09:48 PM EDT Aug 23
ANDREW DAVIDSON / CBC
TORONTO (CP) - Cascades Inc. is shutting down a fine-papers machine at its Thunder Bay, Ont., operations and cutting about 150 jobs in the latest blow to Canada's beleaguered pulp and paper industry.
Some of the work will be transferred to other plants within the firm's fine-papers group, Kingsey Falls, Que.-based Cascades (TSX:CAS) said Tuesday. "In spite of sustained efforts over the past few years to improve profitability, this plant has continued to incur major financial losses," the company said.
"Non-competitive operating costs, high energy costs in Ontario and the appreciation of the Canadian dollar versus the U.S dollar are the main factors which have adversely affected the performance of the Thunder Bay operations."
The firm also cited "unfavourable market conditions prevailing in the pulp and paper industry."
Observers say Cascade's streamlining move will not be the last in the industry as mills across Ontario and Eastern Canada feel the brunt of escalating input costs, including energy.
"Unfortunately, it's my sense that more closures are going to come," forest products analyst Frederic Beausoleil of National Bank (TSX:NA) said in an interview.
"Ontario is somewhat more current because energy prices are very high. You're going to see some closures in Quebec, where fibre costs are quite high as well, but northern Ontario is where it's most critical in the near term."
Last week, Ontario Premier Dalton McGuinty said the province is considering creating a special fund to help the forestry sector in northern Ontario to attract new investment and reduce energy costs, which analyst Beausoleil sees as a sign of hope for mills potentially slated for closure.
"If I were operating a pulp and paper mill in Ontario today and it was just on the verge of being profitable in the longer term, I would probably hold off on a decision to close it today just to wait to see what the government will be telling me," he said.
In the streamlining effort, Cascades said it expects to take a pre-tax charge of about $9 million during the second half of 2005, nearly $2 million of which is non-cash.
"What they're doing today is likely to make the mill at least cash-flow positive next year," Beausoleil said.
The high Canadian dollar has forced pulp and paper companies to pay more to produce, while receiving less for finished products. High energy costs, which have increased 10-fold in recent years, have crippled pulp and paper producers feeling the impact of shrinking demand, overcapacity and a shortage of wood.
Abitibi-Consolidated Inc. (TSX:A) announced last month it will close one paper machine in Kenora, Ont., and indefinitely idle a second one Oct. 22.
Between 150 and 200 of the current 350 employees at the Kenora site are expected to lose their jobs permanently, with most of the remaining 150 facing unemployment if the second machine is idled as planned. The company closed its Port Alfred, Ont., mill in January.
Tembec Inc. (TSX:TBC) has said it will close four paper and lumber mills in Quebec and Ontario, in addition to three mills already mothballed this year. Earlier this month, Smurfit-Stone Container Corp. said it will close three North American containerboard mills. (*)
