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Forest industries tighten belts for pending recession.

Forest industries tighten belts for pending recession

The statistics are coming from all sides.

Profits turning into massive losses, employee layoffs, reductions in Canada's real gross domestic product in April and May, high interest rates, increasing bankruptcies, etc., etc.

Talk of a recession is everywhere.

However, there are different opinions about how a serious economic downturn will affect Northern Ontario's mainstays of mining and forestry.


I.D. (Joe) Bird, president of the Ontario Forest Industries Associations in Toronto, says, while there have been increased predictions of a recession recently, many people in the forest industry have known of its existence for a long time.

"It's been there for quite a while for them," he said.

The lumber industry has been in a recession for a few years, while the downturn in newsprint began at the beginning of 1990, Bird explained.

Price cutting also began for market pulp a few months ago.

Bird noted that everybody in the business is preparing for a recession.

"It's hunker-down time," he said.

For instance, kraft and newsprint mills are taking down-time, he said. "Everybody in the industry is tightening their belts and making the moves they can."

Other companies have cut back on capital spending.

However, forestry is a cyclical business, he explained. "That's what happens in the commodity business."

The industry is well into downturn, but a general recession would make the cyclical swing that much worse.

Bird noted that the export market for Canadian forest products is being hurt by the high exchange rate for the Canadian dollar, at this writing more than 87 cents U.S.

Selling in the U.S. is "extremely painful," he said.

While measures have been taken by forest companies, Bird doubts if any permanent layoffs will result. "I would be surprised. I think it would be temporary layoffs."

The industry is generally prepared for a wide-spread recession, he said. "The industry is well-positioned, much better than for the bad downturn in 1982."

"The lessons learned in that downturn are fresh in everbody's mind."

Bird added that the industry is always pursuing new and alternate markets. "Those things are going on all the time."

Sharon Paul, vice-president of corporate and public affairs with Abitibi-Price Inc. in Toronto, said the company has been going through a very tough time, but is taking all the appropriate steps.

Paul noted that Abitibi-Price is restructing and downsizing and has closed two old, unproductive paper machines.

"We're taking a lot of aggressive steps," she said.

The company has been struggling with an over-capacity in the industry world-wide, she explained. "Until that gets out of the system, it is a major concern."

Along with the over-capacity, the company is being hurt by the high exchange rate on the Canadian dollar, high interest rates and new laws in the United States mandating use of recycled paper.

About 70 per cent of the company's product is exported to the U.S.

While most of the concerns are industry-oriented, Paul said a general recession would also affect the company.

A recession could translate into less advertising, leading to smaller newspaper and less demand for newsprint, she explained.

She said the company would not be as seriously affectd by a Canadian recession as by a world-wide recession.

In its second-quarter report to shareholders, issued June 30, Abitibi-Price chairman and chief executive officer Bernd K. Koken wrote, "Recessionary conditions for the customers of our distribution division have created difficult markets in North America and lower sales volumes have eroded operating profits."

George Miller, president of the Mining Association of Canada, said he is not surprised that people think there is a recession coming, since statistics point in that direction.

Canada's high-interest-rate policy is leading in that direction, he noted. "It's a tough way to get inflation down."

However, Miller said the mining industry is insulted from a Canadian recession because 80 per cent of its product is sold world-wide.

"A Canadian recession should not have a major impact," he said. "In that sense, it's a kind of stabilizing industry."

Miller believes a recession is on the way. "I don't think there's any doubt."

He said the longer there are interest rates of 14-per-cent or more, the longer the recession will be.

Miller noted that some economists say there are other methods of reducing inflation, such as reducing the exchange rate to 80 cents U.S., which he described as a novel suggestion.

"The present policies are disastrous," he stated.

Jerry Rogers, manager of public affairs at Inco Ltd.'s Ontario division, doesn't think there is unanimous agreement that there is, or will be, a recession.

When interviewed in mid-August, Rogers pointed to falling interest rates as a positive sign.

However, Inco has implemented several measures to make it "lean and mean."
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Author:Bickford, Paul
Publication:Northern Ontario Business
Date:Sep 1, 1990
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