An Editorial Opinion - Right From The Stump, September 5, 2024
Yesterday, Canfor announced the closure of its Fort St. John and Plateau (Vanderhoof) sawmills for later this year. After these two closures, Canfor’s only presence in the northern Interior will be its Prince George sawmill and its pulp mills.
While the BC Interior timber harvest in 2024 has been trending upwards, current levels are just too low and costs are too high to continue operating these northern interior mills. The BC government is focused on the immediate response to workers and communities today, but it needs to be thinking about where this "foundational industry" is heading.
Of the 10 sawmills in northern interior that Canfor has closed since the peak of BC lumber production in 2006, five have occurred in the last two years. Before jumping to conclusions, you should know that Canfor has not been alone in closing mills.
Since the NDP came to power as the provincial government in 2017, some 30 sawmills in the province have been impacted by indefinite or permanent closures. These closures represent an estimated reduction of 35% of BC’s sawmilling capacity!
When a forest products company closes a mill, it affects the lives of employees, contractors, suppliers, and impacts local communities. It is not something done on a whim. Such decisions are not only a statement on current conditions but are a comment about future prospects.
In the July 2024 edition of the View From The Stump, an analysis of timber harvest in 2023 relative to AAC showed the weakest performing area in the province was the northern interior. Utilization of AAC was just 48% for the northern interior. The southern interior utilization was 69% while the coast was 54%. When you have operating statistics such as these, closures should come as no surprise.
In a prior announcement earlier this year, Canfor had decided to change course and not invest in rebuilding their closed Houston mill, which was a strong message that there was a lack of confidence in investing in British Columbia’s forest sector. Industry expert, Russ Taylor wrote,
“It is a message to government that BC is “uninvestable” as some analysts have previously stated due to its ongoing and numerous forest policy changes that continue to create business uncertainty, resulting in a negative business climate for investors considering BC. This is a real slap in the face for BC’s Ministry of Forests and government and is also a clear dose of reality that most in the BC forest industry already understand.”
Now with yesterday’s announcement, Canfor has essentially doubled down on its view that it does not see the situation improving in the northern interior. Canfor’s shareholders appear to agree given the day after the announcement (today) its share price actually improved 1.77%, suggesting the company’s investors consider reducing exposure to British Columbia as a good thing. That’s quite the message, but is it being heard in Victoria? Actions speak louder than words.
As big of an impact that Canfor’s announcement represents, it is actually just the canary in the coal mine for something much darker on the horizon. Canfor summed up the issues as:
“In recent years, increasing regulatory complexity, high operating costs and the inability to reliably access economically viable timber to support our manufacturing facilities has resulted in hundreds of millions of dollars of losses in our BC operations.”
In addition, Canfor said punitive US tariffs “are expected to double again next year.”
Currently, Canfor pays 16.58% in combined duties while the “All Others” rate is 14.54%. Doubling the current duties would suggest that BC lumber producers could be facing duties of ~30% a year from now. If conditions as described by Canfor continue and should 30% duties become reality, it is plausible that most sawmills in BC will be challenged to continue operating.
British Columbia cannot negotiate an international trade agreement like a softwood lumber deal by itself, but it can certainly change course on the regulatory and cost fronts. My recommendation is to immediately take action by setting up an emergency task force to begin addressing the issues directly (regardless of the election). Without doubt, more closures are expected before the end of this year.
If the BC forest sector’s resiliency is not significantly improved by this time next year and should duties indeed double, the likely impact will make Canfor’s closures look like a minor issue in comparison to what will come.
To read these posts from Right From The Stump CLICK HERE
To support research-based commentary like this, please subscribe to the View From The Stump newsletter CLICK HERE
To receive notification of blog and newsletter publications, provide your email CLICK HERE
For speaking engagements or strategic advice please contact the Spar Tree Group.
Written By David Elstone, RPF
Publisher, View From The Stump newsletter
Managing Director, Spar Tree Group Inc.