west fraser's us$204 million loss hints at b.c. forest sector challenges
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logs are piled up at west fraser timber in quesnel on april 21, 2009.
the canadian press/jonathan hayw
/
the canadian press
the announcement this week by b.c. lumber giant west fraser timber co. ltd. that it had lost us$204 million in its latest financial quarter is a sign of how much damage the storm of u.s. tariffs, punitive duties and a weak lumber market are doing to the industry.
west fraser reported its financial results wednesday, with ceo sean mclaren citing “supply and demand imbalances” and the “challenging backdrop” of tariffs and duties, with the promise that his company will take “appropriate action that will ensure our operations remain flexible and sized to meet the needs of our customers while also controlling costs.”
the company’s financial report didn’t elaborate on what those steps would be, but west fraser’s report came out a day before smaller b.c. lumber firm sinclar group forest products ltd. announced on thursday that it will cut production at its mills in prince george, vanderhoof and fort st. james by 40 per cent effective oct. 27.
the reductions will be felt by 350 of sinclar’s employees, the prince george citizen reported, with the curtailments adding up to the equivalent of one mill’s output.
the citizen quoted a statement from the company that blamed “a confluence of external pressures from an unsustainable provincial policy landscape and persistent uncertainty around fibre supply to deepening economic challenges,” including tariffs and duties.
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to industry analyst kevin mason, news of sinclar’s reductions comes as no surprise at a time when the bigger, publicly traded forestry companies start on what he expects to be a parade of reporting red ink.
“the big public (companies) have been out there trying to rationalize capacity and try to deal with some of the oversupplying of the industry,” said mason, managing director of the analysis firm era forestry research.
“you can’t shrink down to nothing,” mason added, referring to the actions of west fraser and competitors such as canfor corp. and interfor corp. to close mills and slow operations to deal with the weak u.s. housing market.
“it’s going to be up to others to really do that, so the announcement from sinclar is not a surprise at all.”
mason said west fraser lost more money than expected, even before accounting for the payment of duties under the canada/u.s. softwood lumber dispute, which for west fraser are the lowest among canadian forestry companies.
west fraser’s total duty rate, with the additional 10 per cent tariff slapped on by u.s. president donald trump on sept. 29 on the argument that canadian exports “threaten to impair the national security” of the u.s., is 36.5 per cent, compared with the average of 46 per cent.
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“if they’re one of the lowest cost producers with the lowest duty rate of anyone in canada, it’s going to be just that much worse for the others out there,” mason said.
canfor, which has the highest combined duty rate of 48 per cent, which comes out to 58 per cent with the section 232 tariffs, reports its next quarterly results nov. 6, the same day that interfor releases its results for the period.
interfor’s quarterly report comes after its oct. 17 announcement that it would reduce its own output by 26 per cent due to weak lumber markets on top of duties, tariffs and uncertainty.
news of the additional closures prompted the industry’s key lobbying organization to renew its plea for more substantial action from the province on the matters within its control.
“the provincial government must act decisively to stabilize the sector in b.c., ensuring mills stay open, people stay employed and forestry continues to anchor rural, urban and first nations communities across the province,” said kim haakstat, ceo of the b.c. council of forest industry.
“every day without progress means more families, workers and communities are put at risk. we need renewed collaboration, leadership and urgency from governments and all industry partners and stakeholders to get people back to work and secure the future of forestry.”
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mason said forecasts for u.s. housing don’t look particularly bright with high u.s. interest rates and “a lot of strained consumers.”
“right now, there are no clear signs that there’s an upcycle (in housing) coming any time soon,” mason said.
that will likely mean more mill curtailments to bring balance back into the market, he said.
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