After a decade of turmoil, the Interior sawmill industry finally has markets beckoning for its lumber, only to be faced with a chronic timber-supply shortage.
U.S. recovery and China's burgeoning demand have pushed lumber prices to a six-year high, good news for mills that have managed to keep running but part of a feast-or-famine scenario and another challenge confronting the sector.
"The North American lumber market has come back with a rush in a period of 12 months, from hardly profitable to where it is now," said Gerry Van Leeuwen, vice-president of International Wood Markets Group, consultants to the forest sector.
All mills are running full tilt, part of what is forecast to be a long-awaited "super cycle" in the sector.
Conditions are brighter than they've been in years as United Steelworkers enter contract bargaining on firm footing. Mills to the north are now having difficulty finding enough workers.
"We've had some increases in production and shifts in different places," said Marty Gibbons, president of Local 1-417.
Lumber was $140 per thousand board feet when the union negotiated its last collective agreement; now it hovers between $340 and $360.
"We have helped employers through the tough times," Gibbons said. "Coming into bargaining, they need to improve compensation to attract workers."
Many workers left the industry in lean times, retiring or finding work in the oil patch, exacerbating the shortage. In response, TRU added a logging truck driver training program last year in collaboration with forest companies Tolko and West Fraser Timber.
"We've had a lot of interest," said Gillian Watt of the school of trades and technology. "We're taking 50 per cent of applicants," meaning there's a considerable wait list.
"Our students have started getting jobs in the forest industry and it's really changing their lives," she added.
But there is a hitch and it's a big one. The Interior forest inventory is in its worse shape ever as a result of mountain pine beetle, over-harvesting and government budget cuts, factors cited in an auditor general's report last year. Supply is constrained not only by limited volumes but poor quality.
"All of a sudden, demand is greater than supply, which is a very strange reality after the depression we've been in since 2008," said Van Leeuwen. "All of a sudden, the dynamics have changed."
Three B.C. mills, including Ardew Wood Products in Merritt, have shut down recently. Ardew indicated log supply was to blame when it ceased operations Jan. 11 after 47 years as a fixture in the community. Fifty-five workers lost their jobs.
"Ardew said, 'We can get the logs, but the quality is so bad,'" Van Leeuwen said.
The mountain pine beetle epidemic will have killed about 60 per cent of all Interior pine trees by 2020. That is forecast to permanently reduce lumber production starting in 2014 or 2015. In the meantime, companies are struggling to find supply.
"It seems to be getting tougher every day," Gibbons said.
None of this comes as a surprise to those in the industry. The pine beetle impact has been looming on the horizon for much of the past decade, but it was offset by the economic downturn, a temporary "lift" in the annual allowable cut to harvest damaged timber and other difficulties in the industry.
In 2010-2011, there was no market and they were losing money," Van Leeuwen said. "Now they want to mill all the logs and add shifts and go like gangbusters … but the quality is so poor, they can't make money."
Conditions since 2008 have been ripe for a so-called super cycle that will drive lumber prices higher still. The U.S. recovery is helping and reconstruction after Hurricane Sandy is expected to add further demand this spring.
Vernon-based Tolko, which operates several lumber mills in the region in addition to its plywood/veneer plant at Heffley Creek, is cautiously optimistic about the industry.
"It is certainly positive to be experiencing indications of market recovery in the forestry sector driven by a number of factors in North America and abroad," said spokeswoman Jeanette Hoft.
But it will take some time to ensure the recovery is lasting before the company can make a decision to increase its workforce at any of its operations, she added.
The forest products sector is also competing with other industries, particularly in the resource sector, to fill essential positions, Hoft noted. What's needed is a concerted effort between governments and the private sector to develop a comprehensive national strategy to meet expected labour and skills demand, she said.
Gibbons said one of his concerns is the possible expansion of a temporary foreign worker program. He feels enough workers can be recruited from within Canada and the industry.
"What we need to do is to improve conditions so we attract workers," he said.
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NDP forest critic upbeat about long-term prospects for industry
B.C. can't properly manage its public forests without accurate data on the timber resource, an NDP critic said on Friday while pledging to invest more in replanting and inventory work.
"What we know is, the inventory we used to depend on has been allowed to degrade," said MLA Norm Macdonald, who stopped in Kamloops while on a road tour to address forest health.
The Liberal government responded that more than half of the timber harvesting land base is inventoried at a "gold standard" level and that it will soon release a 10-year strategic plan.
Macdonald said, however, that the database is 30 years old and has lost relevance due in part to the scale of the mountain pine beetle infestation. Beetle kill impact has been compounded by a 90-per-cent cut in government spending on replanting, he said.
He estimates an investment of $15 million would be all that is necessary to bring the database up to date.
"Right now, the government's spending $15 million on partisan ads that, I would say, most British Columbians see as a significant waste."
The Liberal government has cut an estimated 60 per cent of forest research and inventory staff since 2001. In terms of replanting, the Forest Practices Board estimates a million hectares are not sufficiently restocked.
Yet Steve Thomson, minister of forests, lands and natural resource operations, maintains the government has never let up on replanting, even as it changed silviculture requirements for areas affected by fire and pests. He indicated in an email reply on Friday that the inventory will be getting the attention it needs.
"While the mountain pine beetle infestation was running its course, it didn't make sense to do a detailed inventory on a continually changing landscape," Thomson noted. "Now is the appropriate time to start comprehensive updates."
Despite past difficulties in the forest industry — the loss of 7,000 employees and closure of 40 mills in the past decade — Macdonald is optimistic about forestry's future.
Current timber-supply shortages are a mid-term phenomenon and not a permanent state, he suggested. Government has to be there to help communities in transition, but improved inventory work can help as well.
"When you do proper inventory, you actually find more timber than you thought you had."
As lumber prices rise and exports increase, the government should be able to count on additional revenue to re-invest in forest management.
"So we might get lucky in that way. You don't want to be naively optimistic, but at the same time, you want to make sure you're not casting too many doubts," he added.
Macdonald said suggestions that the government is about to roll over renewable forest licences into area-based tenures — raising the potential for privatization of public forests — are premature.
The government plans to table enabling legislation in February to assure sufficient supply for a Burns Lake sawmill to re-open after it was destroyed by fire last year. There is concern the bill would set a precedent that other companies would also demand.
Such a move would place 70 per cent of the province's forests under the exclusive control of a handful of companies, warns independent MLA Bob Simpson, a former NDP forest critic. Simpson has said that the sorry state of B.C.'s forest inventory means the government would be blindly issuing area-based tenures.
Responding to those criticisms, Thomson has promised full public consultation before it acts on tenure.
Macdonald was part of a bipartisan timber-supply committee that examined the issue last year. He said he hasn't yet seen the legislation and that any talk of a wholesale move to area-based tenure is speculative.
"If that is the case, then I'd find a problem with that and it would make it more difficult to support," Macdonald said. "The government knows our concerns and if they expect support, the legislation has to reflect the work of the committee. We've got to see what's presented in the house."
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Profits down due to low prices, high costs, Domtar says
The pulp-and-paper and lumber sectors have always been discrete entities, but the contrast between the two Interior forest sectors has seldom been starker.
As 125 Domtar workers face layoffs, Interior sawmills are hiring with expectations of an industry super-cycle driven by soaring export demand.
The varied outlook was underscored Friday as Domtar Corp. reported its fourth-quarter profits dropped sharply. The company cited weak pulp and paper prices on one hand and higher energy and fibre costs on the other.
Domtar's core paper and pulp businesses performed largely in line with expectations from a sales standpoint in the fourth quarter despite a slowdown around Christmas, said John Williams, president and CEO. Higher costs for fibre and energy and unexpected costs incurred at a pulp mill following a planned maintenance outage affected results.
"The fourth quarter rounded off a strategically important year for Domtar. While demand for uncoated freesheet was softer than prior years, our paper business performed well in 2012," Williams told analysts in Montreal.
For the full year, Domtar earned $172 million, or $4.76 per share, compared to $365 million or $9.08 per share in 2011. Sales dipped $130 million to $5.5 billion.
The company's financial performance is consistent with the sector overall, an industry analyst said.
"In general, the pulp market for the past year has been weakening whereas the lumber market is strengthening," said Gerry Van Leeuwen, vice-president of International Wood Markets Group, a consulting and publishing firm specializing in the forest sector.
"The whole pulp industry in the U.S. and Canada is not drastically bad, but basically there is no profit for regular kraft pulp."
Domtar's A-line machine was producing low-quality pulp out of sawdust, a key factor in the decision to close the line, he said.