Terrace Bay: Costs discourage exports

Apr. 29, 2006. 07:49 AM | RICK WESTHEAD | BUSINESS REPORTER

Terrace Bay, Ont.— For the better part of 37 years, millwright Tom Long watched fleets of trucks and rail cars leave the Neenah Paper mill on the outskirts of this remote northern Ontario town, carting processed pulp and paper to buyers as far away as Oklahoma and Alabama.

Long would often watch the daily procession and wonder why the payloads weren't shipped beyond North America.

"The only thing you hear about nowadays is how much building China is doing," said Long, who retired last year after working at Neenah Paper for 37 years.

"They've got a billion people in China, and we're making fibre for Kleenex," the 56-year-old said. "All you have to do is get them to blow their nose with our stuff and we'd do great."

Sitting in a coffee shop in Terrace Bay, Long has just summed up an issue that has stumped Canada's forest-industry leaders and politicians alike: why has Canada failed to develop an overseas market for lumber and pulp and paper?

One problem is extreme transportation costs, said Don Campbell, vice-president and resident manager of Bowater Canadian Forest Product Inc.'s Thunder Bay operations, which include a sawmill and pulp and paper mill. Shipping to some of Bowater's customers in Korea — by rail to Vancouver and then by boat — can cost more than twice as much as getting the product to North American buyers.

But the benefits of increased overseas sales are obvious.

By selling more forestry products to countries such as China, India and Korea, Canada would be less dependent on the giant U.S. market. That might ease any ill effects of the newly signed Canada-U.S. softwood-lumber agreement.

Under the terms of the new agreement, Canadians will face quotas on U.S. sales when prices are low, although not when prices are high.

In an interview yesterday, Ontario Minister of Natural Resources David Ramsay pointed out that, unlike Canada's previous softwood-lumber situation, the new agreement allows room for Canadian exports to grow in lockstep with U.S. demand for timber.

British Columbia has been the most proactive province in pursuing markets beyond the United States, forest industry experts said. Three weeks ago, B.C. Premier Gordon Campbell announced the province would spend $10.5 million to promote the province's wood around the world.

"We have to reduce our dependency on the American marketplace," Campbell said at the time. "If we don't reach to China, Korea and India, I can tell you, Russia and South America will be going there, and we'll have all sorts of competitors."

In 2002, meanwhile, Natural Resources Canada announced the so-called Canadian Wood Export Program, which provides for $35 million worth of public money over five years. Even so, Ramsay said fast-growing markets such as China's haven't figured in his plans.

`They've got a billion people in China, and we're making fibre for Kleenex'

Tom Long, retired millwright

"The U.S. is our primary market; we've been trying to get that straightened out," he said.

Still, Industry Canada statistics suggest that Campbell's marketing dollars are well spent — at least in parts of the world.

While the value of softwood lumber Canada has exported to its three biggest customers — the U.S., Japan and the U.K. — has dropped in each case over the past four years, lesser-known markets showed strong gains over the same time period.

For instance, Canada in 2005 exported $8.6 billion worth of softwood timber to the U.S., down 9 per cent decline from 2001. The $1 billion in lumber sold to Japan was down 30 per cent over the same period, while sales to the U.K. slipped 8 per cent to $64 million.

China, the fourth-biggest purchaser, bought $55 million worth of lumber from Canada last year, nearly double the 2001 figure. Other countries that have bought much more Canadian softwood in recent years include the Philippines ($40 million), South Korea ($27 million) and Mexico ($8 million).

To be sure, some long-time forest industry workers see reasons why Canadian wood isn't coveted overseas.

For starters, labour costs in Canada are more than in countries such as Indonesia and Brazil, adding to the final price. Moreover, in more temperate climates like Brazil's, it takes just 10 years for a newly planted tree to become harvestable, said Ron Falzetta, another retired Neenah Paper worker.

"It's at least five times that in Canada," Falzetta said. "We maybe have 90 days a year where there's guaranteed to be no frost. That's a short growing season."

Still, Falzetta and others said Canada can compete with other pulp and paper producers on quality.

Many of the trees Neenah Paper harvests are swamp spruce trees.

"After 50 years, those trees aren't any bigger than this," Falzetta said, putting his fists side by side.

"The rings are so close together you can't even see between them. That makes for strong paper."

Some industry officials said the forest sector is making strides toward helping it become less dependent on the U.S. For instance, instead of churning out two-by-four studs, some mills now focus on producing door frames and joints.

Some Ontario mills are in the process of producing laminated beams, which are coveted in earthquake-prone Japan.(+)

Domtar chief: "Canada has lost edge in forestry"

LYNN MOORE | The Gazette; CP contributed to this report
Friday, April 28, 2006

Domtar CEO Raymond Royer says the strong loonie has hammered his industry.

Canada is losing its advantages as a forest-products producing country, Domtar Inc. shareholders were told yesterday as the Montreal-based multinational reported a first-quarter net loss of $24 million.

The soaring Canadian dollar plus stiff competition from countries where trees grow quickly and wages are low form just part of the gloomy picture, CEO Raymond Royer said during the company's annual meeting.

"The strengths on which the Canadian industry was built - inexpensive and abundant fibre and energy - no longer exist. Canada has become high cost compared to the rest of the world," he said.

And Domtar - which last November announced it would slash 1,800 jobs, close some Canadian operations and eliminate 17 per cent of its annual paper production - is responding by taking its production out of Canada and closer to its U.S. market.

Domtar's paper business - mainly office and commercial printing and publication papers - is its most important segment, representing about 61 per cent of its sales.

About 65 per cent of its paper is produced in the U.S. and 90 per cent of its sales are made to U.S. customers.

Before 2001, almost all of Domtar's mills were located in Canada. Now, there are only "one and one-half," the major one being in Windsor, which can supply 75 per cent of the Canadian market, reporters were told.

A pulp mill in Lebel sur Quevillon was shut indefinitely in November because of "economic conditions." Unless savings amounting to about $120 per tonne are found, the mill will not be viable, Royer told reporters.

Earlier, Quevillon's mayor and plant workers urged the company and its shareholders to get the mill back on line.

At Quevillon, fibre and labour costs alone cost $510 per tonne - excluding processing costs - while similar market pulp from Canada's competitors can be had for about $600 per tonne, Royer told the town's mayor and shareholders.

Domtar has paid $204-million in contested softwood lumber duties since the dispute began in 2002. Anticipating a possible settlement of the dispute yesterday, Royer said that should 80 per cent of that be returned to Domtar, "it would go straight to the bottom line."

The cash would lower the company's debt-to-equity ratio from 58 per cent to 55 per cent, he said.

Domtar's $52-million decrease in operating profit was largely attributable to a $33-million negative impact of a strong Canadian dollar, higher prices for energy and freight as well as lower average selling prices and shipments for lumber products, the company said.

Higher average selling prices for paper and pulp, higher paper shipments and lower softwood lumber duties helped offset the negative forces at play during the quarter, the company said.

Royer pointed out that 15 pulp and paper mills have closed in recent months in Canada, and a smaller number in the United States, cutting supply.

"We have a better balance between supply and demand, and I think this is now translated in prices," Royer said. "We are seeing price increases we have not seen in a long time."

Domtar's first-quarter loss reversed a $10-million profit in the same quarter last year, but the company has lost money on an annual basis for three years.

The firm said its loss amounted to 10 cents per share diluted, compared with net earnings of 4 cents per share in the year-earlier period. That was better than an average analyst forecast of 16 cents per share.

lmoore@thegazette.canwest.com

What is the value of a tree?

from the April 26, 2006 edition
Antoinette Campbell loses an oak: Her a/c bill goes up $120 a month - the toll on her city is even bigger.

By Ethan Gilsdorf|Christian Science Monitor

URBAN DEFORESTATION: Heavy forest in Washington, D.C., decreased by 64 percent between 1973 (top) and 1997 (bottom). Before and after maps show that forested areas (in green) once covered a third of the district but now cover only a tenth.

Antoinette Campbell was justifiably shocked when city workers mistakenly chainsawed a 60-foot oak tree last May that shaded the eastern facade of her Washington, D.C., home.

"It was a personal something I had with that tree," says Ms. Campbell.

Besides the emotional distress, the error had an unexpected consequence: She noticed her air conditioner began running a couple hours earlier each morning.

Conventional wisdom is that just one shady tree can save a homeowner $80 a year in energy costs, but Campbell claims her bills skyrocketed once the oak disappeared - up to $120 more some months.

Yes, humble street trees cool the air, reduce pollution, and absorb storm-water runoff, say forestry experts. But the benefits aren't only ecological, they say. Property values are 7 percent to 25 percent higher for houses surrounded by trees. Consumers spend up to 13 percent more at shops near green landscapes. One study even suggests patients who can see trees out their windows are hospitalized, on average, 8 percent fewer days.

Events around the country for Friday's National Arbor Day will highlight the fact that citizens and civic leaders are finally investing in the so-called "urban tree canopy."

But efforts like these aren't a moment too soon. Overall, urban trees in America are threatened, says Deborah Gangloff, executive director of American Forests. "Every city we've looked at, about three dozen, shows a decline of about 30 percent of the urban tree canopy in the past 10 to 15 years," she says. In some cities, the loss from disease, development, and neglect has been catastrophic. In Washington, D.C., for example, 64 percent of heavily forested areas disappeared between 1973 and 1997 - forest that once covered a third of the district now covers a tenth.

And the creep of suburban sprawl seems unstoppable. In the next 50 years, total American land mass reclassified from forest to urban is expected to equal the size of Montana, suggests US Forest Service data. To reverse the trend, cities like Jacksonville, Fla., San Francisco, Albuquerque, N.M., Des Moines, Iowa, and Indianapolis have ambitious reforestation plans. Los Angeles wants to plant 1 million trees. The Sacramento region has a goal to double the urban canopy in 40 years; Baltimore plans to double its own a decade sooner. Washington, D.C. is partnering with tree-planting groups and nonprofits like the Casey Trees Endowment Fund, an organization with a $50 million grant to combat the precipitous canopy decline.

The fund's urban forester program trains volunteers like Campbell, who lost her oak, to conduct on-site censuses that, combined, will locate, measure, and identify every tree in the city. The data is crunched by a US Forest Service computer model, which produces a precise environmental and economic value for each tree. For example: A 50-foot American linden at the corner of Potomac Ave. and E Street in the southeast quadrant of Washington stores 1,476 kilograms of carbon and removes 124 grams of sulfur dioxide from the atmosphere each year. To remove that same amount of pollution would otherwise cost society $5.44 annually. Multiply that by D.C.'s 1.9 million trees and the benefits add up.

Urban trees also reduce the runoff of pollutants into waterways, a problem caused by impervious surfaces like concrete. Foliage slows rain so it gets absorbed better, rather than overwhelming drainage systems, explains Ms. Gangloff. For example, a 2005 study of municipal trees in Boulder, Colo., found that the average tree intercepts 1,271 gallons of precipitation annually, saving the city $523,311 in storm-water retention costs.

For cities struggling to meet the Environmental Protection Agency's air quality goals and build adequate wastewater treatment facilities, trees offer high return on investment. The Boulder report estimates the city gets a $3.67 return on every dollar spent on the urban forest.

"It's worth considering the value of these trees when making policy decisions," explains Dan Smith, a Casey Trees spokesman. The value of tree maintenance, for example, can't be minimized, he says, because a 30-inch-diameter tree removes 70 times more pollution per year than a 3-inch tree does. This is why he's unhappy that over the past five years, federal support of urban greening - such as tree-cover analysis, goal-setting, and technical support - has declined.

Like the urban trees themselves, the programs must also be nurtured. And that's nothing to shake a stick at.(+)