MONTREAL—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 it 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 at the end of this month.

The only bright spot is the solid wood industry of British Columbia, feeding train loads 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 provincial government allowed the industry to consolidate into fewer sawmills that run flat out.

While newsprint has had seven consecutive price increases 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," he said. "I'd be extremely surprised to see profits this year."

Consultants PricewaterhouseCoopers said earnings by the leading Canadian forest companies collectively fell to $71 million in the third quarter, compared with $883 million earned a year ago.

Economist Louis Theriault, who conducted 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.

Based on the Conference Board's belief the Canadian dollar will stabilize at around 81 cents (U.S.), Theriault said recent efforts to limit overcapacity by stopping machines and closing entire plants will start to pay off.

Craig Campbell of the forest practice of PricewaterhouseCoopers said the B.C. lumber industry remains well positioned. It sells two-thirds of its lumber and wood panel production to the U.S., which still makes most of the wood-frame houses in the world.