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June 2005  - The Logging and Sawmilling Journal

SPOTLIGHT

Uncertainty in New Brunswick forests

The shutdown of two kraft mills in New Brunswick has created a lot of uncertainty for woodlot operators and logging contractors, although the re-opening of one mill—and reduced harvest levels in neighbouring Quebec—may help reduce the blow.

 By George Fullerton

 

The shuttered Ste Anne Nackawic mill: a deal to re-start the mill by
October would help reduce the impact the closure has had on local
woodlots and logging contractors.

The announcement of the bankruptcy of the Ste Anne Nackawic hardwood kraft mill this past fall rocked the New Brunswick forest industry. The mill was in a mechanical shutdown and had been negotiating loan guarantees for the mill upgrades with the provincial government when its parent company, Parsons & Whitmore of New York , suddenly announced that they had filed for bankruptcy protection.

The closure threw 400 mill workers out of work, as well as hundreds more employed as forestry and service contractors. The bankruptcy also left mechanical contractors working on the mill shutdown, service and wood suppliers with outstanding (unsecured) accounts exceeding $69 million.

The Ste Anne Nackawic mill was built in the early 1970s. It consumed around one million tonnes of round wood annually, with the wood supply about one-third from Nackawic freehold, one-third from Crown licences and the remaining one-third from private woodlots. As the shock of the shutdown settled in on the local community and woodlands operations across western New Brunswick , the provincial government invested $1million to winterize the facility, and began a search for a new operator for the mill.

As the bankruptcy procedures continued, secured and unsecured creditors lined up to determine how the spoils of the $53 million in assets would be divided. It played out that the secured creditors included only the province of New Brunswick and Ste Anne Industries, another subsidiary of Parsons & Whitmore.

Not far into the bankruptcy proceedings, both unionized and staff employees learned that their pension fund with Ste Anne Nackawic had been leveraged by the mill owners, and that their pensions were in jeopardy. As details of the pension fiasco became public, it was determined that employees over the age of 55 would be eligible for reduced pensions, and those under 55 years of age (without regard to years of employment) would have no pension at all.

While the forest industry was dealing with the Nackawic shut down, UPM Kymmene Miramichi in eastern New Brunswick announced that it was closing its softwood kraft mill as of January 31, 2005 . UPM cited aged technology and low capacity of the 50-year-old mill as major factors leading to the decision to shut it down. The UPM mill was one of the province’s largest markets for low-grade softwood pulpwood and softwood sawmill pulp chips.

When the Nackawic bankruptcy was announced, the Carleton-Victoria and the York-Sunbury-Charlotte Forest Marketing Boards were owed nearly $250,000 for hardwood pulpwood that had been delivered to the Ste Anne wood yard.

Both boards and other suppliers attempted to use Forest Products Marketing Act legislation to get access to the unpaid-for wood, but the court actions were inconclusive.

Tom Fox, manager of Carleton-Victoria Wood Producers Association, says the Nackawic shut down had “tipped supply demand big time.

Suddenly, we were competing with Crown and industrial freehold wood at an entirely unprecedented level when that wood went looking for markets in our traditional markets in Maine.”

In the past, the C-V and YSC Boards each supplied around 100,000 tonnes of hardwood pulpwood annually to Ste Anne Nackawic, which was worth about $10 million to producers and woodlot owners.

Fox says that being left as unsecured creditors is not a new situation for the association. A number of bankruptcies in the past decade has created a list of mill collapses that have left them as unsecured creditors. Fox says that his organization is seriously studying options for receivables insurance to address the increasingly common situation.

In addition to loss of delivered wood and a once reliable hardwood market, Ste Anne Nackawic was also a major supporter of the C-V forest management program. “With the shut down of Nackawic, we are seeing a $200,000 program reduced overnight to $75,000. Essentially, $1 per tonne was checked off the producers’ pay and put into a forest management account which owners could apply to for management activities that range from training and management plans to a number of partial cut silvicultural treatments. The loss of that support will have a major impact on the sustainable wood supply picture,” says Fox.

Fox expects that hardwood markets will settle down somewhat, when roads reopen after spring weight restrictions, but there is still a lot of uncertainty. “Our producers moved out of hardwood as much as possible, but since our base is 62 per cent hardwood, that approach cannot be extended indefinitely.”

Rick Binney is a Charlotte County-based stump-to-roadside contractor (50 per cent on private woodlots and 50 per cent on Ste Anne Nackawic operations) with a new Daewoo 220/Logset harvester and Rottne forwarder. Binney says that the announcement of the Nackawic closure came by way of a “surprise” telephone call at 9:30 in the morning.

“We happened to be on private land at the time, but we had a number of Nackawic jobs we were headed for. We simply started digging harder for private wood and have managed to keep operating, although the glut of wood into the other hardwood markets meant that we were challenged with lower prices and had to carry the cost of harvested wood while we waited for mills to give us the go ahead to deliver.”

Producer associations have been working hard to secure alternative
markets for the wood that traditionally went to the two mills, including
looking at markets in Quebec, which recently announced it would be
reducing harvest levels.

Binney says that although he was able to keep working, the insecurity caused by the Nackawic shutdown caused two experienced operators to consider their future in the forest industry—they left for alternative employment. Binney says that the upheaval caused by the shutdowns has caused some contractors to lose machines. He says that more established contractors who had machines paid down weathered the storm better than the ones who more recently got into contracting.

David Palmer, manager of the York-Sunbury-Charlotte Forest Products Marketing Board, says that although the Nackawic closure was a very unpleasant surprise and cost the organization dearly as an unsecured creditor, the announcement in April that a joint venture of Quebec-based Tembec and the Aditya Birla Group of India plan to operate the Nackawic mill provided some optimism for the future.

Tembec/Aditya announced a plan to make major investments in the Nackawic mill. The mill upgrades and personnel training would allow the facility to continue to produce up to 300,000 tonnes of hardwood kraft pulp and an expansion would provide for production up to 200,000 tonnes of specialty dissolving pulp. The Tembec–Aditya partnership expects to see legal issues cleared up and to take over the Nackawic plant in May and plans to have the mill operating by October. Tembec–Aditya have operated a dissolving pulp mill at Atholville , New Brunswick , for several years.

The UPM kraft mill closure coincided with labour negotiations and subsequent strike action that also shutdown UPM’s fine paper mill and groundwood mill at Miramichi. The kraft mill historically consumed 1.3 million cubic metres of low-grade softwood annually, of which 200,000 cubic metres was procured from Crown Licence 3, with the remainder obtained from UPM and other industrial freehold operations, and private woodlots (270,000 cubic metres). The Northumberland County Wood Producers represented the largest single group of private woodlot suppliers, who annually deliver around 70,000 cubic metres ($3.5 million) of pulpwood.

Ruby Dunn, manager of the Northumberland Wood Producers Association says that her organization was working hard to secure alternative markets for the wood that traditionally went to the kraft mill. She explained that because the spec on the kraft mill wood targeted low quality wood, there is little opportunity to direct any significant volume to higher-grade groundwood pulpwood or studwood markets. She indicated that the organization was looking into prospective markets in Quebec .

Dunn says that they were advising wood producers to avoid harvesting low-grade pulpwood if at all possible. She says that re-establishing a market for low-grade softwood was imperative so that silvicultural activities—which generate low-quality wood and develop high-quality saw material stands—can continue. The loss of the kraft market throws into jeopardy a $170,000 annual silvicultural funding program that has been in place with UPM.

Despite the cutbacks to private woodlot production, Dunn says that it is business as usual on Crown land operations. She says that Crown wood, which in general has a lower cost of production than private woodlot wood, is also looking for alternative markets along with sawmill chips, which compromises private wood’s negotiating position with potential markets within, and out of the province.

Jean Goguen, general manager of Goguen Lumber in Cocagne, New Brunswick, says that they were notified that UPM would cancel the delivery contract for their sawmill chips and hog fuel in December. “We went looking for another market and eventually we made a deal with J D Irving which is the only other market for softwood chips in the southern part of the province. The UPM mill shutdown created an oversupply of chips, which resulted in a price drop,” explains Goguen. He adds that Irving was not anxious to sign them as a chip supplier and that the contract price is significantly lower than what they had with UPM. He points out that a couple of mills that had supplied UPM are now shipping chips to Port Hawkesbury, Nova Scotia , and to Ste Anne de Beaupre Quebec .

Goguen says that Quebec ’s announcement to reduce harvest levels on Crown lands by 20 per cent may open and sustain some more markets for New Brunswick softwood pulp chips as well as round wood pulpwood.

 


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