Talking Points

The Montreal Wood Convention commenced with a seminar focused on market trends and economic conditions, featuring insights from Benjamin Tal of CIBC Capital Markets. Tal discussed the current oil shock’s historical ties to recessions, emphasizing that government responses, particularly higher interest rates, often exacerbate economic downturns.

Tal noted that while the oil market is currently stable, the Canadian economy shows signs of weakness, which could influence the duration of the shock’s impact. He urged policymakers to avoid repeating past mistakes by not combating oil prices with increased interest rates.

The convention is hosted by several industry organizations, including the Québec Forest Industry Council.
Tal highlighted past recessions linked to oil shocks, including those in the 1970s and 2008.
Paul F. Jannke presented on global lumber markets, noting pent-up housing demand in the U.S. and challenges for Canadian producers.

This discussion is crucial for understanding how current economic pressures may affect Canada’s forestry sector and housing market in the coming months.

The Montreal Wood Convention kicked off its first day of panels with an industry seminar on markets and the economy.

The popular annual convention hosted by the Québec Forest Industry Council (QFIC), Québec Wood Export Bureau (QWEB), Ontario Forest Industries Association (OFIA), and the Maritime Lumber Bureau (MLB), kicked off the day with a presentation by Benjamin Tal of CIBC Capital Markets.

During Tal’s presentation he went into detail discussing the current oil shock the world is experiencing and their historical connections with recessions.

“Every time we’ve had an oil shock, five minutes after, we had a recession,” he told the crowd.

Tal pointed to the 1973-74 oil embargo and the recessions of the early 1980s and 1990s as examples of recessions following oil shocks.

“Even the 2008 mother of all recessions, the financial crisis, was led by an oil shock when oil prices went up to $120,” Tal said.

While there is a connection between oil shocks and recessions, he argues that it is the response to oil shocks by government institutions – namely, higher interest rates – that led to those recessions.

“High interest rates kill the economy,” he said.

Whether a recession will follow an oil shock can be measured by four factors: where the oil market was at the eve of the crisis; where the economy was at the eve of the crisis; the magnitude of the shock; and the duration of that shock.

“When it comes to where the oil market was, we are lucky. It was actually in equilibrium. So, not a big deal. It went up, but it didn’t go up from very low levels,” he said.

However, the second factor – the state of the Canadian economy – could be a negative contributor as it is not in the most healthy of states. Tal said that the Canadian and U.S. economies were already showing signs of weakness prior to the oil shock, so its duration will be the biggest factor. Even if everything were to go back to normal tomorrow, Tal said that it would take upwards of seven weeks for oil to flow normally; and up to three months for natural gas prices to go back to pre-shock levels.

“So, it’s still relatively long duration,” he said.

During his regular meetings with the Bank of Canada and the Federal Reserve, Tal urges them both not to repeat past mistakes.

“You cannot fight oil prices with higher interest rates,” he said.

While the current oil shock has been challenging for global economies, Tal believes it will be short lived, as that is in the best interests of both Iran and the U.S.

“Iran and the U.S. are desperate for some sort of resolution. Iran cannot last with a situation in which they don’t have any oil money. They need to compromise. Trump cannot afford $150-a-barrel oil,” he told the crowd, noting that the U.S. Midterms are soon approaching and higher gasoline prices, along with higher food and energy costs, will hurt the Republicans during the upcoming elections on Nov. 3, 2026.

Global lumber markets

The Montreal Wood Convention sessions continued with a presentation by Paul F. Jannke, a Principal of the Forest Economic Advisors LLC, looking at the global lumber markets.

Paul F. Jannke, a Principal of the Forest Economic Advisors LLC. Photo: Andrew Snook.

Jannke said that there is tremendous pent-up demand building for housing in the U.S., particularly with young adults in the 18 to 34 years of age category.

“If today, they had the same rate of separating out from other adults – from their parents, from their friends – as we had in 2000, we would have 2 million more households out there, and that would be the need for 2 million more housing units,” he told the crowd.

Due to affordability issues, adults are living together who, historically, would not have been doing so.

“As soon as it becomes affordable, as soon as a household income gets high enough, they’re going to go out and form a separate housing unit, and that’s propping up housing starts,” Jannke said.

The slowing of U.S. homebuilding has led to significant closures of mills across all regions of the U.S.

“In total, it was about 6 billion more feet. Interestingly, a lot of it occurred in the South, but in net, the South actually grew, and part of the reason why we had closures in the South was because there was so much capacity expansion and new mills going in, and then older mills were shut down, or redundant mills were shut down, and so that led to a bunch of closures,” Jannke explained.

The markets reacted with prices increasing for lumber to a point where there was some profitability to be had for U.S. producers.

“For the Canadian producers, shipping into the U.S. You’re still not making money, likely, if you’re an average producer, but if we then include the fact that 40 per cent of your wood is going elsewhere, you’re back to more of a break-even point,” Jannke says. “This is obviously a good place to be, because if you’re losing money, we would see continued closures. So, we need this equilibrium, this balance.”

Another cause for concern right now is rising freight costs due to the ongoing U.S.-Iran war. The uncertainty and rising costs associated with the current oil shock has made it extremely difficult for lumber buyers to predict future shipping costs.

“The flatbed trucking rates are going up. Shipping costs to get wood from Europe are going up. Though this isn’t really related directly to shipping into the North American markets, the fact that the Strait of Hormuz is closed down, containers are being locked up. You can’t get ships through. So, that’s decreasing the container supply, causing shipping prices to go up even further,” Jannke explains.

When it comes to U.S. duties and tariffs, Canadian lumber suppliers are facing a significant disadvantage when competing with European wood products for U.S. market share, since European producers face far lower tariffs.

“There’s a big competitive advantage there and provides some impetus for a reason to potentially get to a solution to the trade dispute between the U.S. and Canada,” Jannke said.

While there has been an aggressive call for Canadian producers to expand the markets for their wood products, expanding outside of North America will face stiff competition, despite lumber availability from Europe expected to decrease significantly in the long-term, Jannke noted.

He said Canada will face fierce competition from Russia, but also from the U.S. South due to excess supply of lumber and low production costs.

The U.S. South hasn’t historically been focused on export markets; however, the excess supply is pushing producers to focus more heavily on export markets.

He added that there are only three major lumber consuming regions for Canada to export its products: the U.S., China, and Europe. The U.S. is not expected to have much demand in 2026, with growth somewhere between 250- to 500-million board feet, based on 1.36 million housing starts.

“If the war is over quickly, interest rates drop, the forecast will be likely accurate for consumption. If the war extends beyond six weeks, we’ll see a decline in consumption,” he said.

In 2027, the U.S. housing market is only expected to experience moderate growth.

Demand for lumber in China is also only expected to increase modestly with high demand unlikely to come back due to a combination of factors including an oversupply of existing housing units, slowing down urbanization rates, a declining adult population, low levels of live births, and an over-reliance on exports.

“China is way too reliant on exports, 40 per cent of their economic activity is exported. You can’t do that as a developed economy. As a developed economy, you need to be consuming most of what you’re producing, because the rest of the world can’t take everything in. So, the bottom line in all this, if we look at China, there’s really not a lot of room, or much growth there at all,” Jannke said.

While there has been increased interest in growing the lumber market in India, it is currently a very small consumer of wood products.

“India consumes 3 million cubic metres of wood, it barely consumes any wood,” Jannke said. “Yes, it’s an exciting market. Yes, it’s a growing market. Yes, there’s increased demand there, but it is still a very, very small market.”

His conclusion was that Canadian producers need to maintain their market share in the U.S.; and noted that the lower cost regions in Canada can compete with U.S. domestic producers. Despite the higher costs for SPF, U.S. homebuilders largely continue to demand that lumber for their framing applications.

“It’s going to be a slow process with southern pine selling at a discount to SPF for builders to transition over,” Jannke said. “If they do, and to the extent that we do see that happen, it will likely be through things like using southern pine trusses, wall systems, floor systems, joists, that sort of thing.”