This article reports that the Canadian forestry suffers a loss in the second quarter though prices for lumber and oriented strand board spike. The spike level was not seen since 2006, but only come crashing down by the end of the second quarter. One of the main reasons why the forestry suffers a lost is the fact that demands for building materials remains very low in the second quarter; a lot lower than industrial capacity. Another main factor is the strength of our Canadian dollar, which is 12 per cent higher than it was last year. The strengthened Canadian dollar counteracts revenues earned in U.S. currency.
Connection
The connection in this chapter is the practice of the three fundamental business activities: financing, investing and operating activities. These forestry companies have not successfully invested and operate their companies. When the Canadian dollar is high, instead of exporting lumbers to the U.S; they could have keep it to a minimum and encourage sales within the country. Or, they can keep the revenue in US currency and trade back to Canadian dollar when Canadian dollar weakens. While the lumber tax was eliminated due to the spike in price, these corporations could have finance and invest more in the production of lumber and encourage sales!
Reflection
As stated in the article, there was a brief elimination of lumber tax during the second quarter. The Canadian forestry should have used this chance to their advantage. They could have financed for a maximum production and sales of lumbers within and out of the country. Or they can import as much as lumber as they can to the USA or other places. Remember, with the elimination of tax, the price of lumber is lowered by 15%. Also, since the end of the second quarter is the beginning of school, the producers could have raised the price of line paper for higher revenue since there will be a high demand for paper! Why didn’t the forestry sector report positive earnings like the top four Eastern producers did??
I believe that many parts of this entry can be defined to be relatively true, but I must disagree with certain parts as I have a different opinion towards that piece of information. Firstly, although your summary was very precise on the information given, it would be better if you had given a summary of the entire article. This is shown when your reflection talked about the fact that there was an elimination of lumber tax, but it was not indicated within your summary. Secondly, I believe that the article suggested that the price of lumber has spiked, and I would agree with you as you have replied with a response indicating that the sector should have maximized production and sales of lumber into and out of the country. Although it is positive to maximize production, it might result in a negative effect and cause the sector to have not sufficient amounts of lumber when the tax is reissued.
ReplyDeleteFrom my perspective, the information given in your summary are mostly precise, but you did not mention the statistics about the revenue loss of Canada’s forest and paper products industry in different areas. Also, I disagree with you on the advice you gave in your connection. You suggested that the forestry companies should not export lumbers to the U.S. when the Canadian Dollar is high. In my opinion, restricting sales within Canada and reducing export of lumbers to the U.S. will drag down the total profit on a certain level. Since the demand for lumbers in Canada has been very saturated, Increase in lumber supply within Canada will results in a corresponding decrease in lumber prices. Moreover, I do not think the companies would make more profit by producing excessive lumbers when the lumber tax was eliminated due to the spike in price, because the high lumber price would not stimulate the demand for more lumbers. Increasing lumber production will finally lead to a tremendous loss. I think the article is connected to the three basic business activities mentioned in the textbook especially operating activities and investing activities. I think the companies should keep a close eye on the production of lumbers and control the production according to the market demand so that they can maximize their profit.
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