Softwood lumber duties aren't dampening the spirits of Canadian lumber producers as strong demand from rising U.S. housing starts and tight supply are expected to keep prices high throughout 2018.

The number of U.S. housing starts beat expectations by surpassing 1.33 million in January on a seasonally adjusted basis, with single family starts increasing 7.6 per cent. Housing permits approached 1.4 million.

Conifex Timber Inc. chairman and CEO Kenneth Shields said last week he also expects repair and remodelling markets will remain robust.

"With this favourable demand backdrop coupled with duties on Canadian lumber exports to the U.S., we expect lumber prices to remain strong in 2018," he said during a conference call about its 2017 results.

The Vancouver-based producer said its earnings per share more than doubled last year as it posted record revenues that rose 15 per cent.

Shields added that the growth in demand is going to outstrip the increase in supply of lumber for the next 18 to 36 months in the U.S.

The number of U.S. housing starts beat expectations by surpassing 1.33 million in January on a seasonally adjusted basis, with single family starts increasing 7.6 per cent. (CBC)

"Although prices could very well remain volatile, the trends will be pointing upwards, not down."

Prices have been creeping up annually and stood at $528 US per thousand board feet for Western SPF lumber shipped from Canada, up from an average of $278 in 2015 and $401 last year.

B.C. production to accelerate

At these prices, harvest reductions in British Columbia will likely be deferred while production will accelerate, Shields said.

Paul Quinn of RBC Capital Markets said the thinking among Canadian producers has changed over the past year. They originally expected to absorb half the duties with the other half being passed on to consumers.

What happened was that producers pushed all of the duty to consumers and more, he said in an interview.

"They're cautiously optimistic but if you ask them internally they're giddy inside."

Quinn said lumber prices, which reached a nominal high last year, will abate once a new softwood lumber agreement is negotiated in a year or so after the U.S. government is forced by an administrative review panel to drop the duty rate.

Other large western Canadian producers are equally positive about the year.

West Fraser Timber Co. Ltd. CEO Ted Seraphim said North American lumber demand should grow by two billion board feet per year, while U.S. production will only modestly increase by the 750 million to one billion board foot range annually.

Longer-term view 'really positive'

Volatility last year over uncertainty about duties made buyers reluctant to buy lumber, but Seraphim said he's encouraged by the improving supply-demand fundamentals.

"Our longer-term view is really positive," he said during a conference call.

Don Demens, CEO of Western Forest Products Inc., said record lumber prices largely offset the impact of U.S. duties as lumber revenues fell six per cent last year despite a 13 per cent decline in shipments.

The company has reversed plans to cut back on capital investments because of uncertainty in the softwood dispute.

"Our view is there's not very much uncertainty anymore. We know the duties we have and we know the process ahead of us," Demens told analysts last week.

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