BIV MAGAZINE
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BIV MAGAZINE: THE BC INVESTING ISSUE 2020 PUBLISHED BY BUSINESS IN VANCOUVER
RATIONALIZING B.C.’S TIMBER TROUBLES Opportunities are in the north and in the niche as the sector rationalizes mill capacity
NELSON BENNETT
A
sk any forestry industry executive what the best investment opportunity in B.C. is these days, and he or she might flippantly answer, “Alabama.”
B.C.’s forestry majors continue to spend capital on mills and equipment – they’re just not making those investments in B.C. Mostly, they have been curtailing production in B.C. and investing in American lumber mills. While B.C.’s forestry sector remains a major economic anchor in B.C. and the province’s largest export sector, it is an industry that is in the throes of rationalization, as majors scale back milling capacity that now exceeds timber supply and lumber demand. Smaller, private companies continue to invest in new plants and equipment, and there are niche markets that could be developed – engineered wood product plants and pellet production, for example. And there is more than enough timber in the Fort Nelson area to support new specialty mills. But the bread and butter of B.C.’s forestry sector – dimensional lumber and pulp – is in a long-term contraction. For two decades, the sector burned through a bonanza of dead and dying pine, the result of the mountain pine beetle epidemic. But pine beetle timber is pretty much gone, and investment opportunities in B.C.’s forestry sector have fallen off. Six sawmills were permanently shut down in B.C. in 2019 and they are not coming back, industry analysts say. “Given potentially low returns and heightened risks, in the absence of change we expect lumber companies will deploy capital to regions outside of B.C.,” a report by Forest Economic Advisors concluded in August 2019. Impediments to investment in B.C.’s forestry sector basically come down to high operating costs and a shrinking supply of merchantable timber. B.C. simply doesn’t have enough affordable timber to sustain all the sawmills and pulp and paper mills that were built over the years. So any new investments will likely be in niche markets, not the traditional dimensional lumber or pulp and paper sectors. And those investments will likely come from smaller private companies, not the majors.
For example, Hampton Lumber in Oregon recently acquired a sawmill and tenure in Fort St. James from Conifex Timber Inc. and plans to build a new sawmill there. The San Group Inc. is investing more than $70 million in a new sawmill in Port Alberni, and Kalesnikoff Lumber Co. Ltd. is building a new $35 million cross-laminated timber (CLT) plant in Castlegar. The provincial government has been playing up the opportunities for CLT plants in B.C. since it adds an additional link in the value chain. “The overall focus is we need to go from being a primary producer of dimensional products to a producer of dimensional and value-added products,” says B.C. Minister of Forests, Lands and Natural Resource Operations Doug Donaldson. But Russ Taylor, analyst for Forest Economic Advisors, says the market for CLT – tall wood buildings and bridges, for example – is still fairly small. He’s not expecting to see CLT mills popping up in place of every dimensional lumber mill that shuts down. “It’s a very niche-y business,” he says. He adds that there is still a fair amount of wood waste available from existing sawmills in B.C., which could feed new wood pellet plants. The pellets are exported as a renewable fuel – an alternative to coal – and burned for thermal power generation in places such as Japan and Europe. “There is a lot of waste wood, and that’s going to maybe create another opportunity for a couple of pellet mills, but they’re not a lot of jobs,” Taylor says. One government policy that doesn’t get a lot of attention, but drives some fairly significant investments in energy efficiency by lumber and pulp mill operators, is a government carbon policy that provides carbon credits. It has resulted in a number of mills investing in fuel switching: reducing or replacing natural gas – typically burned in drying kilns – with wood waste (bioenergy), which can be used in cogeneration to produce power.
Opportunities are in the north and in the niche as the sector rationalizes mill capacity
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2020-02-26 12:04 PM
