ALBERTA firing on all cylinders

The 75th anniversary of the Alberta Forest Products Association AGM and conference, being held in September in Jasper, finds the industry firing on all cylinders—but there are some concerns.

By Tony Kryzanowski

The revival of the American housing market, a favorable exchange rate on the Canadian dollar, and continued high demand for pulp and paper in Asia have Alberta’s forest industry now firing on all cylinders.

And there is significant investment underway in the province in both conventional production facilities and industries that supply ‘greener’ wood-based products.

Paul Whittaker, President and CEO of the Alberta Forest Products Association (AFPA), says that there has been about $2 billion of capital investment by companies over the past five years, with the potential for another $2 billion over the next five years.

The American softwood lumber tariff notwithstanding, business has been good within all sectors of the province’s forest sector at a time when Albertans need better economic news, given the downturn that has hit the oil and gas sector. But an overall turnaround is in the offing, as the Conference Board of Canada reports that Alberta will lead Canadian GDP growth in 2017 at 3.3 percent, recovering from a fall in GDP by 3.8 percent between 2015 and 2016.

Alberta’s forest industry has played its part in that revival.

The latest figures from Alberta Economic Development and Trade show that in 2016, shipments of forest products reached a record $5.6 billion, and exports were $2.9 billion. This puts an exclamation point on a trend noted by the AFPA, which reported four consecutive years of growth from 2012 to 2015.

Now should there be a quick resolution to the softwood lumber dispute as Canada enters negotiations for a new and improved North American Free Trade Agreement (NAFTA), then there will be plenty of smiles at this year’s AFPA conference slated for Jasper in late September.

There is already cause for celebration, as the AFPA is celebrating the 75th anniversary of its annual general meeting and conference.

Whittaker says that although the industry has been on a positive trajectory, there has been some “nervousness” particularly among softwood lumber producers because of trade irritants and because the United States is the industry’s largest trade partner. While softwood producers were liable to pay the duties, the buoyant market for softwood lumber south of the border and exchange rate has helped to soften the financial blow of the tariff. Once instituted, the tariff had no immediate impact on production or jobs in Alberta.

Panelboard manufacturers, particularly those producing oriented strandboard (OSB), are currently doing very well because of the number of American housing starts.

High Prairie in northern Alberta has become a nexus for capital spending as Tolko has plans to re-open its idled oriented strandboard (OSB) plant west of town. It closed in 2008 when American housing starts fell to what the company calls a “generational low”.

“We’re very happy to get this mill back up and running—it’s good news for our people and for northern Alberta,” says Brad Thorlakson, President and CEO at Tolko. “We are confident that current improvements in market conditions are sustainable and that customer demand for Tolko oriented strandboard products will remain strong.”

The OSB mill will provide 175 direct jobs.

Also in that neck of the woods, West Fraser Timber is spending $55 million to modernize High Prairie Forest Products, which it acquired from Buchanan Forest Products in 2014. Construction is expected to be completed by spring of 2018, setting the sawmill in line to produce about 180 million board feet of dimensional lumber per year. At present, the sawmill employs 120 workers.

Pulp and paper producers in Alberta are also doing well economically.

“An awful lot of our pulp ends up in China and has for many years. Those markets have been strong in demand but fluctuating in price,” says Whittaker. “Paper is a challenging product market given the reduction in newsprint demand. That requires very nimble companies, and certainly Alberta Newsprint Company in Alberta has been able to do well in a very tough market.”

One area that the forest industry generally has been developing more is novel, greener wood products as part of an overall diversification strategy. There have been steps taken in this direction in Alberta, with B.C.-based Pinnacle Renewable Energy announcing its intention to build an $85 million wood pellet plant west of Edmonton near the community of Entwistle to take advantage of a significant waste stream of residuals that exists in the province. The plant will produce about 400,000 tonnes of wood pellets per year, with completion slated for fall, 2017. Once completed, this plant will be the eighth wood pellet plant for Pinnacle, with seven others located in British Columbia. Pinnacle joined the AFPA on July 1.

Also, West Fraser, Tolko, and others are working with chemical and panelboard adhesive manufacturer, Hexion, to develop new bio-based phenolic formaldehyde panelboard adhesive and press technology featuring lignin as the main ‘bio’ component, with research and development taking place in Edmonton. Lignin is a byproduct of the pulping process. This research holds considerable promise for the marketing of lignin, with West Fraser in good position to take the lead with its $30 million, high quality lignin recovery plant located at its Hinton pulp mill.

Hexion’s goal is to eventually achieve a bio-based panelboard resin with up to 50 per cent lignin content. The market for adhesive resin in Western Canada alone is about 130,000 tonnes per year. Hexion plans to have both a new lignin-based resin and press technology to apply the resin available by next year.

Finally, Capital Power, with its three-unit, coal-fired Genesee power plant 70 kilometres west of Edmonton, capable of producing 1200 megwatts of power, has announced its intention to begin co-firing woody biomass with its coal in 2018.

Whittaker says that the priorities for Alberta’s forestry companies right now are secure access to fibre, good communication and constructive relationships with all government levels, and trade.

Security of supply is dependent on a number of factors, says Whittaker, including challenges like a mountain pine beetle infestation, a series of bad forest fires in a Forest Management Area, and potential changes in legislative or regulatory government policy.

The province is unique in Canada as it is the front in the battle against the beetle infestation that has devastated B.C.’s Interior forest industry, and is moving east. The beetle has taken hold in areas like Grande Prairie and Hinton, with indications of beetle activity as far east as the transition zone between the lodgepole pine and jackpine forest.

“What happened in B.C. is an object lesson to us that you take it seriously and you carry on the fight,” says Whittaker, adding that it is a serious situation with one of the main challenges being that a prime corridor where the beetle is entering Alberta is through Jasper National Park. The AFPA continues to put the pressure on the federal government to ensure that they recognize just how serious a threat this is, and how important it is for them to support beetle control measures that are critical to maintain Alberta’s forestry sector.

Industry wants to maintain good communication and constructive relationships at the municipal level because its facilities provide considerable local employment in small communities throughout the province, with the provincial government because industry activity takes place on Crown land, and with the federal government because of their role in negotiating trade agreements.

“Trade challenges are hugely important to us and it’s not just the softwood lumber situation, it’s also NAFTA,” says Whittaker. Given the tone from the United States leading into NAFTA negotiations, he adds that the forest industry, with its desire to secure a new softwood lumber agreement and maintain trade channels, does not want to get caught in the middle of what might turn into a negative negotiating environment.