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Major global forest market challenges, opportunities await new COFI boss

July 8, 2015

By: Business Vancouver

When Susan Yurkovich steps in as chief executive officer of the B.C. Council of Forest Industries (COFI) in September, she will be returning to an industry loaded with opportunities but also facing some of the most serious challenges in its history.

Yurkovich, who was named the next president of COFI in June, replaces outgoing president James Gorman. She has 20 years’ experience working in the B.C. resources sector, coming to COFI from BC Hydro, where she was vice-president responsible for the Site C dam proposal.

Before that, she was vice-president of corporate affairs at Canfor Corp. (TSX:CFP). She was also a member of the BC Liberals’ 2005 election campaign committee, an important connection for the forest sector, which operates largely on Crown land under complex regulations spanning several provincial ministries.

While at Canfor, Yurkovich served on committees at both COFI and the Forest Products Association of Canada. She was among the winners in this year’s Business in VancouverInfluential Women in Business Awards.

“I feel like I am coming home,” she told COFI’s management committee in describing her return to the industry.

She starts September 14 and will be the first female leader of COFI, which represents forest companies operating in the province’s Interior.

She will have her hands full.

Forest products are entering a renaissance as an alternative to concrete and steel in construction and fossil fuels for energy.

New uses for wood products are opening doors to new investment and new markets, and B.C. companies are leaders in this transformation, supplying energy to the Hydro grid and making engineered wood products that allow designers to build taller and span farther using wood.

Further, a highly successful marketing initiative over the past eight years has opened up Asia at a time when American demand for B.C. lumber was falling. Despite a slowdown in growth in the Chinese economy, that new market, based largely on the lower-quality wood coming from beetle-killed trees, is here to stay, say industry leaders.

But the plus side of the ledger is balanced by equally challenging issues that are threatening the industry’s competitive edge in the global forest products sector.

Forest companies here face:

•the loss of 60% of the province’s pine in the wake of the mountain pine beetle infestation;

•rising stumpage rates as demand for the remaining timber pushes up log prices, affecting the industry’s competitive edge; and

•a looming softwood lumber battle with the United States. The 2006 Softwood Lumber Agreement that ended a five-year trade war expires October 12.

What it all boils down to, says Gorman, is that the competitive industry that has been built here over the last 50 years based on inexpensive power and low-cost fibre is now being threatened.

The Interior industry was built around the industrial development policies of the W.A.C. Bennett era. Hydro developments provided inexpensive power. Close utilization standards on timber harvesting – specifically bringing lodgepole pine into the timber inventory – increased the allowable annual cut and provided an endless supply of wood chips to develop a pulp industry.

Now the beetle has killed 60% of the pine, electricity costs have risen 80% since 2008 alone, and a new phase of sawmill curtailments is on the horizon as the province begins reducing the allowable annual cut in regions heavily affected by the beetle infestation.

The industry has responded to higher energy costs by developing cogeneration plants, using what was formerly viewed as waste to generate power. 

The B.C. forest sector is now North America’s largest bioenergy producer, according to a recent report by consulting firm MNP. But the same report notes that the forest sector, which is also B.C.’s largest manufacturing industry, is one of Hydro’s largest customers. The pulp and paper sector alone consumes $300 million a year in power.

Then there’s softwood lumber.

The U.S. lumber industry is demanding tighter restrictions on the existing agreement, which the Canadian sector wants to renew unchanged. The Office of the United States Trade Representative, the agency responsible for negotiating on behalf of the U.S., has told Canada that softwood lumber will have to wait until the larger Trans-Pacific Partnership trade agreement with 11 other nations, including Canada, is completed. Softwood lumber negotiations are taking a back seat to that initiative, Gorman said.

“The Trans-Pacific Partnership is their No. 1 priority, so that’s what we have to live with.”

When the softwood agreement expires, a one-year standstill will prevent the U.S. Commerce Department from launching countervailing or anti-dumping duty actions until October 2016, a provision Canadian forest companies fought hard to have included in the 2006 agreement. 

By: Business Vancouver

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