High-priced B.C. losing to low-priced U.S. 

July 28, 2021

By: The Working Forest Staff

VICTORIA, VANCOUVER SUN — Premier John Horgan says B.C.-based forest companies should be investing their recent record-high profits in supporting employment in forest-dependent communities and in generating government revenues here in B.C.

“We need to make sure that those benefits to those companies flow down to workers, to communities and of course also to the province, so that we can provide the services that we need, critically, right now, to put out fires,” Horgan told reporters during a stopover last week at the wildfire centre in Castlegar.

Horgan was responding to the announcement from Canfor that it was reducing operations in B.C. owing to the wildfire crisis.

“Certainly, the forest sector is going to be slowed down by the fires, no question about that,” the premier conceded. “So I’m not surprised that Canfor has decided to shut down. … A break now to give relief on the land base to provide the resources that we need, potentially — equipment from those companies to put out the fire is what happens almost annually when we have difficult seasons.”

But at the same time, he emphasized how “lumber prices have been at historic highs — and that’s not a couple of percent above normal, it’s massively above normal.”

Prices have actually fluctuated of late — down earlier in the summer during a production glut, futures on the rise in anticipation of wildfire-driven shutdowns.

Still, as Horgan noted: “Canfor and other forest companies have done very well in the past couple of months.

“These are quarterly businesses that save all their profits and you would have seen record-high profits by major B.C. forest companies in the first quarter. I suspect we’ll see that in the second quarter.”

That was Wednesday.

On Monday came news that another B.C. company was investing in yet another mill expansion south of the border.

“Hunt Forest Products and Tolko Industries announce new sawmill in Bienville Parish,” read the news release from Louisiana Gov. John Bel Edwards. “State of the art lumber mill to produce 320 million board feet annually, result in 517 direct, indirect jobs.”

Putting up half of the estimated US$240 million cost of the new mill was Tolko Industries, the privately-owned forest company based in Vernon, B.C.

This is Tolko’s fourth investment in production facilities in the U.S. South in the last three years, the second in partnership with Louisiana-based Hunt Forest Products.

“A family-owned company like ours, and that has been very successful,” said Tolko CEO Thorlakson. “So, we are looking forward to working with the Hunt family again to bring another state-of-the-art sawmill, and jobs, to Louisiana.”

Tolko has invested $178 million U.S. in the two Louisiana mills. The second, which opened in 2018, is in Urania. The company’s other partnerships are in Alabama and Mississippi.

Louisiana provided a package of incentives to “secure” the $240 million spending in the new mill, according to the governor’s news release.

These include a fast-start workplace development program to recruit and train the necessary workforce for the high-tech mill by the time it opens in early 2023.

The state also put up a $2 million performance grant, “subject to the companies reaching specified investment and payroll benchmarks.” Hunt and Tolko are expected to access Louisiana’s “quality jobs and industrial tax exemption” programs the release said.

Tolko is not the only B.C.-based forest company investing in production in the southern states. Others include Canfor, Interfor, West Fraser, Conifex, and Teal-Jones.

One reason why they are going south was highlighted in a news release last week from RBC capital markets on the paper, packaging, and forest products industries.

Along with notes on the drop in composite lumber prices since the May peak, the report included a chart on variable production costs across North America.

It put the B.C. industry at the high end of the scale, with costs approaching the break-even point during the decline in composite lumber prices in the early part of July.

At the low end of the scale was the U.S. south, with variable costs, measured in dollars per million board feet, that are reckoned to be about half of those in B.C.

“We now have a B.C. Interior that is the highest cost jurisdiction in North America, moving there from the lowest cost region two decades ago,” wrote RBC analyst Paul Quinn in an explanatory note.

The change is a result of a combination of factors, including the reduction in timber supplies owing to the mountain pine beetle infestation, competitive bidding for the remaining wood, government regulations, and restrictions on the transfer of timber cutting rights.

“On the forest policy side,” continued Quinn, “the government has also chosen forest tenures as an avenue to address First Nation settlements, with the imminent introduction of tenure-take-back legislation.

“At the same time, the provincial government wants to promote Mass Timber (construction) and attract new investment.”

Good luck with that: “Given, its highest cost status, unfriendly business environment — relative to the welcoming reception in the U.S. South — and land claim issues, it is no wonder B.C. forest companies are looking outside the province to invest in growth.”

I gather Horgan has been told as much — albeit more politely — any time he asks B.C. industry leaders why they aren’t investing in value-added production here in B.C.

But so far the two sides are talking past each other, with results that mostly benefit jurisdictions in the southern U.S.

By Vaughn Palmer

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