top of page
Search

What The Paradigm Shift Looks Like

An Editorial Opinion – Right From The Stump, January 29, 2022

Last week’s announcement by Canfor to restructure its BC operations to better align its manufacturing capacity with the available long-term fibre supply represents a major turning point for the BC forest industry. Canfor’s announcement was part of a long series of government and industry announcements over the last two weeks. Such announcements also included $146 million for various government initiatives. Collectively, these announcements have provided insight into the current and future state of the BC forest industry.


With so much happening, it would be useful to aggregate all that has gone into a list and offer some quick initial thoughts (recognizing that not all the details of several items have come to light).


Recall that two weeks ago Canfor Pulp had just announced the permanent closure of pulp production at its Prince George Pulp & Paper Mill; Mercer International had announced a two-week curtailment at its Celgar mill; and there were several sawmills curtailed in some form. There are several reasons for these closures as explained in the Right From The Stump blog post, In Search Of A Narrative. On the political side, Premier Eby is pushing to demonstrate progress on his 100-day plan and was set to speak for his first time in front of two very large natural resource audiences.


Starting in chronological order…


New jobs fund will support employment, resilient economics – January 17, 2023 (BC Manufacturing Jobs Fund)

The BC Manufacturing Jobs Fund is a commitment of $90 million over three years to promote value-added innovation in the forestry sector and create thousands of good paying jobs.


I am sure some start-ups and innovators will use this fund and that’s good but it was an unexpected announcement considering access to capital is not at the top of the list of concerns or needs for wood product manufacturers. Rather, it is access to affordable available fibre (logs or processed wood product) needed for valued-added processing. Without a predictable supply of fibre, no business plan will be supported by investors or banks.


To suggest this $90 million will “create thousands of jobs” is an unfortunate misrepresentation of expectations. Few new jobs will arise in the short term and definitely not “thousands” in the longer term. It actually reminded me of expectations made almost thirty years ago by a previous NDP government…


An agreement was reached in response to a June 2021 BC Supreme Court decision, which had found the province had infringed upon Blueberry River’s Treaty 8 rights due to cumulative impacts of decades of industrial development. There is a lot to digest in this announcement because as Premier Eby said, it is an important precedent for future agreements with First Nations. It will not be business as usual with regards to stewardship of land, water and resources. This was a pivotal accomplishment for the Blueberry River First Nation. Some highlights include:


  • $200 million restoration fund to support healing of the land from decades of legacy industrial disturbance.

  • An ecosystem-based management approach for future land-use planning in Blueberry River’s most culturally important areas.

  • Land protections in Blueberry River’s high-value areas including 650,000 ha protected from PNG and forestry activities.

  • The province and Blueberry River have agreed to a series of timber harvesting activities to proceed throughout Blueberry River’s claim area.

  • Old forests will be protected, and timber harvesting reduced in defined “High Value 1” areas and traplines, which includes a 17% or 350,000 m3 reduction in Fort St. John Timber Supply Area.

  • Impacted forest tenure holders will be compensated.


At the Truck Loggers Association Convention, Premier Eby announced the Forest Enhancement Society of BC (FESBC) will receive new funding of $50 million to expand funding for projects and programs that increase the use of low-value or residual fibre, including trees damaged by recent wildfires and logging waste.


This was a positive and practical announcement to address a current crisis. It will help pulp mills in dire need of fibre. It comes as a follow up to my post, A Crisis With Solutions In Plain Sight.


Funding of $1.5 million to support the creation of logging rate database for use by contractors and licensees – January 19, 2023

Again, at the Truck Loggers Association Convention, Premier Eby announced funding to support the contractor sustainability initiative. This announcement seemed to come as a bit of surprise to the audience as there was a muted reaction despite it being a win for the TLA’s past lobbying efforts. I think if these funds are deployed wisely, having a logging rate database will make the relationship between contractors and licensees that much stronger.


Stumpage reform? – January 20, 2023

At the Truck Logger Association Convention, during his panel, Minister Ralston suggested that his Ministry might be considering possible changes to the province’s stumpage system. It was a subtle mention and hopefully I heard correctly as this could be an interesting twist in forest policy.


Paper Excellence will restart its curtailed C2 paper machine at its Crofton facility on Vancouver Island. With a $50 million investment, the C2 paper machine will be transformed to produce packaging paper grades while the mill’s boiler will reduce natural gas consumption through more efficient use of waste bark (hog). The province will contribute $4.5 million, and the Government of Canada will contribute $14.3 million through Natural Resources Canada’s Investment in Forest Industry Transformation program. The remainder of the investment will come from Paper Excellence.


The province and four Treaty 8 First Nations – Forest Nelson, Saulteau, Halfway River and Doig River First Nations – have reached consensus on a collaborative approach to land and resource planning. A “Consensus Document” addresses “the cumulative impacts of industrial development on the meaningful exercise of Treaty 8 rights in the territory, restore the land, and provide predictability for the industry.” The Consensus Document is not public as of yet so more to come…


Sinclar Group Forest Products is curtailing operations for two weeks at Apollo Forest Products in Fort St. James, Lakeland Mills in Prince George and Nechako Lumber Co in Vanderhoof, effective January 30th. Reason: “weak market conditions and constraints on an economical fibre supply”


Tolko announced downtime at its Soda Creek and Armstrong Lumber mills will continue through the month of February. These mills were already down for January. Reason: “high log costs and weak lumber markets”


BC Timber Sales (BCTS) will have a new Value-Added Manufacturing Program for facilities producing high-value products, such as mass timber, plywood, veneer, panelling and flooring. Initially, BCTS will dedicate 10% of its available timber supply to the program. Participation will be restricted to facilities (assuming that means registrants) that have minimal or no forestry tenure (less than 10,000 m3 AAC) and will require that facilities be accredited as value-added, secondary manufacturers.


The new program is about ensuring more log supply for value-added wood processors. The 10% allocation works out to be approximately 600,000 m3 (roughly 1% of the provincial AAC). As this new program’s volume is not incremental to the existing BCTS category 2 program, because it is actually the category 2 program just redefined, the amount of increased fibre supply to value-added manufacturing will likely be minimal at this time.


Considering the province’s high-profile vision of transitioning the forest sector to high-value production, the launch of the Value-Added Manufacturing Program curiously was not a bold move towards making that transition a reality. At this stage, the program will not stimulate much new investment or generate new employment.


That said, this new program is the first step in what will be a long path to transitioning the forest sector to high-value production. And to be fair, the government indicates more volume to be expected in the future.


*PS If someone understands the government’s definition of what exactly is meant by “high-value” production, please let me know…


The combined duty rates under the preliminary results of the fourth administrative review for the period January 1, 2021 to December 31, 2021 lists Canfor’s rates at 7.29%, West Fraser’s rates at 9.38% and non-selected respondents (all others) at 8.24%. These are preliminary and are only an indication of the final duty rates that the US Department of Commerce is expected to issue in the summer of 2023.


A new conservancy of 58,564 ha plus another 17,000 ha which will be protected from forestry activity (for a total of ~75,000 ha) was announced for the Arrows Lake region in the BC interior. The agreement included Interfor releasing its forest tenure in the area.


To better align manufacturing capacity in BC with the available long-term fibre supply, Canfor is restructuring its BC operations by permanently closing its Chetwynd sawmill and pellet plant and temporarily closing its Houston sawmill for an extended period to facilitate a major redevelopment of the site. Closures are expected to occur by early Q2 2023 and will remove approximately 750 million board of annual production capacity.


Canfor intends to explore the building of a new facility at the Houston site to produce “high value products.”


Western announced it will not restart its Alberni-Pacific Division sawmill in its current configuration. The mill has been curtailed since fall 2022. A working group has been formed to explore potential viable industrial manufacturing solutions for the site.


Whew! That was a long list for just a two-week period.


What is happening in this province is far greater than just weak lumber markets and the timber supply fall down from the mountain pine beetle. Canfor’s restructuring of its BC operations is symbolic as it signals the resounding end to the mountain pine beetle era for the BC interior and heralds the start of the so-called ‘paradigm shift’ – for better or for worse. Expect more capacity reductions to come this year from other companies as well.


-----------------------------------

Please consider subscribing to the View From The Stump newsletter (CLICK HERE) as a way to support continuing research and commentary like this blog post.



To read more posts from Right From The Stump CLICK HERE


To receive notification of blog and newsletter publications, provide your email CLICK HERE


Written By David Elstone, RPF

Publisher, View From The Stump newsletter

Managing Director, Spar Tree Group Inc.

david@spartreegroup.com

0 comments

Comments


Thanks for subscribing!

bottom of page