Record high lumber, panel prices drive Alberta stumpage fees to new heights

Record high lumber, panel prices drive Alberta stumpage fees to new heights

CALGARY — Record high prices for lumber and construction panelling are creating a resource revenue boost for the coffers of the Alberta government, partly making up for huge declines in oil and gas returns.

Coniferous stumpage fees — paid by forest companies for evergreen wood such as pine or spruce harvested from Crown land — have nearly doubled to $67.31 in September, from $36.56 per cubic metre in August.

That’s more than eight times the $8.27 per cubic metre assessed in September 2019 and far exceeds the recent high of $40.25 reached in June 2018 during the last big North American lumber price spike.

“Right now, industry is definitely thriving and it’s good news for the 40,000 people whose jobs depend on forestry,” said Brock Mulligan, spokesman for the Alberta Forest Products Association.

The industry generally supports the Alberta stumpage system as fair, he said, adding that the main constraint on production growth in the province is availability of wood fibre.

“We think the system is a pretty accurate reflection of the market and it provides an appropriate return to both sides, one party being the people of Alberta who own the resource and the other being the forest companies who manage the resource, harvest it and manufacture the product,” said Mulligan.

The increase in stumpage fees is linked to high lumber prices caused by lower inventories and production cuts amid economic uncertainty during the COVID-19 pandemic, said Justin Laurence, press secretary to Alberta Agriculture and Forestry Minister Devin Dreeshen.

“It is also expected that prices will reduce to more historical levels when supply and demand begin to even out in fiscal Q4 (early 2021), resulting in Crown revenue also coming back down to historical levels,” he added.

In a report this week, CIBC analyst Hamir Patel pointed out that Alberta’s market-based stumpage system is the “most reactive” to near-term lumber prices because it is adjusted monthly based on North American prices.

The increase in fees undermines U.S. claims of government subsidization of the industry in Canada, he said. The Americans continue to collect softwood lumber import tariffs despite a recent World Trade Organization ruling against them.

“The Alberta system has attracted increased scrutiny from the U.S. Department of Commerce during the current trade dispute … for allegedly keeping stumpage rates too low,” said Patel.

“That argument certainly has no merit in today’s strong wood products market with surging log costs as wood products prices reach extreme highs in the current environment.”

Alberta stumpage fees are now about $46 per cubic metre higher than those set in June in B.C., he said.

B.C. resets its stumpage fees annually, with occasional adjustments.

The increase in coniferous wood stumpage fees will penalize Alberta’s softwood pulp mills which aren’t seeing the same increases in pulp prices, the report says, while the province’s hardwood pulp mills are unaffected.

Timber royalties and fees generated about $99 million for the Alberta treasury in fiscal 2019-20, a decrease of 21 per cent compared with the previous year’s $126 million as prices for lumber and panelling fell in early 2020.

By comparison, non-renewable resource revenue from oil, natural gas and coal totalled $5.9 billion in the 2019-20 fiscal year in Alberta.

In its recent fiscal update, the province cut its 2020-21 non-renewable revenue forecast by $3.9 billion to just $1.2 billion because of low oil prices linked to affects of the pandemic.

This report by The Canadian Press was first published Sept. 4, 2020.

Dan Healing, The Canadian Press

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