TORONTO (Reuters) - Shares of Canadian lumber producers slumped on Monday after BMO Capital Markets downgraded much of the sector on concerns that punitive U.S. duties, a stronger Canadian dollar and ongoing litigation would hurt the sector.
BMO said a resolution over the lumber dispute was unlikely any time soon. The long-running dispute intensified when the United States imposed anti-dumping and anti-subsidy duties averaging 20 percent on Canadian softwood lumber exports in June.
BMO’s downgrade comes ahead of the start of talks on Wednesday to renegotiate the North American Free Trade Agreement. Canada’s foreign minister, who said lumber discussions would continue in parallel with NAFTA negotiations, laid down a tough line on overall trade talks on Monday.
West Fraser Timber Co Ltd’s shares were down 4.7 percent at C$62.39, on track for their biggest one-day percentage drop since November. Interfor Corp tumbled 6.7 percent to C$17.98, its steepest decline since February 2016. Canfor Corp fell 2.4 percent to C$20.70.
BMO downgraded all three to “market perform” from “outperform.”
BMO analysts Mark Wilde and Ketan Mamtora said in a research note that they had spoken to people who reported there had been “little substantive negotiation between Canadian and U.S. interests and little real movement in positions.”
U.S. officials and businesses appeared to disagree on their stance for the talks, while Canadian lumber producers also have differing views, according to the note.
Continued punitive U.S. tariffs and a stronger Canadian dollar will add pressure to earnings estimates for lumber producers, the analysts said.
Prospects for the stocks over the next three to five years look more positive, they added.
Reporting by Solarina Ho; Editing by Lisa Von Ahn