Canadian Wood Products Magazine

By Scott Jamieson

  Yes, the industry’s in a rough patch. Cyclical issues like a collapsed housing market, a sputtering economy, and the resulting drop in advertising in the US are conspiring to batter lumber, panel, and newsprint demand and pricing. Energy costs don’t help. Structural issues are also being addressed, from the general decline in North American demand for paper products to a fragmented Canadian pulp and paper industry with too much and often too costly capacity. Few realize this dovetailing dilemma more than Avrim Lazar, president and CEO of the Forest Products Association of Canada (FPAC). He spoke with Canadian Wood Products Magazine from his Ottawa office just ahead of Paper Week, the annual pulp & paper sector gathering held in Montreal in early February.

“A restructuring should have started a while ago, but with provincial restrictions (on forest tenure) and federal opposition to mergers, it has been delayed. The lower Canadian dollar also allowed the industry to remain fragmented, and yet still compete. But the recent rapid rise in the Canadian dollar has forced some major restructuring to happen very quickly.”

This we’re all aware of. It means closed mills, uncertainty, reduced volumes for the lucky logging contractors left running, and tough times for everyone, from mill staff to loggers and machinery suppliers. Still, get past the slumping US economy and the structural changes, and Lazar feels the industry’s near term future is very promising. He cites several factors, both domestic and global, to support his optimism.

Consolidation: The mergers and restructuring that should have happened a while back are now moving forward. They are hard on many communities, Lazar admits, but the focus on mill closures and layoffs masks some good news happening behind the headlines. For starters, there are the efficiency gains that will serve the industry well moving forward. It’s not all about getting bigger Lazar insists – just better. “As some of these fragmented operations come together, there are all the synergies you hear about – the collective knowledge, experience, market access, distribution. It also allows mills to concentrate production and investment in facilities that can do so more profitably (ed note – such as two mills running at 98 percent capacity rather than three at 75 percent). It also gives the scale to allow companies to experiment with new products or technology without risking their entire production flow.”

Adapt to survive: What doesn’t kill you is supposed to make you stronger, so that years of adversity is resulting in enhanced efficiency for the survivors. That will come as no surprise to those familiar with BC Interior sawmills and their collective response to challenges that have included US protectionism, rough markets, and now the beetle. Lazar says studies by the likes of Finnish consulting firm Pöyry show that the number of Canadian newsprint mills in the global top quartile for costs have tripled in recent years. A far cry from the popular image of crumbling mills built early last century, but good news for us.

Navel Gazing: People tend to focus on their own problems, but Lazar reminds us that the rest of the world has its own problems, from European bioenergy subsidies that make wood more profitable to burn than pulp, to Russian uncertainty and bureaucracy and South American land use struggles.

“We tend to forget our competitors have their own problems. But the bottom line is that the global demand for forest products grows at 3 percent per year, which means adding the production capacity of the Quebec industry every year. At the same time, that growing market is being supplied by a world with ever-increasing competition for a shrinking land base. Whether it’s pressure to use land in Brazil for biofuels or in Asia for food, it will all encroach on those areas’ ability to grow fibre to feed growing forest products markets. I can’t see the future, but to me this positions Canada very well in the mid-term as a supplier of quality forest products.”    

That still leaves another tough year or two, depending on events south of the border. It also means industry will have to manage a tricky transition over the next few years. Still, it won’t be the first time the industry has faced tough markets or major shifts. Add a taxation structure that helps the industry re-invent itself through investment and innovation, and there are reasons to be optimistic yet.