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Gary Lamphier: Alberta’s forest products sector on an upswing

April 11, 2016

By: Edmonton Journal

Alberta’s $4-billion forest products sector enjoyed solid growth in 2015, offering a bit of relief to struggling resource towns that have been slammed by the downturn in the oilpatch.

The Alberta Forest Products Association (AFPA), which represents most of the province’s key industry players, says its members generated revenues last year of more than $3 billion year. That was up more than $150 million or 5.2 per cent from the $2.89 billion in revenues generated in 2014.

The uptick was led by Alberta’s pulp and paper mills — located in resource towns like Whitecourt, Peace River, Boyle and Hinton — which racked up $1.4 billion in revenues in 2015. That’s a gain of $191 million or 15.7 per cent over the previous year, reflecting increased output and stronger prices.

Pulp producers are riding growing market demand in China, India and other Asian nations, where the product is used widely in everything from packaging for consumer goods to paper, newsprint and personal hygiene products.

“A higher and higher percentage of our products are going to Asia,” says Steve Lord, director of pulp sales and marketing with Edmonton-based Millar Western Forest Products, the biggest homegrown player with annual revenues of nearly $380 million.

“Millar Western, for example, will see more than 50 per cent of our pulp products going to China in 2016. I see it going to 60 per cent by the end of the year and it will probably reach 60 to 70 per cent in 2017.”

Panel board producers also had a good year in 2015, with revenues jumping by $27 million or 7.4 per cent to $388.2 million, reflecting a modest increase in volumes and sharply higher prices, the AFPA says.

Perhaps surprisingly, despite a continued rebound in the U.S. housing market, lumber players lagged. Revenues dipped by five per cent to slightly more than $1.2 billion, as weaker prices offset a 5.7-per-cent jump in production volumes.

“Alberta’s forestry sector is strongly diversified,” says Paul Whittaker, the AFPA’s president and CEO, in a news release announcing the results. “This is due not only to product and market diversification, but also investment in new areas. In addition to traditional products, the industry continues to make progress in converting waste streams into green energy and exploring new opportunities in bio products.”

The AFPA notes that the industry employs 15,000 people directly in 70 communities in the province, while 30,000 additional jobs are dependent on industry activities.

“We’ve actually grown the workforce by a couple of thousand people over the last couple of years, so it’s a bit counter-intuitive and counter-cyclical to the rest of the economy,” Whittaker says.

“Our members have also invested a lot in new technology, new equipment and new processes. We’ve tallied it at about $2.5 billion of new investment over the past few years, so they’re extracting maximum value out of precisely the same amount of harvested timber.”

Reducing waste and generating energy from is also an industry priority. At its pulp mill in Whitecourt, Millar Western is building an anaerobic effluent processing plant to remove solids from water in the effluent and produce biogas. The latter will replace fossil fuels previously used to generate electricity.

Meanwhile, West Fraser has just invested $30 million at its Hinton pulp mill, making it the first Canadian plant to convert lignin — a sticky tree chemical —from a waste material into a range of new, environmentally friendly commercial products.

“In the past, a fairly significant percentage of the fibre stream would have been relatively valueless. But now we’re extracting value, whether it’s through the production of wood pellets or green energy,” Whittaker says.

“Now that energy is being generated by companies to replace power from the grid. So you’re seeing some facilities with quite literally zero waste. The productivity gain is substantial.”

So what kind of year does Whittaker foresee for 2016? It’s a bit of a mixed bag, he admits.

“I think the domestic market is going to be tough. We’ve all seen housing starts decline in Alberta. We hit record numbers of around 40,000 housing starts here before the bloom came off the rose, and we’re not going to flirt with those numbers again over the next couple of years,” he says.

“But other parts of Canada are doing well. In Ontario and British Columbia, housing starts are projected to be up. We also see tremendous opportunity in the U.S. market and we continue to grow in places like China and Japan.”

In addition, with Alberta’s NDP government pushing economic diversification, Whittaker believes the forest products sector has a key role to play.

“People get trapped in this notion that diversifying Alberta’s economy means we’ll all of a sudden have a shiny new industry. We’ll be Google North or Silicon Valley North,” he says.

“But we have a lot of strength in some of our existing sectors, like forestry. It’s all about product diversification and market diversification, and I see continuing opportunities in both.”

By: Edmonton Journal

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