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February 2007 - The Logging and Sawmilling Journal

GUEST COLUMN

Reduced industry upheaval ahead —
at least for the short term

By Keta Kosman

There was no shortage of developments in the Canadian forest industry in the past year, political and otherwise. The New Year got off with a bang when Abitibi-Consolidated and Bowater announced a surprise merger. Raging housing starts in the US finally ground to a halt—or arguably fell off a cliff—in 2006, there was a “settlement” in the softwood lumber dispute, and the end of the mountain pine beetle’s destructive march through the Interior of BC could be seen (with years of harvesting ahead),

What did this mean for prices? By the end of the year, lumber prices had fallen by $95 per Mfbm (benchmark WSPF 2x4 #2&btr) and OSB by $170 per thousand square feet (benchmark OSB 7/16” Ontario) from the same time last year.
(Sources: www.madisonsreport.com, www.randomlengths.com)

Some regions felt the effect of tumbling prices faster than others. Over 10,000 forestry workers have been permanently laid off and 122 plants closed in Quebec since 2003. Some 5,000 jobs have been lost in the Ontario forest industry since 2002. BC will see steady production and plentiful employment into the next decade; then a major crash is likely to occur once the beetle-killed wood has been processed. Mills all over the province are expected to close—Terrace is a good example of what might remain of the nearby town.

As always, weather is one of the most powerful factors impacting lumber prices. This past year was a time of relative calm, with no major storms or fires to take logs off the production line.

BC, however, saw some major windstorms, for the first time on record. Evidence of the damage can be seen in Vancouver’s Stanley Park, not far from the downtown office towers that house some of the country’s largest lumber producers. Old growth cedar trees snapped and blew down like so many matchsticks. Imagine that damage multiplied across the province, but instead of decadent cedar it is standing-dead lodgepole pine. There are many places in the Interior where the level of beetle-kill has not yet been measured; now those trees will likely just rot where they have fallen, providing a rich biomass for the next generation of trees.

Probably the single most important event of the entire year for the forest industry was the return of monies collected during the US tariff on Canadian lumber exports. While it’s true that Canada was on the verge of having the most integral elements of the dispute resolved in its favour, that was no assurance of an end to disagreements! The resolution was swift and brutal, and certainly not fair to everyone (BC remanufacturers are now subject to the tax but weren’t to the tariff)—not to mention being cooked up and expedited on some rather shady circumstances, according to reliable sources. But it did bring an end to a situation that was, in effect, only making the lawyers rich. There is no question that a not insignificant number of Canadian producers would not have survived through next year without that cash, in addition to the bigger guys, who wouldn’t be able to sustain their capital investments.

The major, and unfortunate, problem about the terms of this agreement is that lumber prices promise to stay low, at least through 2007. The end result: low prices mean the full 15 per cent levy on Canadian lumber shipped south to the US.

Before the Softwood Lumber Agreement, all Canadian producers, through mutual and individual actions, had their tariff amounts reduced to below 10 per cent (many a good deal lower, West Fraser was paying 0.7 per cent) so this Canadian tax is a significant increase.

The most surprising news of this year, to my mind, is the steady rise in softwood (NBSK) pulp prices; up $130 from the same time last year to US $730 per metric tonne in Europe. (Source: www.foex.fi)

North American lumber companies with significant pulp operations have suffered for the past five years, at least; low prices, high cost of fibre, employment costs, fuel costs and competition from countries south of the equator have all taken their toll. Closures abounded, some plants managed to be sold and at least one (BC’s Port Alberni) has switched from making pulp to synthetic fabrics.

The question for the coming year is what will happen to lumber prices? My answer is that there is nothing in the foreseeable future to push them up. There was a cycle of high prices, some would say lengthened by the artificially inflated US housing market, so it’s only natural there will be lower prices for a similar period of time (a year and a half).

This brings potential problems to Canadian mills in particular, which found the best “work-around” to the softwood lumber dispute was increased productivity. It is essential for them to continue producing wood just to maintain their operations. But they will now have to either find a place for it in Canada or send it overseas because the US is not going to want as much of it for a while.

Keta Kosman is the editor of the soon to be released 2007 edition of Madison’s Canadian Lumber Directory & Buyer’s Guide, the most thoroughly researched and extensively cross referenced directory available on the Canadian forest industry.

Madison’s Canadian Lumber Directory & Buyer’s Guide offers complete listings on Canadian lumber and panel producers plus wholesalers and exporters, including up-to-date listings of sales managers and key contacts in the industry.

The 2007 edition of Madison’s—available in print or on CD—can be ordered at www.forestnet.com/Madisons/directory. Order early to take advantage of our pre publication sale!

This page last modified on Saturday, July 21, 2007