July 25, 2021

Forest Products

Vaccine Mandates? Assessing the potential impact on production

Our view: We expect that the net impact of vaccine mandates would be neutral to slightly positive for wood product producers given that the positive pricing impact (from the loss of supply) would likely outweigh the impact of lost production. However, we expect that the impact will skew less positive for producers that are more heavily weighted to the US South such as Weyerhaeuser, West Fraser, and Interfor. Companies exposed to more highly vaccinated regions and Canada such as Resolute and Canfor could see higher pricing without the negative of lost production.

Vaccine mandates: Timing & other considerations – Earlier this month, US president Joe Biden announced that the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) is developing a rule that will require all employers with 100 or more employees to ensure their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work. OSHA is expected to issue the rule in the coming weeks, with the mandate expected to come into effect 75 days after the executive order is signed. That timeline suggests sometime around the end of 2021. Companies found in violation of the vaccine mandate could face fines of ~$14k per violation. We believe that impacted companies are already ordering testing kits to comply with the order. Legal challenges could delay the implementation of a vaccine mandate.

Paul Quinn

We believe that a vaccine mandate could make it challenging to run full shifts in certain areas – With many facilities already facing labor shortages, we think that the addition of a vaccine mandate could make running day-to-day operations even more challenging. Recall that production facilities already skew South and rural, which generally places overall vaccination rates well below the total population. While weekly testing is an option, it does represent an added cost and could disincentivize employment at larger facilities that meet the vaccine mandate threshold (>100 employees).

Assessing the potential impact on lumber markets – In lumber markets, we found that sawmills in the US South are most likely to be impacted by a vaccine mandate, with production-weighted average vaccination rates in the 44% range. While there is no vaccine mandate in Canada, vaccination rates were highest in Eastern Canada and the BC Interior. We believe that higher regional vaccination rates are likely to result in less missed time and forced time-off for quarantine. By producer, we found that Weyerhaeuser, West Fraser, and Interfor operate sawmills in regions with the lowest vaccination rates. Resolute and Canfor operate in regions with higher average vaccination rates.

Assessing the potential impact on OSB markets – Similarly, we found that the South East and South West had lower vaccination rates than Eastern and Western Canada. As a result, Weyerhaeuser and West Fraser have relatively higher exposure to low vaccination rate regions; however, West Fraser High Level and Weyerhaeuser Hudson Bay mills would not be impacted by Biden’s vaccine mandates despite relatively low vaccination rates. LP operates in areas with modestly higher rates of vaccination.

Assessing the potential impact on siding markets – In siding markets, we found that while overall risk to production is low, certain facilities could face greater risk. At James Hardie, vaccination rates in the Prattville, Alabama region remain low and could impact the ramp-up of the new facility. At LP, vaccination rates remain low in the Newberry and Tomahawk areas.

Read-throughs for timberlands? – We found that Mississippi, Alabama, and Idaho had the lowest vaccination rates in wood product producing regions, followed closely by Georgia, Louisiana, and Arkansas. We believe that this could have a negative impact.