B.C. forest industry’s losses may be at an end: conference board

VANCOUVER — The signs are glimmers of hope that British Columbia’s forestry-driven industries may be at the end of years of punishing losses and high unemployment, according to reports released Tuesday by the Conference Board of Canada.

Much of Canada’s wood-products sector has returned to profitability this year, the Conference Board said in its Canadian Industrial Profile-Summer 2010, published in collaboration with the Business Development Bank of Canada.

And the paper-products sector, at least the segment of it that produces pulp and paperboard for packaging, should stem its losses this year and return to modest profits in 2011.

“In the near-term outlook, we do expect to see some growth [in the wood and paper-products industries], and do expect a return to profitability,” said Michael Burt, the Conference Board’s associate director for industrial economic trends.

In wood products, Burt said the post-recession rebound in Canadian new-home construction has helped the industry along with increased shipments to Asia. In the longer term, a slow recovery of U.S. housing starts should improve demand for structural lumber and push the Canadian industry to $1-billion-a-year profits by 2012.

In B.C., lumber giant West Fraser Timber Co. Ltd. has posted profits of $96.8 million over the first two quarters of 2010, compared with $340.8 million in losses for all of 2009. The story for B.C.’s second-place producer, Canfor Corp., is similar with the company showing profits of $72.9 million in profits over the first two quarters compared with total 2009 losses of $70.5 million.

In paper products, Burt said improvements in Canadian retail sales and the need for companies to restock inventories has increased demand for pulp and the paperboard in packaging, which should slow industry losses to about $139 million this year, but that will be an improvement on the $3 billion lost over the previous two years.

And the paper sector is expected to edge back into black ink in 2011 with modest industry-wide profits of $366 million thanks to stronger demand for pulp and paperboard, particularly in China and the rest of Asia.

Asian paper giant Sinar Mas Group’s purchase and restart of a pulp mill in Mackenzie is evidence of that trend.

But Burt added that the producers of paper for publishing, such as B.C.’s Catalyst Paper Corp., are still suffering through a secular decline in demand for their products. And Catalyst remains mired in losses with just over $412.8 million in red ink on its books for the first two quarters of 2010 alone.

However, Burt said recovery will be gradual, and for the forest-based industries he offered the caveat that “we don’t expect either segment to return to their peak levels of production or employment.”

Forests and Range Minister Pat Bell said he has a muted optimism based on the number of mills that are running and the modest investments companies are making in buying or improving operations.

“Those are all pretty positive signs that the forest industry is in recovery,” Bell said. “And the next couple of years will probably lead to some pretty strong economic times for them.”

However, looking at the provincial forest harvest as a sign of industry health, it remains a long way off peak levels.

Bell said he anticipates forest firms will harvest about 45 million cubic metres of timber this year, which is an improvement from last year’s low harvest of 40 million cubic metres, but still significantly off the 70 million cubic metres of timber a year the industry processed into lumber, plywood, pulp and paper as late as 2005/06.

“Not every industry is at the same point in their recoveries, but improved profitability can be expected as demand grows and the cost-cutting implemented during the recession starts to help the bottom line,” Burt said.

In another key sector, the Conference Board’s forecast for furniture manufacturers, who have seen declining production over the past decade due to cheaper imports, is for modest increases in profitability while foreign competition remains “fierce.”

The report forecasts a third consecutive year of losses for auto parts makers, though this year’s losses of $41 million will be far less than was lost in previous years. “U.S. vehicle demand is gradually recovering and cost-cutting measures implemented during the recession are improving the bottom line — to the extent that the industry is expected to be profitable in 2011,” the report says.