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All Bets Off with MPB
Industry and government must get together to look to the BC Interior’s brave new future.
One of the most telling aspects of the May 2007 PricewaterhouseCoopers (PwC) 20th annual look at the forest, pulp and paper sectors was the dramatic impact that the mountain pine beetle is having on the BC forest industry. There is no real strategy in place to mitigate the effects, nor is there a long-term economic plan to sustain resource economies that are dependent on forestry during the next growing cycle.
Conference speakers spoke of markets and investment opportunities. Solutions presented were mainly mop-up efforts that strive to create short-term viable opportunities for partially or badly ravaged wood. They follow years of government grants to researchers, and reports compiling the beetle’s affect on stands and salvage operations. BC mill investment centres around salvaging damaged wood, the most recent being Interfor’s recent announcement it plans to spend $100 million to replace its Adams Lake mill near Kamloops so it can better bug-killed material.
Mike Apsey, former BC forests deputy-minister and Council of Forest Industries president, outlined what was perhaps the most chilling aspect of the assault on BC’s forests – and those of other regions of North America. He pointed out that the massive BC attack had surpassed anything seen previously or expected, adding that the MPB has jumped into young trees, when older, mature pine was the common pest habitat.
“All bets are off on some of the beetle attacks,” he said. In addition, there are MPB outbreaks in Alberta, Washington, Oregon, California and even parts of Mexico. And, the Douglas fir beetle is also “alive and healthy”, Apsey pointed out.
The onslaught of the MPB infestation is attributed to the mild winters and climate change. Apsey said climate change has to be considered in the context of not just managing the MPB, but in determining how to manage after the MPB. Foresters are contemplating planting species that are not susceptible to MPB or pine further north, but with climatic change occurring, there is no guarantee that the new species or planting strategies will work or not invite a new generation of insect infestation.
Apsey acknowledged that BC has seen a lot of “processes” looking at its problems, but there has been little resolution or accord on an approach to take. He said BC does not need a royal commission looking at the MPB issue (how to stop it, use the wood, replanting, and, long term effects) but rather a new public inquiry vehicle. “I think we need to layer the royal commission with parts of the round table discussion (for stakeholders) and other commissions,” he said. Right now, he said, it is “critical” for industry and government to work together on a matrix of complex issues.
Apsey’s comments foreshadowed what is expected to be a gloomy forecast for the Interior BC industry. PwC’s Vancouver-based forest sector leader Craig Campbell said “Dozens of mills are expected to close.” Currently, 550 million cubic metres are infested or seven years of provincial annual allowable cut, which is 80 million cubic metres. By 2019, he said, the projected loss will amount to 900 million cubic metres.
Campbell said new pulpmill investment might serve as an alternative, but it has not occurred in BC for almost 15 years because of lack of price surety and supply. He said the “bright light with tremendous potential” was the energy sector, using beetle kill wood to form bio-fuels. While the cheapest is sawmill residuals, there is an estimated 15 million cubic metres lying on the forest floor of unusable wood. Roadside there is approximately six million cubic metres of beetle-kill material available annually that is “just sitting there doing nothing”, he said. Simply by cleaning up the debris at roadside and converting the material into energy could reduce coal consumption and “shut down all the beehive burners in the province.”
BC’s pellet production industry has moved forward because of European demands. The province’s pellet capacity is about 600,000 tonnes from about one dozen plants. More than 80 percent is sold into Europe, said Campbell, adding that European consumption is expected to increase by 150 percent by 2010. Canada is viewed as a secure supplier of quality wood pellets, and the payback on capital invested in this sector is estimated at three to four years.
“Premier (Gordon) Campbell really has the next Saudi Arabia because of bio-energy and the beetle-killed wood,” he said.
Other speakers at the conference touched on two issues that indicate more national control is occurring over forest industry sector resources in emerging countries. While speaker Mark Connelly, managing director of equity research (pulp and paper group) for Credit Suisse in New York, said there is more growth happening in emerging world countries (such as China and India) than the developing nations for wood products, the countries are not seeking outside investment in ventures such as pulpmills or sawmills. “The biggest players are not taking partners,” he says. (The good news is that investment capital is looking for other areas to invest, such as bio-fuel plants in BC).
Russell Taylor, president of the International Wood Markets Group in Vancouver, said Russia has set forward a strategy to develop a forest products manufacturing sector rather than just a logging sector that exports its raw logs. The country has now developed a forest practices code which sets timber leases at 49-years, approximately half the old tenure, raised stumpage and placed hefty export taxes on logs. The tax in 2006 started at 6.5 percent, but July 1, 2007 climbs to 20 percent, by April 1, 2008 to 25 percent, and in January 2009, it will be 80 percent on softwood logs. The impact of the tax is expected to hit hard countries such as Finland (approximately 80 percent of its imported logs are derived from Russia) and China, which derives half its raw material from Russia.
Taylor said in simple terms, Russia is the largest world exporter of logs while China is the largest consumer. The interdependency is such that China has established huge processing plants at rail side stations by its border so it can immediately mill logs arriving. During the past few years, the Russians have raised some prices for timber but countries such as China, where labour is cheap, have absorbed those hikes. Taylor said it still remains to be seen how China will deal with a greater internal vigilance on illegal logging and reduced raw material supply from Russia. There is the potential for China (which is a major producer of panel product) to lose production and have to seek more finished good elsewhere.
At the time this is happening, the European market has been “red hot” for Canadian suppliers. There is also a log shortage looming as world supply – greatly accelerated by Russia’s move – tightens going into 2009. “We are seeing a supply and demand gap for the first time in many years and we can not see where the balance is coming from,” he said.
Analysts predict the next five years will see significant changes to the BC industry, such as the 50 million cubic metre Interior cut falling to 30 million cubic metres. But, what that will mean in real terms to sustained forest practices and local economies still remains the largest unanswered question.
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