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| Forest industry hopes for recovery in 2006 |
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2006/1/4
A few feeble voices in the country's forest industry believe there will be a comeback in 2006.
Realistically, if there is a revival, it will come because the industry can't get any worse. In fact, wags have said before the industry had hit rock bottom and then dropped even further.
Mills making lumber, pulp and paper right across the country have closed temporarily or permanently, putting thousands of workers out of a job.
A spokesman for the Communications Energy and Paperworkers Union estimates 10,000 job cuts were announced during 2005, some to take effect in early 2006.
The same challenges are hitting companies everywhere, to varying degrees: the higher Canadian dollar, declining demand for newsprint, heavy duties on lumber exports to the United States and competition in pulp and paper from emerging producers in Asia and South America.
This points to signs the pulp and paper sector is going the way of textiles - transferring to the Southern Hemisphere where trees grow faster and wages are lower.
An additional stress is hurting Quebec, where the government decreed as of April a 20-per-cent reduction in the amount of trees that could be cut, to allow the boreal forest to catch up to years of harvesting.
Analysts say Quebec, the leading pulp and paper region in Canada, now has the highest fibre costs anywhere in the world, due to a combination of stumpage fees, vast distances, and its smaller trees compared to B.C., the lumber leader.
In Quebec alone, the government estimates 3,800 direct jobs were lost in 2005 in the lumber, pulp and paper sector.
Ontario is also reducing the allowable wood cut, while electricity rates soar in the wake of deregulation. High gas and oil prices added to the industry's burden across the country.
Mills were also closed in the Atlantic provinces, and even the large Weyerhaeuser Co. pulp and paper mill in Prince Albert, Sask. will be shut down in the spring.
The only bright spot in the story is the solid wood industry of British Columbia, feeding trainloads of frame lumber to the housing boom in the United States.
Analysts say the B.C. lumber industry is more efficient, thanks to its large trees and because the B.C. government allowed the industry to consolidate into fewer sawmills that run flat out.
While newsprint has enjoyed seven consecutive price hikes since mid-2002, the additional revenue has been wiped out by factors like the rising Canadian dollar and a steady decline in newsprint consumption since 1987 in North America.
"The cost issue has been a very important factor this year," said Paul Leclair, chief economist at the Pulp and Paper Products Council.
"There's a bunch of factors combined that are hurting the industry significantly; I'd be extremely surprised to see profits this year."
Consultants PricewaterhouseCoopers said earnings by the leading Canadian forest companies collectively fell to a paltry $71 million in the third quarter, compared with $883 million earned a year ago.
Economist Louis Theriault, who did a study on the industry for the Conference Board of Canada, sees a brighter picture in the long term, but for the moment "we're in a state of absolute disaster. There's overcapacity throughout North America; there's plant closures as we speak."
Theriault said the pulp and paper segment has been operating in the red for the last six to eight quarters. "Collectively in Canada, it can't get worse," Theriault said.
Based on the Conference Board's belief the dollar will stabilize at around 81 cents U.S., Theriault said recent efforts to limit overcapacity by shutting machines and entire plants will start to pay off.
"When things get really bad you have to act decisively and take extraordinary measures to turn the bottom line around. It will be better in 2006, but it won't be the Klondike."
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| Source:http://canadaeast.com |
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