments engage."

In 2006, Canada and the U.S. signed a nine-year agreement that set aside lawsuits and punitive tariffs against imported wood from Canada. It brought temporary peace in a dispute over whether Canadian lumber businesses receive an unfair subsidy through cheap access to public land.

james lopez tembec

Tembec CEO James Lopez says the falling Canadian dollar is certain to bring out protectionist forces in the U.S. (Canadian Press photo)

The federal Conservatives have accused the Liberal government of procrastination in reaching a new deal. But a spokesman for International Trade Minister Chrystia Freeland said softwood lumber is one of the government's top priorities.

"We remain focused on maintaining stable access to the U.S. market for the Canadian softwood lumber industry," Alex Lawrence wrote in an email, saying the minister has spoken with the U.S. trade representative and secretary of commerce about the matter.

The U.S. Lumber Coalition declined to comment on whether currency fluctuations have changed its view of the trade agreement. But it said it is pushing for a renewed softwood lumber agreement before a so-called standstill period, which prevents the U.S. from bringing trade action against Canadian softwood lumber producers, expires this October.

"The Coalition maintains its long-standing position that a new, effective and sustainable agreement is a desirable outcome, and hopes that this can be achieved by the governments before the October 2016 deadline for the standstill period," spokesman Zoltan van Heyningen wrote in an email.

The loonie's rapid fall is a boon for Canadian lumber producers, allowing them to pocket millions of dollars in extra profits and offset the impact of lower selling prices because their wood is sold in U.S. dollars.

Canadian forestry companies are also expected to save tens of millions of dollars this year because export tariffs and duties are no longer payable for one year following the expiry of the softwood lumber agreement three months ago.

Lopez said he hopes the U.S. and Canadian governments will soon reach a new agreement to take advantage of a recovery in the U.S. housing market, which is expected to peak in 2018.

He said Canada's forestry industry is healthy with the exception of newsprint and other similar types of paper, where demand is expected to continue to decline because of growth in technology.

"We're going to see mills either close or converted to make other products and that's going to be troublesome."

But he said the decline in the mining and energy sectors is making it easier to find workers to replace the 30 per cent of Tembec's 3,250 workers who are expected to retire over the next five years.

Tembec also said it is pushing the Quebec government to give it the same break on electricity purchases from Hydro-Quebec that Resolute Forest Products (TSX:RFP) recently received.

Resolute has secured a five-year, 20 per cent cut in the lowest electricity rate for industrial users for some power purchases by two of its mills in Quebec to offset the impact of the infestation of spruce budworm in the North Shore region.

Tembec said it's only fair that it receives the same deal to help address pest issues that affect its forests on the opposite side of the province in Temiscaming.