What Is The Future Of Pulp Mills In Canada?

By Ben Meisner

We have had the beetle epidemic, a major down turn in the world demand for soft wood lumber and through it all, the saving grace has been the pulp industry, which has been able to chug along, in many cases propping up the saw mills associated with them.

That all could come to an end and very quickly if the US government continues to subsidize the US pulp industry through a loop hole that allows companies to use a tax credit if fossil fuel is mixed with alternate fuel to reduce the use of fossil fuel.

Pulp mills create black liquor and burn that liquor to recover chemicals and create heat, so it is an alternate fuel. By adding diesel fuel to the black liquor, US companies could see a subsidy of up to $6 Billion a year in a tax credit.

In a recent interview Canfor officials in Prince George pointed out the fact that one pulp company received $70 million in subsidies in the 4th quarter. So you don’t really need to make pulp in order to make money.

Now what is the effect on the pulp industry not only in Canada but worldwide?  These U.S. companies will be able to produce pulp at about 75 to 80 cents on the dollar to what it costs a Canadian company to produce. Pulp mills in the USA that have been mothballed for several years are looking at getting back into production. The American taxpayer is providing the bottom line for these companies which are more than happy to take advantage of the offer.

International Pulp and Paper who operate on both sides of the border will not be coming to the table to try and have this subsidy dismissed. Why should they?  After all, they will be benefitting from the subsidy south of the border.

Where does that leave a company such as Canfor in Prince George? There will be few options, but if the US government insists on keeping the subsidy then there remains only one other avenue to compete, cut costs.

Now how do you cut costs? The costs of goods and oh yes, the matter of labour costs immediately comes to mind. We could see a move to reduce those labour costs if the US government continues with the subsidy and there will have to be some very serious soul searching by all connected to the industry if it is to survive in Canada.

Prince George could face yet another major blow to its forest based economy and in order for even one pulp mill to survive, faced with the subsidies of US producers, drastic measures would be needed.

I’m Meisner and that’s one man’s opinion.

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