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Taking action now to avoid hitting the fibre wall

By Tony Kryzanowski

On the positive side, the Canadian forest industry is poised for a very strong period of long term growth. On the negative side, my long suspected concern is that a looming fibre storage is likely just around the corner—and may already be here. In the supply and demand equation, the future challenge definitely won’t be on the demand side. It will be supply.

There are several reasons for this observation.

First, American consumption of Canadian softwood lumber is once again reaching comfortable levels at a time when the value of the Canadian dollar has fallen below 90 cents American, making our exports more attractive. For example, the Alberta Forest Products Association (AFPA) recently reported that the local industry realized a 10 per cent jump in lumber sales in the second quarter of 2014 compared to the same quarter in 2013. Current softwood lumber prices are at healthy levels, and some are predicting prices of $500 per thousand board feet by 2016. I believe there is a very good chance it could go even higher if overseas demand continues to grow.

Second, China.

In November, China overtook the United States as the world’s largest economy according to the International Monetary Fund (IMF), measured on the basis of ‘purchasing power parity’. Related to that, in just one decade, ending in 2013, B.C. increased its wood shipments to China by a stunning 3500 percent. That number is not a typo, by the way.

So this industry recovery definitely has a different feel to it; it seems to have the solid foundation that the last run-up in lumber prices did not. The housing collapse in the U.S. proved it.

Today, the Canadian forest industry is much more diversified in its export markets and product mix. With the advent of such technological advances as high speed computer grading in sawmills, companies are doing a much better job of selling value as well as volume. With impending changes to the National Building Code of Canada that will permit the construction of all-wood, six-storey, mid-rise buildings—as well as greater investments in modular construction by builders—there will be greater demand for high value products like cross laminated timbers (CLT) and structural insulated panels (SIP) both domestically and in the U.S.

And the bio-economy—involving the greater use of residual wood fibre—has taken hold, as demonstrated by two, huge wood pellet plants being built by Rentech in Ontario, a plan to construct two 30-megawatt biomass energy plants in northern Alberta, and the Nova Scotia Power, 60 megawatt biomass power plant now operating in Port Tupper.

Canada hasn’t even scratched the surface regarding the production of green gasoline and diesel from wood fibre yet, which now appears as possibly the next big leap in technological advances.

Given this level of growing demand for what is a finite resource, the real pain ahead will not be downward like the housing collapse, but forward when we hit the fibre wall, and compounding the problem will be climate change. Looking at maps being generated by scientific experts on the likely impact on Canada’s commercial forest should global warming continue, there is only one word to describe the outcome: scary.

In my own province of Alberta, experts are producing maps showing that the boreal forest tree line will retract to somewhere north of Peace River, about 600 kilometres north of its current southern boundary. In other words, we will become the grasslands of Montana. As we share similar forests, I suspect that the same will be true of Saskatchewan and Manitoba.

The massive advance of the mountain pine beetle to areas much further north and east of where it has ever been before is just another example of the impact that global warming is having.

But there is hope, though the clock is ticking. If we don’t start to react and adapt to climate change now, we are in serious danger of experiencing an interval of significantly diminished commercial forest resources as we wait for better adapted seedlings to grow.

There are some who are seriously tracking growth and yield trajectories for seedlings and they have the evidence that climate change is having an impact in some areas on reforestation. They believe that the solution is transplanting native seedlings from areas and from certain elevations, as in the case of the mountain slopes, that are showing good adaptation to climate change. In fact, if handled correctly, it may be possible to reproduce extremely healthy forests well adapted to warmer temperatures, shorter winters and a drier environment.

In combination with greater knowledge transfer to industry of what seedling stock should be planted today for a healthy forest tomorrow, I believe we should also be encouraging more commercial tree farming on private land, perhaps enticing landowners with a well-managed carbon credit and trading program.

What concerns me is that while I hear a strong and growing voice from researchers on this issue, I hear very little coming from forest company boardrooms. That has to change—and sooner rather than later—or forest companies might find themselves short of commercial fibre a lot sooner than they think if demand continues to grow and there is no action taken to adapt to climate change.