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Triple blow: current market conditions are creating a "poisonous" environment for the industry, some forestry leaders say. (Forestry Special Report).

It does not matter which sector of Northern Ontario's wood industry one is looking at; it is a tough time to be making a living from Ontario's forests.

Company spokespeople from several of Northern Ontario's major wood industry employers cite three factors that are affecting their ability to do business. The factors include a Canadian dollar that is too strong and consequently cuts into profits, a shortage of fibre supply, particularly among paper producers that rely on feed sources such as lumber mills, and the softwood lumber dispute, which costs an extra 27 per cent on lumber exports.

"This has been a poisonous atmosphere for sawmills," says Jim Lopez, executive vice-president for Tembec Inc.

He says that the North American lumber market is glutted by finished lumber, the result of the lifting of quotas at the expiration of the last softwood export agreement last year.

"When we had the softwood quota in the 1990s, we limited the amount of lumber that could be produced in B.C., Ontario and Quebec. By doing that, it held market prices artificially high," he says.

However, there were provinces like New Brunswick, Alberta and Manitoba that were not included in the' quotas, which began to bring capacity on line to take advantage of the high prices, says Lopez. Lumber from the southern United States and various European countries are also coming into the market.

"Now the quota deal is over, all the Canadian provinces are under the same countervailing duty, but there is all this capacity out there," says Lopez. "People made the investments and they have to run the mills to pay the interest on their debt, and so on."

Hartley Multimaki, vice-president of planning and development for the Buchanan Group, says that, while there may be a glut of finished product in the market, there are serious shortages of round wood in Ontario. Buchanan has over 800 people laid off from operations, including mills in Dubreuilville and Atikokan.

"The stregthening Canadian dollar has really cut into our bottom line," Multimaki says. "It's caused production costs to start to creep up. Wood supply is also an issue."

Jayne Murray, public affairs manager for Weyerhaeuser Ontario, estimates that for every few cents the Canadian dollar increases, the increase in cost for the forestry companies goes up by tens of dollars.

Multimaki says that the Ontario Living Legacy land use plan has removed a lot of forest from available cutting areas, and so has the province's more than 20 separate guidelines for wildlife habitat preservation and forest fire emulation patterns that dictate where forest companies can cut.

On June 12, Bowater announced a 90-day shutdown of newsprint and market pulp production at its Thunder Bay mill, and later followed that up with an announcement of an indefinite shutdown of its No. 3 paper mill.

Sue Prodaniuk, spokesperson for Bowater, says this problem can be traced to the fact that several sawmills that provide feed to Bowater mills have cut operations, which has affected Bowater's fibre supply. Then there is the strengthening Canadian dollar.

"Add these factors and soon it no longer becomes profitable to operate," she says.

On June 19, Domtar announced that it was forming a joint-venture project with Tembec in its wood milling operations, a venture that stands to save both companies an estimated $30 million.

Richard Descarries, regional communications manager for Domtar, says the company is doing what it can to deal with present market conditions that involve low prices and punishing duties by the United States.

It is the contention of the U.S. Commerce Department that stumpage fees imposed by the provinces constitute a subsidy to the industry. A recent decision by the World Trade Organization (WTO) conclusion that stumpage fees do not constitute an economic advantage for Canada's lumber producers is reason for cautious optimism, says Descarries.

"We're waiting for the ruling in July by the (North American Free Trade Agreement) NAFTA panel, which has more legal powers," he says. "We're hopeful that their decision will be the same. We're always hopeful that it will be in our favour, but a number of things can happen."

"Whether or not it is a hollow victory remains to be seen, but I would be so bold as to say that we have an unequivocal victory," says Tim Millard, president of the Ontario Forest Industries Association of the WTO decision.

"I'm trying to be as realistic as possible about this," Millard says. "There is reason for guarded optimism with such a clear and definitive ruling regarding cross-border comparisons as used' by the American department of commerce, and the conclusion of the WTO that there was no basis for concluding that there was any advantage to the Canadian forest industry. We have to hope that this will begin to moderate, temper and bring some sanity and reason to the U.S. lumber coalition's position in this dispute and they may wish to resolve it without dragging it through more litigation."

The problem, says Millard, is that time is on the American side with appeals possible on every decision made by the WTO and NAFTA boards.

"Since May 2002, the Canadian industry has paid approximately $1.2 billion in' cash deposits parked at the border and that continues to rise," Millard says. "If the U.S. is simplytrying to punish us and grind us down, that's one thing. If their real intention is to' arrive at the result where we have real free trade, we can be optimistic.

"Worse case scenario, this could drag out a couple of years. I'm hopeful we could find a negotiated solution before that but, if it's litigated, it could be the end of 2004 before we see a reduction in anti-dumping and countervailing duty deposits."

Carl Grenier, 'executive vice-president of the Canadian Free Trade Lumber Council, says that there have been suggestions of retaliation against the U.S. with other commodities Canada trades with them.

"With $10 billion in trade between Canada and the United States, retaliation would only hurt Canadians as much as consumers in the U.S.," Grenier says. "NAFTA is quite different in their consequences than the WTO. Once their decision comes down, it can be implemented. It is much more important to settle this between both the U.S. and Canada."

Grenier is calling for government support for the industry.

"The federal government says it is still looking at it, but fears that anything they do, the U.S. will retaliate..." Grenier says.

"The problem is, if the government is not going to stand behind the industry, then we're obviously at a big disadvantage."

RELATED ARTICLE: Northern mill shutdowns

* June 19 - Bowater announced an extended shutdown for an undefined length of time for its No. 3 paper mill in Thunder Bay.

* June 12 - Tembec closes two of its Canadian Kraft pulp mills in Marathon and Smooth Rock Falls for two weeks due to a temporary wood fibre shortage.

* May 23 - Domtar announces a six-month shutdown of the White River lumber mill effective June 23. This temporary closure will affect in total 195 employees.

* May 22 - Weyerhaeuser announces three softwood lumber sawmills in Canada will take a market related "downtime" beginning in May and 'June. In Chapleau, approximately 150 positions at the mill are affected.

* May 16 - Tembec announces that on June lit will shut down three of its Canadian sawmills for five weeks including Cochrane. The mill shutdowns collectively affect over 490 direct jobs.

* October 8, 2002 - Weyerhaeuser announces it is permanently closing its Canadian containerboard mill located in Sturgeon Falls. The closure affected 140 positions.

October 1, 2002 - Tembec announces that it is reducing operations at its Mattawa sawmill. The decision affects 64 direct jobs. Planing and drying operations were shutdown for an indefinite period.
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Article Details
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Author:Wareing, Andrew
Publication:Northern Ontario Business
Geographic Code:1CONT
Date:Jul 1, 2003
Words:1292
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