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April 2006 - The Logging and Sawmilling Journal

Top 30 Lumber Producers

The new ranking of Canada’s Top 30 softwood producers shows that while companies may have fewer sawmills, those sawmills are producing more lumber than ever.

By Russell E Taylor

The new ranking of Canada’s Top 30 Softwood Lumber Producers shows that the country’s lumber producers may have fewer sawmills, but those mills are producing more lumber than ever, turning out dimensional lumber and other wood products on a world-scale basis.

The 10th annual survey of Canadian softwood sawmills has found that in 2005, Canada’s total lumber production of 34.5 billion board feet was 2 per cent lower than in 2004, but its exports to the US were up by 2.6 per cent. Total US and Canada lumber production rose by 1.6 per cent to 75.2 billion board feet.

The 10 largest Canadian companies increased production per sawmill over 2004 levels by an average of 14 per cent, to 167.2 million board feet per mill as well as growing their share of Canadian production to 58 per cent (from 52 per cent in 2004). At the same time, the top 30 Canadian companies produced 78 per cent of the country’s lumber output in 2005 (versus 73 per cent in 2004).

These results dramatically support the growing consensus that fewer sawmills in Canada are producing more lumber, a trend also apparent in the US (but occurring at a faster rate in Canada).

In 2005, four Western Canadian mills (435 million board feet of capacity) and eight Eastern Canadian mills (380 million board feet of capacity) were closed. In addition, three Western and two Eastern Canadian mills have already announced permanent closure in 2006 (650 million board feet of capacity).

Canadian companies have been forced to find new competitive strategies as a result of the prolonged effect of American duties, a rapidly rising Canadian dollar (up 7.3 per cent in 2005) and declining log supplies in Eastern Canada and coastal BC. Compounding these difficulties, lumber prices trended down in 2005 by as much as 10 per cent in the case of the bellwether 2x4 W-SPF #2&btr (slipping from an average of US $394/thousand board feet to $353/thousand board feet).

There were two stories on the lumber side in BC, differing between the Coast and Interior regions. Coastal operations struggled with low margins due to high log costs and depressed cedar/hemlock lumber prices (forcing some mills to take curtailments and others to close permanently), while many Interior operations were running three shifts to take advantage of an oversupply of beetle-killed wood. The net result was that BC coastal production contracted by 5.5 per cent in 2005, to 2.6 billion board feet, while Interior output rose by five per cent to 14.9 billion board feet.

In Ontario and Quebec, most of the leading integrated companies faced hard decisions
about which mills to close in response to provincial harvest reductions. The hardest hit
was Quebec, with production dropping by 10.4 per cent to 7.6 billion board feet. Volumes from the Prairie Provinces also experienced a 10 per cent reduction, falling to 3.7 billion board feet (due primarily to high log costs).

The major Canadian corporate ownership change in 2005 was Western Forest Products’ purchase of Cascadia. (Cascadia itself was a spin-off of the Brookfield—previously known as Brascan—acquisition of Weyerhaeuser’s coastal BC operations). BC’s Canfor Corporation was Canada’s largest lumber producer in 2005 for the sixth straight year.

Canfor’s output of 4.62 billion board feet was well ahead of second-place West Fraser’s 3.82 billion board feet (West Fraser acquired Weldwood at the end of 2004). Canfor sold three BC mills (Fort St James, Valemont and Slocan) in 2005 and began major upgrades on its Vanderhoof, BC, mill to raise capacity to 600 million board feet (similar to its Houston, BC, operation).

Making the biggest jump in 2005 was Tolko, up from eighth place to third through a doubling of its annual output (to 2.31 billion board feet) due to the acquisition of Riverside Forest Products.

Just behind Tolko was Abitibi- Consolidated, down from third to fourth position with steady production of 2.1 billion board feet. Weyerhaeuser slipped from fourth spot to fifth with a 20 per cent drop in output (due to the sale of its coastal BC operations). Tembec fell to sixth spot; it maintained its overall production of 1.5 billion board feet despite shutting a number of older sawmills.

Clearly, the main focus for Canadian sawmill companies has been to reduce costs by closing older, inefficient sawmills and expanding production at new, stateof-the-art, lower-cost mills. In 2004, for example, the 191 sawmills owned by the top 30 firms produced an average of 135 million board feet per mill, in contrast to 2005 when 166 sawmills produced an average of 162 million board feet per mill (an average increase of 20 per cent per mill).

Although three Canadian companies grew their output substantially in 2005 (mainly via acquisitions), many of the larger Canadian firms have realized that some of their operations are uncompetitive, resulting in a shedding of older, inefficient facilities.

In 2006, more competition and an anticipated drop in North American lumber demand/prices are likely to drive a rethinking of corporate strategy. As the least efficient mills and companies disappear, more corporate concentration of lumber output is expected to occur in North America. Ongoing investment in new technology should drive up output and reduce costs.

The acquisition of US sawmills by Canadian lumber companies is another trend worth noting. Three firms (West Fraser, Interfor and Canfor) have recently made major acquisitions in the US. In 2006, it‘s estimated that the US-situated sawmills of these Canadian firms will produce over 1.3 billion board feet. As a means to mitigate the impact of American duties on Canadian lumber, this growth strategy could be the beginning of a new trend for Canadian producers.

The annual lists of top 30 Canadian lumber producers is researched and compiled by WOOD MARKETS Monthly Report.

Russell Taylor is president of R E Taylor & Associates & International Wood Markets Research Inc, publishers of the WOOD Markets Monthly newsletter in Vancouver, BC. Phone: 604 801-5996 E-mail: retaylor@woodmarkets.com; www.woodmarkets.com

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