Industry News Markets
It Can Only Get Better

As 2011 draws to a close, companies in Canada’s forest industry continue to struggle in their attempt to return to profitability. However, this year has been better than the previous few and some companies have actually reported quarterly numbers in a shade of black rather than blood red. But we still haven’t seen the return of the good times we have been looking for, and many industry insiders are quietly questioning if we ever will.

Looking back through this year though, there have been some positives, and as a firm believer in “the glass is half full” outlook rather than the more pessimistic “the glass is half empty” theory, I for one still say those positives will eventually result in companies in our industry once again achieving strong balance sheets – it’s just a matter of when, not if.

However, watching the recent international financial news might sway many observers’ perception the other way. We have the financial crisis in Europe, continued stagnant housing starts in the United States, the multiple Occupy “name of your city goes here” protests against big banking and finance that are happening all over the world, including Canada, and the economic slowdowns perpetuated by natural disasters such as the Japanese earthquake and tsunami and major flooding in Thailand.

For the United States, our biggest trading partner and of course a huge consumer of Canadian wood products, things just don’t seem to be improving. According to our markets experts, as we bid farewell to 2011, U.S. housing starts for the year are expected to be slightly below the 587,000 units started in 2010. That’s a long way down from the long-term demand forecast of 1.5 to 1.6 million units and even further away from the last peak of 2.2 million starts. (You will find more on this in our Market Outlook column, starting on page 34.)

So at this point, you might justifiably be asking, where are the positives I spoke of at the beginning of this column? Well, for starters, there is the obvious – China. There is no question, the market in China has been good for the Canadian forest industry, and in particular B.C. producers. The value of B.C.’s softwood lumber shipments to China (including Hong Kong) for the first eight months of 2011 was $746 million. That’s considerably higher than the previous record of $687 million shipped for the entire year in 2010 and over 11 times the dollar value of B.C. softwood shipments to China just five years ago, in 2006.

In terms of volume, the B.C. government said more than 3 billion board feet of B.C. softwood went to China for the first eight months of this year. That compared to 2.8 billion board feet for all of 2010.

The increased numbers have moved China up to the number two spot in terms of B.C. softwood lumber exports, while Japan dropped to the number three spot. Although volumes to the U.S. are down substantially from past years, our neighbours to the south are still our number one customer, consuming almost $1.8 billion of B.C. softwood in 2010, which is down from a peak of $5 billion in the mid-2000s.

Going back to China, the impressive numbers in that market have helped several B.C. sawmills put their employees back to work in order to meet demand, and the lumber shipped to China during the first eight months of 2011 is equal to the production from about 12 average-sized sawmills.

So what else is there besides China? There’s word from some of the major forest products producers that restructuring and other cost savings measures have reversed their spiralling numbers and, in some cases, even put them in the black for the first time in several years. One of the biggest turnarounds was at Abitibi Bowater (now Resolute Forest Products), which reported net income in the third quarter of 2011 of $52 million when you exclude special items of $95 million. Even when you include the special items, the company’s net loss was only $44 million on the quarter, which is far better than the $829 million loss they reported for the third quarter of 2010.

Heading into 2012, we need to build on these positives. They are a step in the right direction. Hopefully we have finally hit the bottom and are now poised to rebound from what has undoubtedly been the worst few years in the history of the forest industry. In theory, things can only get better. Let’s hope so.

Bill Tice, Editor
btice@annexweb.com

July 6, 2012  By Bill Tice