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In Search Of A Narrative

(A version of the following blog post was originally published as an article in the View From The Stump newsletter, January 2023, under the same title. If you are interested in reviewing the newsletter, please contact me at david@spartreegroup.com. Also, a complimentary full version of the October 2022 edition is available at viewfromthestump.com)

There has been a steady pace of curtailment announcements by BC forest products manufacturers. Affected sawmills and pulp mills have shared a consistent reason for their downtime. Lumber producers have said there is a lack of economically available log supply and market conditions. Pulp producers have cited the lack of economically available residual fibre supply (and unlike lumber, the global market for pulp is actually very good).


SAWMILLS

Based on the curtailments made public, over 30% of the BC interior’s sawmilling capacity is currently affected by some form of temporary reduction, indefinite curtailment or permanent closure. The actual amount of affected capacity is much higher given many sawmills have not announced their downtime.


The following is a list of mills currently known to be negatively affected:



PULP & PAPER MILLS

Decreased lumber production means fewer residual chips for pulp mills. That along with less harvesting in general has pushed BC pulp mills’ fibre supply to bare-bones. Several pulp mills were forced to take temporary downtime last fall. Just last week, Canfor Pulp announced the permanent closure of a pulp line at its Prince George Pulp & Paper Mill. This decision was made in recognition of the need to “right-size” the company’s pulp production relative to available residual fibre. Mercer just announced yesterday that their Celgar mill will take three weeks downtime in March, again due to a lack of fibre.


Since September 2021 (and into the next few months) an estimated 41% of BC’s pulp and paper capacity (eight mills) have been affected by fibre availability issues and have taken or are planning some form of downtime/shut down. Some of these pulp mills have since resumed production, but many remain on the verge of running out of fibre.


Included in this group of affected mills are three pulp and paper mills that have or will be closed on an indefinite or permanent since the NDP government announced plans to defer old growth timber harvesting. A fourth mill, Canfor’s Taylor mill was indefinitely closed earlier in 2021. These four mills represent 20% of the current pulp and paper capacity in the province and are no longer serving as the major centres of employment and economic activity.

This amount of lumber and pulp capacity affected in such a short time frame seems unprecedented. Because fibre availability is the root cause of these reductions, it makes sense to look at the timber harvest.


CROWN-LAND TIMBER HARVEST

There are enormous negative pressures on the BC interior timber supply. Despite SPF 2x4 prices averaging over US$800 in 2022, the interior crown land harvest decreased by 5.7 million m3 or 15.4% to 31.5 million m3.



Undoubtedly the harvest is reflecting the negative impacts from various well-known factors such as the killed pine from mountain pine beetle, killed spruce from spruce beetle, burnt timber from wildfires and moratoriums on logging due to mountain caribou etc. These factors have been in play for many years, and its why the Premier has characterized this crisis as a “reckoning.”


While such factors make for a convenient narrative to assign blame for the current crisis, it’s not entirely accurate to do so. The dramatic drop in BC Interior’s crown timber harvest specific to 2022 would appear to be more to do with policy decisions than anything else. Policy decisions that the NDP government made.


Those mills whose log supply is reliant on BCTS timber sales have suffered due to the NDP government’s worst policy decision and implementation – likely ever, the Old Growth Strategy. Upon announcing the acceptance of old growth deferral recommendations in November 2021, the BC government said there would be the immediate cessation of all new timber sales overlapping with deferrals areas. There was no consultation with BCTS, industry or First Nations on this decision.



The fact is that the majority of the interior’s decline in 2022 has come from reduced harvest volumes under BCTS. Approx. 61% of the interior’s decrease in crown harvest came from a 3.5 million m3 or 41% reduction in the BCTS harvest. The interior BCTS harvest in 2022 was 4.9 million m3 or 16% of the interior’s total crown harvest.


As additional evidence that these curtailments are policy related there is the other fact that the private land harvest in the BC interior actually increased 3.7% in 2022 – these lands would not have been subjected to policy decisions but possibly affected by the beetle etc.


Talk about kicking an industry while its down, not only have policy decisions affected BCTS by reducing log supply, but in doing so, it has led to desperation bidding on timber sales to secure a mill’s log supply. The kicker is those winning bids eventually go into the dataset that drive stumpage calculations. Thus, delivered log costs have not adjusted downwards by as much as was hoped because of the increased competition for logs affecting stumpage.


Relatively high stumpage while markets are weak has been a contributing driver of these recent sawmill curtailments.


It should be clarified that my critique of BCTS is entirely not to do with BCTS staff, but the policymakers who actually drive the bus.


In responding to the Canfor Pulp closure, the Premier was quoted in a CBC interview stating the industry is looking at the “remaining old growth and saying that that’s how we’re going to fuel the industry going forward”. Unfortunately, that insinuation is completely incorrect because over 75% of the old growth in this province is either protected or never will be harvested. Industry is not going to log the remaining old growth.


Nobody wants a crisis response team – rather we should have leadership in government that respects forestry and understands business. We have and will continue to need to manage our old growth forests. Forest policy should be designed to support both forest stewardship and the economy. It should not be developed to just to win votes as that is just truly short-term thinking.


Lack of economically available log supply is a complex issue. It involves the physical availability of logs, the associated costs to access and remove those logs as well as the occasional combined issue of weak lumber prices and elevated stumpage (such as what is occurring now). No other region in North America has experienced such a wave of curtailments in the last six months, (until recently with a couple sawmills in the US South curtailing). This should be a huge red flag regarding the competitiveness of our provincial industry. Without a healthy primary sector, there is no secondary wood products manufacturing


According to the government’s own words, “competitively priced fibre is the starting point in a supply chain leading to manufacturing, which can include traditional wood products, as well as value-added products like mass timber, remanufactured good and innovative bioeconomy products.” If the Premier wants to make bold changes to the industry start with a strategic plan that extends beyond the next election and looks at fibre supply and costs (or at least not actively decrease supply through policy).


At the BC Natural Resources Forum last Tuesday, the Premier announced a $90 million BC Manufacturing Jobs Fund aimed at supporting investment and innovation. That’s nice but misses the mark on the industry’s needs. I know of several companies that could be pulling the trigger on planned investments, but they will not. It’s not for lack of capital, but the lack of predictable fibre supply. It just can’t be any more obvious than with the current crisis and the consistent messaging on the reasons cited. This is not “a reckoning in the forest sector” dealing with the mountain pine beetle aftermath. Coastal mills are affected as well as.


Time for the NDP government to take a hard look in the mirror and own its culpability.


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Written By David Elstone, RPF

Publisher, View From The Stump newsletter

Managing Director, Spar Tree Group Inc.

david@spartreegroup.com

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