Economist critical of mill closures despite hard hit Q2 earnings.

Profit margins may appear to be on a downslide for some larger publicly-traded forestry companies, but one Laurentian University economics professor disputes the rationale companies are using to initiate shutdowns.

Economics professor David Leadbeater is critical of claims by forestry companies that the economic environment has forced them to slash jobs in the North.

"They just don't ring fully true," he says. "The whole idea that, just because there is some short-term downfall in their profit level then anything goes in terms of closure or job cuts is unacceptable in terms of the long-term economic health of Northern Ontario. I've often been very critical of (some) forestry companies ... and how they operate. You can look at it from the viewpoint of a stock analyst in Toronto, but you can also look at it from the viewpoint of a municipal councillor or an employee. There is a difference in orientation."

He says the three levels of government have to be much more proactive in dealing with issues that affect the industry rather than reacting to crises, particularly in the light of increasing globalization.

"Small towns have very little power in the face of present globalization to respond and, if it continues, we won't see a significant improvement in the Northern Ontario economy," says Leadbeater. "We're too dependent on a small number of very powerful transnational corporations to turn the situation around. There has to be a shift in the balance of power and our provincial and federal governments have to be more active in doing something about this."

On Aug. 5, Domtar announced its second quarter net earnings for 2003 were $8 million compared to $27 million in Q1 and $55 million for Q2 in 2002.

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"Past efforts to improve the quality of our products and customer service, as well as reduce costs, allowed Domtar to mitigate difficult market conditions and post net earnings during the second quarter, despite a $20-million loss in our lumber business," Raymond Royer, president and chief executive officer of Domtar stated in a press release.

Bowater, Weyerhaeuser and Tembec also reported either losses or less-than-expected earnings in the last quarter, with companies noting a combination of factors, including lower wood prices, less fibre supply, high exporting duties imposed by the United States and a stronger-than-usual Canadian dollar were eating into profits.

"We've had disappointing results," says George Cabana, spokesperson for Bowater, of the company's reported $25.7 million net loss in its second quarter of 2003. "There was slight improvement over the first quarter, but it has been very difficult operating under current market conditions."

The result of the challenges have led the company to undertake a number of cost-cutting measures, including limiting capital expenditures to very short payback items. However, the company has not reported any major job cutbacks.

Abitibi Consolidated also reported fewer earnings of $147 million in its second quarter this year compared to $203 million in the same quarter last year. However, the company recorded some gains simply in the translation of funds from U.S. to Canadian funds. On the operations side, the company lost about $46 million.

The strengthening loonie and import duties were a major contributor to the loss, says company spokesperson Marc Osborne.

"Our forecast, when we look at lineage, newspaper demand and publishers' numbers, looks like the second half of the year should improve," Osborne says. "Related to that, we've decided to push a price increase of $50 per tonne on newsprint starting Aug. 1 for North America."

The company has also taken "aggressive steps" in refinancing. However, there are no plans to introduce any cutbacks to its operations in Ontario, says Osborne.

Weyerhaeuser reported Q2 earnings of $157 million on net sales of $4.9 billion for 2003. This compared with $72 million on net sales of $4.9 billion for the second quarter of 2002.

"Late in the second quarter we saw some promising signs in the prices for wood products, a trend that should continue into the third quarter," says Steven R. Rogel, chairman, president and chief executive officer. "Unfortunately, the markets for pulp, uncoated free sheet and containerboard are expected to remain challenging."

Tembec recently announced consolidated gross sales for the third quarter ended June 28, 2003 at $808.9 million, down from $872.6 million in the comparable period last year. It resulted in net earnings of $70.5 million, compared to restated net earnings of $68.7 million in the corresponding quarter ended June 29, 2002, and net earnings of $34.2 million in the previous quarter.

Earnings before interest and financing charges, taxes, depreciation and amortization (EBITDA) totalled $12.2 million, down from earnings before interest, taxes, depreciation and amortization of $91.8 million generated a year ago and $12.5 million in the prior quarter.

By ANDREW WAREING

Northern Ontario Business