Chip shortage looms as sawmills cut production

April 21, 2020

By: The Working Forest Staff

Supply cuts that were supposed to bolster the beleaguered lumber market are now effecting the wood chip supply required to make sought-after toilet paper and wipes during the coronavirus pandemic.

About 25 percent of Canadian sawmill capacity is shut after producers from West Fraser Timber and Canfor idled operations amid a price slump and poor outlook for spring building as the coronavirus spread.

“The slowdown has reduced the output of wood chips that pulp mills rely on to make everything from toilet paper and wipes to cardboard boxes and paper bags,” said Derek Nighbor, president and chief executive officer of the Ottawa-based Forest Products Association of Canada.

Without federal aid to get some sawmill capacity back online, input costs could rise or there could be a shortage of the materials pulp mills need for household products, he said. Panic buying has already caused shortages of toilet paper and other hygiene products in supermarkets around the world.

“The demand from pulp mills has gone up at a time when we’re starting to see the chip supply become scarce from the sawmills,” Nighbor said in a telephone interview with The Working Forest. “It could drive the cost up or there could be product constraints for sure in the months ahead.”

High production costs in Canada squeezed profits for sawmills. The U.S. housing market remains under pressure as the coronavirus spreads, and lumber futures plunged a record 32 percent in March.

“U.S. housing starts are looking pretty bleak for the next couple of quarters. In the U.S. JP Morgan recently announced they are tightening lending requirements for mortgages,” adds Nighbor.

Nighbor says the industry is optimistic that Canada’s government can tweak its wage subsidy program to help forest operators qualify and bolster their access to cash to help them survive the coming quarters. Canada exports the bulk of its pulp, paper and packaging products and the U.S. is one of its major markets.

“We’re in a crisis here. We need more of our sawmills running. We are an industry that is up against some tough markets right now, but unlike a lot of other sectors, we do not need a bailout. We just need a bit of a hand up to help manage some of our cash flow in the coming months so we can move quickly into recovery,” explains Nighbor.

“The most urgent problem is cashflow and keeping companies operating, we are also working with the government on what can do when we come out the other end of this pandemic. What are the shovel-ready projects and investment opportunities at our mills across the country that we can move on? What can government do to step up and make these investments attractive to business,” explains Nighbor.

“Once we nail down the available cash flow supports, we would like to see a robust stimulus package that we can partner with the government on to further transform the industry and drive more environmental improvements in our operations. There are lots of opportunities, but money is going to be tight for a while,” he adds. “We need to ensure our workers, whether they are working or laid off are looked after. These government support programs need to be flowing and need to be supporting those workers and their families. The next stage is to have the appropriate cash flow support to keep as many mills operating as we can and as many people working as possible.” 

 

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