Timing is Everything
When is the right time to invest in capital upgrades? That’s a question those involved in the lumber manufacturing sector in B.C. have scarcely been able to contemplate during the past few years of economic turmoil. It’s a continual guessing game as to when the U.S. housing market will rise again, and just how long China will continue booming. But with a careful balance of a product mix that meets multiple market demands and strategic marketing of world-class Canadian coastal lumber, both domestically and abroad, Western Forest Products (WFP) is now in a perfect position to invest for the future.
With nine solid quarters of profitability under their belt during very challenging times, the management team at WFP made the decision to move forward with a reinvestment strategy and has announced a $200 million capital upgrade program. “Financial results over the last nine quarters have allowed us to make this investment possible, which will result in overall cost reductions and allow us to effectively reposition our business,” Lee Doney, vice-chairman of WFP, says.
“Western’s globally competitive forest products business will be enhanced through any investments that we put back into the company,” Doney adds. “We know that our current infrastructure needs re-investment. We’ve planned to direct $125 million from the overall $200 million plan as a purely strategic investment going towards the re-capitalization and modernization of our mills. We are looking forward to the eventual turnaround in the U.S. economy, and see this as the time to use profits in preparation for that. When the markets are not good, you use that as a time to cut costs, but as profits return as they currently are, you use the synergies generated throughout each quarter to invest for the future.”
The first step of the capital plan was announced in February of this year: a project in the company’s Saltair Mill on Vancouver Island. “$16 million will be going toward a retrofit that will increase productivity by 15% and there is more to come for Saltair. We will not be making improvements at every mill, but we hope to make some further announcements late this summer, or perhaps in early fall as to exactly where any further improvements will be made,” he says.
For WFP and other B.C. companies, export market improvements are making a huge difference to the bottom line. The B.C. government reported that in 2011, the value of British Columbia’s softwood lumber exports to China jumped by 60%, surpassing the $1-billion mark for the first time. Lumber going to China accounts for 32% of all B.C. softwood lumber exports; while only the U.S. remains a larger market for Canadian lumber with a market share of 42%, accounting for almost $1.6 billion of exports. Japan is the third-largest market for B.C. lumber, having received $648 million worth in 2011.
“The expansion of the Asian market is part of the reason for capital investment/expansion right now,” Doney explains, adding that Asia is only one of the three primary markets where they currently sell.
“We really believe in Japan as it has always been a good market for us, because we provide the high-quality products that they are looking for,” Doney adds. “China is becoming an increasingly good market for us, in particular for the lower-quality hemlock products. And thirdly, we are making inroads in the domestic Canadian market. These three areas replace the losses from the U.S.-market declines.”
WFP has eight primary mills and two remanufacturing plants. The company recognizes that the biggest challenge is to continually adapt production to meet changing market demands. “We produce for quite a diverse market base, with a whole variety of products,” Doney explains. “For the Japanese market we make both large and small beams from Douglas fir; from cedar, we produce siding, decking and fascia boards; our hemlock goes to Japan and China; and we make some higher-quality finished wood for Europe for things like saunas. We continue to change our production within this species mix, and the real challenge is to meet this diverse market demand, using our wood basket, with real marketing in real time. And we produce higher-value products because of it. We believe that the wood business on the coast has a real advantage because we have excellent-quality wood fibre, and we have none of the worries faced in the B.C. Interior such as pine beetle issues.”
Doney notes that through both good and bad markets, it’s important to have this type of diversification. “You also need to have the sales forces placed across Japan/Australia/Europe with the ability to distribute across the world. This really has helped us react quickly to the changing markets,” he says.
WFP’s Saltair Sawmill
$16 million of WFP’s total capital upgrade plan has been slated for the Phase I retrofit of the Saltair Sawmill in Ladysmith on Vancouver Island. “These improvements will make this mill more efficient, quicker, and will help with better output,” Doney explains.
The Saltair mill processes mid-size coastal logs – hemlock, Douglas fir and western red cedar – into specialized products for the Asian market, as well as for Europe, Australia and North America.
The product line for the mill is complex and one of the facility’s unique features is that it produces cuts from all three species. “This means we are always working on up to 12 different order files, and 12 different cuts,” Iain Donaldson, strategic manager at WFP, says.
Donaldson adds that the flexibility they have – from their people to their equipment – is paramount to their success, pointing to the quickness and ease of product cut changeover they are able to provide within the mill, which is one of the biggest advantages in this mill and one of the reasons it works so well,” he adds.
“We hope to see the Saltair Phase I improvements completed within a year to 18 months, and we are doing it in phases to keep the mill running throughout the process,” Donaldson explains.
“WFP is hoping to achieve increased production volume as well as a higher recovery/higher value or a combination of the two with our upgrades,” Doney says.
“But more importantly, the quality will be better, and the speed will increase due to the improvements to the sorting facilities. This will result in lower costs overall.”
Having access to adequate fibre supply remains a priority for the company. Doney explains, “We continue to work with government and other parties to communicate the direct link between tenure security, our business stability and ability to invest with confidence.”
The changes at the Saltair mill will only affect the sawmill, although upgrades may come later for the planer mill, Donaldson says. “The first improvements we make should increase production numbers from an approximate level of 160 million board feet upwards to 195 million board feet, once the first phase of the upgrade is completed.”
The upgrades will be implemented in stages, with the first efforts now focusing on specific internal operations. “The mill is in the midst of non-capital upgrades, which means we are examining every aspect through performance management reviews, number crunching, better and planned maintenance, and various initiatives which will improve all areas …we want to raise the mill to the best possible standard prior to bringing in the new equipment,” Donaldson says. The arrival for most of the new equipment is slated for this fall.
“All of the equipment upgrades will begin from the back end of the mill. Our theory and belief is that if we open it up from the back, we will recognize the improvements of the mill, working forward, removing any constraints as we work our way through. We think this process will be effective and we intend to do it without any major shutdowns. We will build and continue to operate as we proceed, utilizing short breaks such as long weekends to make the changes.
The improvements will not increase the number of shifts running. That is how we will realize the benefits – we will reduce the unit cost while expanding the volume. That will be the biggest achievement that we are looking for, improved production that will directly impact costs in terms of recovery and product,” Donaldson says.
During the upgrade, WFP will be using outside contractors to complete the project. “Internally, we will handle the tie-ins and that sort of thing. If we were shutting down completely, we would use our employees, but since we will continue to operate, we simply need contractors for the additional work required.”
Donaldson told Canadian Forest Industries that the planned upgrades are intended to alleviate or reduce bottlenecks in the mill. This will improve productivity as well as enhance safety within the work environment
Phase I upgrade plans evolve daily. Donaldson says that they will be adding a new sorter and stacker, changing up the trim line, as well as installing upgraded board edgers, which will improve how multiple sizes of many of the products are produced. “The new edgers will make it easier to produce some of the hemlock squares and other products for the Japanese and North American markets,” he adds.
Donaldson says that a variety of equipment suppliers will be instrumental in the upgrade, and will include MillTech for the stacker sorter and USNR for the edgers and scanner. The trimline has not yet been awarded.
One special consideration for this particular site has been that space is limited and the yard is filled to capacity with its many products, so physical expansion is somewhat limited.
Doney concludes, with a measure of pride, that continually adapting the product mix is key to WFP’s success. WFP has recently developed a brand new product in conjunction with FPInnovations. “This new product is made of hemlock, which is normally a challenging species at the best of times, which is for highway sound abatement,” Doney says. “We are feeling quite positive about this product, which has only been in the marketplace for the past six months, and already is being used by both the B.C. provincial government and some local municipalities. So far we’ve seen some success and we feel it will be a good product going forward for us,” Doney adds.
Doney says that this is just one example of Western’s ability to provide a variety of products to a diverse customer base, which will ensure that the company is able to operate through varying market conditions for the long term. And as Saltair’s upgrades reach completion, WFP will boast a more competitive mill that can absorb market fluctuations more readily, providing more stable and secure employment for its 140 existing mill jobs. And as those in the forest industry see some optimism for the first time in years, the timing for a large-scale capital investment that will provide for the future for Western Forest Products couldn’t be any better than now.
Western Forest Products Cowichan Bay Mill
Affectionately known as “Cow Bay,” Western Forest Products (WFP) Cowichan Bay Mill is located in the southeastern region of Vancouver Island. Major upgrades were achieved at the sawmill back in 2006 with equipment from USNR’s Salmon Arm division, before the industry hit the hard times and further upgrades were put on hold.
With the recent announcement of positive financial returns over the past nine quarters, additional funding is now targeted for the planer mill to begin to bring it up to date, reduce unit costs and make the mill more competitive and resilient through the next up-cycle.
The Cow Bay mill manufactures dimensional lumber primarily from hemlock that is processed, graded and sold green, and marketed worldwide. The mill’s annual capacity is approximately 200 mmbf and it employs 120 workers over twao shifts.
The new line will feature some additional USNR gear, including a new Positioning Transfer, a Multi-Track Fence, a Multisaw Lineshaft Trimmer and Extended Ending Roll Transfer, on a 13.5-degree incline, which will result in a much higher speed capability.
Space confines were one issue that needed to be resolved before the unique layout could be finalized. The design team decided that putting the equipment on an incline would be a workable option for the space where the boards come out of the planer to the sorter infeed. This also provided some unexpected benefits.
“By utilizing this incline, we were able to extend the ending rolls six feet longer than planned, and that really allowed us to increase the throughput speed, which is fantastic,” Roger Perry, Cowichan Bay mill manager, explains. “We anticipated putting in a trimmer that would allow us to run 120 lpm, and at a future point in time having to put it into a different layout configuration to get to 160 lpm.”
Perry also is happy with the new USNR Multi-Track Fence and the trimmer that was selected, as it accommodates 17 saws including a Precision End Trim (P.E.T.) saw.
Overall, Perry has been quite pleased with the installation and start-up process. “The biggest improvement we’ve seen at this point is better continuity of operation,” he explains.
“We don’t have the starts and stops we had before and we’re also seeing much, much better trim quality than we had
August 13, 2012 By Sandra Tice
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