Gradual rebound forecast for forestry

As 2009 came to a close, Canfor Corp. announced it would invest $16 million to upgrade its Chetwynd sawmill for a planned re-opening this spring.
After a 20-month shutdown, the restart will put about 70 people back to work.

That announcement was one of a handful of more positive forestry developments in 2009, which also included the one-shift re-opening of Canfor's sawmill in Mackenzie, the short-term re-opening of AbitibiBowater's sawmills in Mackenzie and inroads into China's fledgling lumber market.
But even though the worst of the forestry downturn is believed to be over, 2010 is not forecast to return the North American solid-wood market to its former heights of 2004 and 2005 when U.S. housing starts peaked at 2 million.

Forecasts peg housing starts to continue at well below 1 million, likely in the 700,000 range.
Forest industry analyst David Elstone characterizes the market as being at the bottom of a ski slope, beginning a slow ride to the top, but certainly not on the "fast" chair lift. "It's pretty much going to be more of the same to a certain degree, but hopefully not as painful," said Elstone, an analyst with Equity Research Associates.

Elstone noted there continues to be a risk of a double-dip recession in the United States, a recession characterized by a brief intermediary period of economic recovery. That points to the uncertainty of how the U.S. economy will recover, he said, noting that Japan has continued to suffer from a stagnant economy for the past decade after a major recession.
Elstone also cautioned against reading too much into a quick uptick in lumber prices, saying it wouldn't necessarily be linked to a fundamental change in demand but to volatility in prices linked to supply.

Near the end of the 2009, lumber prices had climbed to the $250 level, but then quickly fell off to the $200 level before the new year.
However, Elstone noted that the pulp market is looking robust, which is positive for B.C.'s Interior and Prince George. Canfor Pulp, which was spun-off from Canfor Corp. in 2006, operates three pulp mills in Prince George. Canfor Pulp is also planning to spend about $140 million in upgrades on its three mills.

In another development late last year, Tembec announced it would re-open its pulp mill in Chetwynd this spring, putting about 150 people back to work.
The re-start announcements only go a small way to offsetting the more than 3,500 forestry job losses in northern B.C. in the past three years.
Still, United Steelworker union local 1-424 president Frank Everitt says the prospects for this year are more positive than last year. The union, which represents thousands of sawmill workers in B.C., has been in slow contract negotiations since last summer. The union has scheduled talks with Canfor Corp. this week in Prince George, and later this month with West Fraser.

"I think you are going to see a gradual upswing in the market," said Everitt.
He also likes the inroads the B.C. lumber sector is making into China. British Columbia more than doubled the volume of lumber sold to China in 2009 to about 1.5 billion board feet, equivalent to the output of about six B.C. Interior sawmills. "I think a little diversification will go a long ways to making sure we got sales for our products," observed Everitt.

Canfor Corp., which is operating at about half of its lumber capacity, is also still looking at moving to two shifts at its Mackenzie sawmill. On Monday, Canfor spokesperson Dave Lefebvre said that is still the plan.

Like other lumber operations, Dunkley Lumber, located south of Prince George, has reduced its production. It will continue to operate on one shift at its sawmill and two shifts at its planer mill for the foreseeable future, said Dunkley manager Blair Mayes.
As well as keeping an eye on how the U.S. market will recover, Mayes said another concern is the Canadian dollar. A rise in the value of the loonie compared to the U.S. dollar erodes the revenues of mills shipping to the U.S. The loonie averaged 88 cents US last year, and is expected to be even higher this year.

Mayes did welcome the emergence of a Chinese market, noting Dunkley likely shipped as much volume in 2009 into China, although of a lower value, as it did to Japan. "From our perspective we are going to keep our fingers crossed, and hope it's a little better and that it doesn't slip backwards. The biggest whammy would be a slip back," observed Mayes.