British Columbia forest products industry faces uncertain future

Government plans to set aside 6.4 million acres of forest for two years as they work with First Nations communities on permanent old-growth timber management plan

Timber markets in British Columbia were thrown into a state of confusion early this month when the provincial government announced 2.6 million ha (6.4 million acres) of forest would be set aside from harvest to protect old-growth stands. The “deferral areas” will remain in place for about two years while the government works with First Nations communities to come up with a permanent old-growth timber management plan.

Immediately, the government will cease offering stumpage through its BC Timber Sales program in the deferral areas. Current forest tenure holders will not be allowed to harvest in deferral area overlays. Of the 11 deferral set-asides, five are on Vancouver Island and three are near Revelstoke.

While government officials admitted the deferral could cost 4,500 jobs, the BC Council of Forest Industries (COFI) paints a much bleaker picture saying the policy could trigger the closure of 14-20 sawmills and two Coastal pulp mills. Job losses, the association estimated, could be upward of 18,000 direct and indirect positions.

Reactions to the plan among forest products industry sources ranged from grave concern to utter outrage. Contacts were quick to point out that the panel formulating the deferral plan excluded industry input and was made up of environmental group representatives.

A multi-mill wood buyer said, “It’s going to be devastating and someone may have to close a pulp mill. We will lose suppliers, and costs will increase. This is being done to appease the greens. Old growth is a hot topic in BC – especially on the Coast.”

Several sources said the program was given fuel after months of logging protests. “It’s unbelievable and the impacts will be significant,” an Interior wood procurement manager said. “It was done on a very high level, not disseminated to the ranks, and there was no quantification of economic impacts. The set-asides were over double what we anticipated and this could decimate the industry.”

First Nations communities were given 30 days to respond to the deferral plan. The leader of the Union of B.C. Indian Chiefs said the brevity of the response window is “absolutely ludicrous.”

Woodfiber inventories remain stable for now
Currently, woodfiber consumers across the province reported stable inventories and decent availability. Fall logging conditions are spotty, with coastal rain and a later-than-usual freeze in the Interior. By press time conditions were reportedly improving.

Little change in fiber pricing was seen since second quarter, though still significantly elevated from a year ago due to a strong market pulp pricing run. Pulp prices were reported softening, however, and contacts said fiber prices are poised to soften if the trend continues. (Most pulp mills base wood pricing on formulae tied to pulp market realization.)

Several sources said they were sitting on strong chip inventories left over from robust sawmill activity during this year’s period of lofty lumber prices. Sawmills cut back shifts when pricing fell in late summer when lumber prices retracted; however, shifts are coming back on with a return of strong sawn wood demand.

Said one wood buyer, “We still have excessive chip inventories from earlier in the year and are healthy now as a result.”

NBSK demand is currently softening, the deferral’s affects are unknown as of yet
Northern Bleached Softwood Kraft (NBSK) pulp markets continued sagging though third quarter, continuing a trend that started in June. To the US market, NBSK pricing was down US$56 per tonne from second quarter and up 33% from a year ago, while pulp to China was down US$20 per tonne from second quarter and up 44% for the same period.

Said P&PW, “Several major NBSK producers have idled mills this fall for regularly scheduled maintenance, lowering their incremental supply that typically goes to spot markets in the US and offshore. In addition, the profound logistical difficulties they’ve had throughout this year haven’t abated, while costs for wood, chemicals and ocean freight have continued hammering their production costs.

“‘We continue to see strong demand domestically and with added costs on logistics, chemicals, wood … it certainly doesn’t need to go down and the floor price will be much higher in the end,’ said a Canadian NBSK producer. Strong pulp demand for printing and writing papermakers has helped mute the effect of an exceptionally weak export market to China, according to several contacts at NBSK producers.”

BC pulp producers are heavily dependent on sales to Asian customers and reported softness in demand. Said one producer, “There wasn’t much of a market in Asia (during third quarter), but we’re just now getting back to it.”

Field comments
The old growth deferral program is the elephant in the room on the fiber supply front. Sources worry that if COFI is correct in its projection that 14-20 sawmills will close, chip availability will tighten significantly and residual prices will surge. Time will tell.

For now, said a Coastal wood buyer, “We are literally stuffed with chips, especially after a maintenance shut. We also have satellite piles. That’s today, though. The deferral could change things quickly.”

An Interior wood procurement executive noted, “We have good inventories and the sawmills that curtailed during third quarter due to the drop in lumber prices are coming back on this quarter. Harvesting is ramping up, the bush is freezing, and there hasn’t been a lot of rain.”

Sources said log inventories are on the thin side as a drop in provincial stumpage rates is anticipated in January. Current rates – which are determined by lumber prices – were last set while lumber prices were at astronomical levels. So, buyers are hedging until the next adjustment.

Get more insight into the dynamics at play in the forest product market at

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