Today's News

December 29, 2005: Year of contrasts draws to a close for forest industry

B.C.

Year of contrasts draws to a close for forest industry

 

Derrick Penner

Vancouver Sun

 

Thursday, December 29, 2005

 

The boom in British Columbia's lumber trade with the United States kept rolling along during 2005, at least in terms of volume if not in dollars, with challenges ranging from the rise of the Canadian currency, escalating energy costs and continued softwood lumber duties putting the squeeze on industry profitability.

The industry newsletter Wood Markets, in its December-January issue, reported that Canada is expected to set a record for lumber exports to the U.S. at 21 million board feet, some two-per-cent higher than 2004 figures.

B.C. forest industry profits, however, shrank in 2005 compared with record profits in 2004. PricewaterhouseCoopers reported that in the third quarter of 2005, B.C.-based company profits were down 76 per cent at $107 million compared with $451 million in the same quarter a year ago.

And while prospects for Interior-based lumber producers appeared good, with lumber-producing powerhouses Canfor Corp. and West Fraser Timber Co. Ltd. showing third-quarter profits of $17 million and $18 million respectively, coastal companies struggled as Western Forest Products Ltd. showed a loss of $13 million and Interfor a scant $5-million profit.

"Markets, in terms of lumber pricing, certainly came down from '04," Canfor CEO Jim Shepherd said in an interview.

"A big part of our bottom line came from [Canadian] currency appreciation. If you look at the dollar this year over last, it has had a huge impact on a company like Canfor, which produces in Canadian-dollar terms and sells in U.S.-dollar terms."

Shepherd added that softwood lumber duties remained another major challenge for the industry.

In 2005, Canadian lumber companies have paid some $5 billion in duties, all of which is being held by U.S. Customs officials pending the outcome of the continuing Canada-U.S. softwood lumber dispute.

"We're still profitable," Shepherd said, adding that he is taking steps within the company to make sure Canfor stays that way.

For Canfor, 2005 was a year to absorb Slocan Forest Products, which it acquired in 2004.

Shepherd said the company sold three sawmills and closed three others.

He added that Canfor spent $300 million on upgrading its remaining plants so they can more flexibly switch between producing framing lumber for North American buyers and structural pieces for Asian housing markets, and more effectively deal with trees killed by B.C.'s ongoing mountain pine beetle infestation.

In 2005, the province announced that the devastating beetle infestation had spread to 10 million hectares of B.C. forests, an area three times the size of Vancouver Island, and appeared to be spreading into Alberta.

B.C.'s chief forester has ramped up the harvest of trees in infested regions in order to use damaged trees before they are destroyed, which gives lumber producers short-term gains, but has longer-term consequences.

Ainsworth Lumber Co. Ltd., a B.C.-based maker of oriented strand board panels, which are used as a replacement for plywood in construction, announced its intent to spend $400 million on new OSB plants to specifically use beetle-killed timber.

However West Fraser Timber Co. Ltd. noted that beetle-driven harvests are "higher than sustainable levels."

"That's going to have to rebalance itself sometime in the future, I just don't know when and how big an impact that is going to have."

Ketcham said his company's goals for 2006 will include continuing to push for a negotiated settlement to the Canada-U.S. softwood lumber dispute, reducing company dependency on fossil fuels and continuing to find ways of cutting costs -- in the firm's pulp mills as well as sawmills -- "to be low-cost and compete effectively."

Shepherd noted that B.C. pulp producers, such as Canfor and West Fraser, did see some price increases during 2005, but those were more than offset by the increasing value of the Canadian dollar versus U.S. currency.

Ketcham added that B.C. needs to have a healthy pulp industry to use wood chips and waste wood from sawmilling.

"We need to explain the economics of the Interior forest industry to government and the rest of people in general," he said.

"It's our job to make sure that people understand that to have vibrant, thriving communities in the Interior, we need a vibrant and thriving forest industry. We have a lot of issues coming at us, and it's important everybody understands what those issues are."

On B.C.'s coast, 2005 was the year for coastal lumber producers to be overtaken by merger mania.

Activity started in February, with Ontario investment firm Brascan's much-anticipated $1.4-billion acquisition of Weyerhaeuser's coastal sawmills and private forest lands.

Brascan, which has since renamed itself Brookfield Asset Management, immediately split its new holdings into two different companies, Cascadia Forest Products and Island Timberlands.

In November, Western Forest Products, formed out of the bankruptcy of the old Doman Industries with Brookfield as a major shareholder, announced it would purchase Cascadia in a transaction worth $265 million.

The purchase and merger helped set the stage for continued long-term restructuring of the Coastal industry, though 2005 was marked with the early pains of that in bleak news of mill closures and production curtailments.

"The kind of change we're making here is the kind of change that will help set the industry up for the longer term," said Western Forest Products CEO Reynold Hert.

However, among the challenges, including softwood lumber tariffs that cut deeply into returns on more highly valued products and high costs, Hert listed safety as the company's No. 1 challenge.

B.C.'s forest industry dealt with a staggering 43 deaths in accidents during 2005, a number that shocked everyone in the business and has been attributed to restructuring of the forest industry.

Hert said companies need to create a corporate culture that "promotes safe performance, and an understanding that that kind of culture leads you to overall better business results."

depenner@png.canwest.com

COASTAL RESTRUCTURING:

Mill closures announced in 2005

323 employees

Western Forest Products Wood-fibre pulp mill

170 employees

Cascadia Forest Products Island Phoenix sawmill

151 employees

Western Forest Products Silvertree sawmill

41 employees

Interfor Fraser remanufacturing mill

MILLS PUT UP FOR SALE

250 employees

TimberWest Elk Falls sawmill

109 employees

Interfor Field sawmill

111 employees

Interfor MacKenzie Seiza sawmill

71 employees

Interfor Saltair planer

Source: Vancouver Sun

INDUSTRY PROFITS (LOSSES) FOR THIRD QUARTER OF 2005:

$107 million, down 76% from Q3 2004

In million of dollars

Ainsworth Lumber

$71 = Q3 2004

$47 = Q3 2005

Catalyst Paper

$28 = Q3 2004

$34 = Q3 2005

West Fraser Timber

$78 = Q3 2004

$18 = Q3 2005

Canfor Corp.

$200 = Q3 2004

$17 = Q3 2005

Interfor

($3) = Q3 2004

$5 = Q3 2005

TimberWest

$33 = Q3 2004

$4 = Q3 2005

Pope & Talbot

$10 = Q3 2004

($11) = Q3 2005

Western Forest Products Ltd.

$14 = Q3 2004

($13) = Q3 2005

Source: PricewaterhouseCoopers, Vancouver Sun

Ran with fact boxes "Industry Profits (Losses) for Third Quarter of 2005" and "Coastal Restructuring", which have been appended to the end of the story.

 

http://www.canada.com/vancouversun/news/business/story.html?id=8efa1bf1-2f29-423a-876e-f3e27fea93ed

Topic(s): Forestry News, Industry News Releases

Posted By EcoBC

RSS
 
More Today's News Articles



Website By: Pencilneck Software Corp. Design by: Brad Hornick Communications