Barbara Yaffe: B.C.’s forest industry restructures for expected recovery

July 14, 2015

By: Vancouver Sun

A trend whereby B.C. forestry companies have been snapping up sawmills south of the border while shuttering plants here is likely to continue.

That prediction, from a new Conference Board report, is part of a good news/bad news story about a sector contributing $12 billion annually to the province’s economy, along with 146,000 jobs.

The report more precisely is about the forestry industry across Canada. But it devotes much of its commentary to B.C. since this province accounts for, by far, the biggest share of the country’s softwood lumber production.

Indeed, forestry is an iconic industry in B.C., boasting a bounty of sky-high timbers that stand out as a symbol in much the same way the Pacific salmon does.

Which is why it has raised eyebrows that in B.C., the three largest forestry companies — West Fraser Timber, Interfor and Canfor — for some years now have been acquiring sawmills, 39 of them, south of the border, notably in the Pacific Northwest and Southeast.

Such acquisitions have been undertaken as a hedge against a roller-coaster conditions impacting the industry on Canada’s west coast. West Fraser Timber now owns more American than Canadian sawmills.

Conference Board economist Robert Meyer-Robinson writes: “The incentive for Canadian lumber companies to acquire production in the U.S. is mounting.”

That is because demand for wood products is expected to come largely from the U.S., given that country’s housing market recovery. By locating more sawmills stateside, the companies are able to reduce transportation costs.

And while they continue to face a reduced supply of good B.C. timber, along with a corresponding decline in the provincially mandated allowable cut — thanks to a mountain pine beetle that has chomped its way through nearly 60 per cent of B.C.’s lodgepole pine — U.S. log supplies remain plentiful.

The production shift to the U.S., notes Meyer-Robinson, “has come at the expense of B.C. mills that have been either shut down or been sold.”

The Council of Forest Industries in B.C. sees the move to the U.S. differently. Not as a flight of capital from B.C. but “more a picture of growth and diversification in general for those companies,” asserts council communications director Cam McAlpine, calling the shift “a good sign”.

McAlpine admits things are not “all roses in B.C.,” largely because of the beetle infestation. “To be frank, while we think we’re near the end of it, we probably haven’t seen the last mill closure.”

Some 13 B.C. sawmills have been closed since 2010.

He complimented B.C.’s government for refining its policies and adjusting cost structures to benefit the industry during this tough time.

An additional incentive for the companies to relocate their operations relates to uncertainty tied to the Oct. 12 expiry of the 2006 Softwood Lumber Agreement. Observers are predicting little chance of having a new agreement in place by fall.

Yet another question mark for B.C.’s lumber industry is softer growth in demand for exports from China. where economic signs of late have not been good.

A weakening Canadian housing market also could affect demand, with housing starts across the country down by 10 per cent this year.

“There is considerable evidence in Canada that the housing market has cooled,” writes Meyer-Robinson.

“An expanding inventory of condos has kept the number of newly completed and unabsorbed homes high.” Although that may be more the case in Toronto than Vancouver.

On the up-side, Canadian lumber companies are poised to benefit from the resurgent American housing market, especially with a weaker Canadian dollar making exports more competitive.

The report’s author expects industry revenues across Canada to grow 7.3 per cent in both 2015 and 2016, and 3.4 per cent annually in the ensuing three years.

The forestry sector has been declining in importance in relation to B.C.’s overall economy. The sector, which generated five per cent of GDP back in 1997, now accounts for just 3.5 per cent of GDP.

 

By: Vancouver Sun

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