Major Forestry Players Say Industry Not Yet Out of Slump

Thursday, July 31, 2008 09:23 AM

Prince George, B.C. - The lumber industry still has a long way to go before there is a turn around in the market. That is the message delivered by both Canfor and West Fraser today during their second quarter conference calls.

Canfor’s CEO and President Jim Sheppard says while his company recorded a profit in the second quarter, accounting methods and the NCP insurance claim had a great deal to do with that success. Shepard says when it comes to the market, supply is now matching demand, but that came at the price of mill shut downs and production curtailments. “We’re just hunkered down in the trenches and doing the best we can.” Shepard says there have been efficiencies in production due to the efforts of employees “We’re watching our pennies in every mill we’ve got.”

The message from West Fraser CEO Hank Ketcham was much the same. He says the small profit shown by his company during the second quarter had more to do with accounting and write downs than the reality of the market.

Ketcham says there is no sign of any recovery in the U.S. housing market. “We don’t know when this market is going to turn around, we don’t know what the Canadian dollar is going to do.” If the Canadian dollar goes up one cent in value, that costs West Fraser $14 million dollars in tax.

The two companies are also seeing increases in transportation and energy costs. Both are looking to energy production to reduce their costs. For Canfor, it’s a wood residue plant in Ft. St. John to offset the cost of using natural gas to dry wood, and for West Fraser, it’s a biomass energy project at the Cariboo pulp mill that would supply excess power to the B.C. hydro grid.

Both companies are working towards a solid balance sheet that will put them in a position to acquire new assets. Canfor says the U.S. opportunities look good, especially when it comes to energy costs, but CEO Jim Shepard says Canfor will “Keep an eye out for any opportunities as they present themselves.”

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Posted on Thursday, July 31, 2008 09:23 AM in News by 250 News

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Comments

Posted by: Born in BC on July 31 2008 2:12 PM

The Canfor explanation makes some sense with the insurance proceeds being included in income, but the accounting (stated by both) and the writedowns (stated by WestFraser) do not make sense. Accounting can create the illusion of losses when there might be gains, but rarely the other way around. And writedowns increase expense and decrease net income and this doesnt create gains (by increasing net income). Show us enough respect to come up with something better than this. Sounds like the economics might be changing but they want the employees to worry so they may get some more concessions.

Posted by: lost it all on July 31 2008 8:14 PM

"Canfor says U.S. opportunities look good." When Canfor does not need plants to process logs in B.C. as is the case in the NCP plant not being rebuilt, kinda makes you wonder were there U.S. opportunities will get there fibre. A fibre supply was available in both Fort St. James and the Mackenzie forest districts for a new NCP plant. Maybe Gordo will get alot of use out of the new super port in Prince Rupert exporting B.C. raw logs to Canfors U.S. opportunities.

Posted by: socredible on July 31 2008 9:54 PM

Canfor has already invested in buying mills in the US south-east. They wouldn't be receiving logs from BC there. Some of the independent larger companies in that region have substantial private timber and cutting rights, but are suffering from the present poor lumber market the same as mills here are.

Some have spent considerable sums on modernization in recent years, but the expected returns, even with the duties against Canadian competition under the softwood lumber agreement in place, simply aren't materializing at present.

I would think some of the owners of those companies would far sooner sell right now, than take a chance on more losses over the next year or two, and the possiblility of losing their equity in a bankruptcy.