Canfor Still On Top
While BC production was effectively unchanged at 17. billion board feet (interior production was up 183 million board feet or +1.2 per cent, but coastal production was down by 168 million board feet, or -6.7 per cent) Eastern Canadian production was down by 16 per cent (-1.3 billion board feet to 6.9 billion board feet) as millsparticularly within Quebecstruggled to find sufficient affordable log supply, while adjusting to lower lumber prices and the implementation of quota limits under the new Canada US Softwood Lumber Agreement. The 10 largest Canadian companies increased their production per sawmill over 2005 levels by an average of 2.7 per cent, to 172 million board feet per mill, and expanded their share of Canadian production to 60 per cent, up from 58 per cent in 2005.
In Eastern Canada, several companies have been forced by economic and market pressures to take temporary to indefinite mills closures. In Quebec alone as many as 25 to 30 mills have been affected. The reasons most often identified are fibre supply constraints, rising energy costs, low lumber prices and the export tax as per the Softwood Lumber Agreement. In Western Canada, mills have also had to take periodic downtime but the shutdowns have not been as extended or widespread. BC interior mills generally benefited from being large scale (several were producing at over 250 million board feet per mill with a select few producing in excess of 500 million board feet) plus having access to additional timber because of the mountain pine beetle epidemic.
The story was different for the BC coast where persistent log shortages, increased global competition, and the 15 per cent export duty on lumber shipments to the US made 2006 a very challenging year.
On the Prairies, production in 2006 declined by 216 million board feet to 3.5 billion board feet (-5.8 per cent) resulting from mill closures in Manitoba and Saskatchewan, whereas Alberta production of 3.1 billion board feet contracted less than one per cent. Now that the mountain pine beetle has crossed over into Alberta, producers there are actively accelerating the harvest of beetleattacked timber which should result in at least holding or even raising Alberta’s 2007 lumber production, despite depressed lumber prices
Despite the dynamics of the industry and the acquisitions that took place in 2006, Canfor remained Canada’s largest producer for the seventh straight year. Canfor’s output was . 6 billion board feet ( .62 billion board feet in 2005) still ahead of second-place West Fraser Timber’s 3.80 billion board feet (3.82 billion board feet in 2005). However, with the inclusion of West Fraser’s purchase of 13 US south sawmills from International Paper, due to be finalized in the third quarter of 2007, West Fraser’s effective 2006 total North American production would be 6.0 billion board feet, putting it well ahead of Canfor’s .80 billion board feet and just behind the North American leader Weyerhaeuser at 6.36 billion board feet.
The third largest Canadian producer was Tolko at 2. billion board feet (2.31 billion board feet in 2005) followed by Abitibi Consolidated with 1.9 billion board feet (2.1 billion board feet in 2005). Following the Abitibi/Bowater merger slated to be finalized in the third quarter of 2007, the combined 2006 North American production of 3.0 billion board feet would rank it fourth in North America, behind Canfor and ahead of Tolko.
Rising to fifth position within Canada was Tembec at 1.73 billion board feet (up from 1.55 billion board feet in 2005).
Falling to 5th from the 6th position was Weyerhaeuser which saw its Canadian production slip to 1.55 billion board feet (1.68 billion board feet in 2005) resulting from the shutdown of its Carrot River, Saskatchewan sawmill and market-related curtailments at its other eight mills.
For 2006, the main focus of Canadian producers has been to upgrade the scale and improve the recovery of their most viable mills and close the smaller or less efficient mills. In 2007 and beyond, the focus will be putting added emphasis on merging and/or acquiring assets to consolidate sufficient timber supply to feed the remaining larger mills.
All in all, because of the significant amount of mergers and acquisitions that took place in 2006 or announced for 2007, the Canadian rankings for 2007 will change dramatically. Based on 2006 production data and considering all mergers and acquisitions activity known at this time, out of the top 10 North American producers, Canadian firms account for six of the ten top positions and have four positions in the top five.
Having collected their CVD and AD refunds from the US government, more Canadian acquisitions in the US is a distinct possibility. Russell Taylor is president of International WOOD MARKETS Group Inc, Vancouver, BC Publishers of WOOD MARKETS Monthly newsletter. Ph: 04-801-599 ; e-mail: info@ woodmarkets.com; www.woodmarkets.com