Lumber crisis: Despite closings, layoffs, not one federal party is addressing recent problems of Canada's iconic industry

Dec. 17, 2005. 12:50 AM
DAVID OLIVE | Toronto Star

The holiday spirit isn't much in evidence in a dozen or so mill towns across the country.

The past week alone has brought distressing news to more than 1,700 forest products workers at five mills, spanning Stephenville, Nfld., to Squamish, B.C., who have been notified their jobs will soon be terminated.

On Wednesday, newsprint giant Abitibi-Consolidated Inc. dropped the axe on more than 600 jobs at mills it will close in Stephenville and Kenora, Ont. A day later, it was the turn of Western Forest Products Inc., which said it will begin shutting down its Squamish pulp mill the week of Jan. 23 — election day, as it happens — with a resulting loss of 323 jobs.

Later the same day, Weyerhaeuser Co. said production at its Prince Albert, Sask., pulp and paper facility will end this month, affecting 690 employees. And one of the firm's paper machines at Dryden, Ont., will be shut down in April, with the loss of another 80 jobs in that one-industry town.

The cruelly timed announcements follow hard on decisions by Domtar Inc., Cascades Inc. and Tembec Inc. last month to close or streamline mills, with a loss of more than 2,000 jobs.

That brings the total number of jobs eliminated in the industry to more than 42,000 over the past five years — or about 15 per cent of the total workforce. The damage is more widespread than those numbers suggest, given that an estimated two indirect jobs are supported by each mill worker.

As employees at General Motors of Canada Ltd. learned with the recent announcement of major job cuts in Oshawa at one of the company's most efficient plants worldwide, worker ingenuity in boosting a facility's competitive prowess means little if markets are weak, a strong loonie conspires in favour of offshore producers, or management miscalculates the product mix best matching customer demand.

"We have broken production records as well as improved the quality of the papers over the past few months," Ron Bucks, president of the Communications, Energy and Paperworkers union local at Weyerhaeuser's Prince Albert mill, told Canadian Press last week. "These machines are world class and profitable and this announcement makes no sense at all."

There is worse to come.

Tembec, a sizeable lumber producer based in Montreal, warns of bigger cuts down the road as it copes with weak demand and rising energy costs.

And Weyerhaeuser, a $23 billion (U.S.) behemoth headquartered in Washington state, says the market for paper products is so poor that the "urgent changes" necessary "to improve the competitiveness and lagging performance of this business" are not over. "We anticipate future changes," CEO Stephen Rogel said Thursday — a euphemism for more cutbacks in the absence of a miracle turnaround in the industry's fortunes.

Somehow, the crisis in one of Canada's iconic industries is not an issue in the current federal election campaign. Indeed, the entire economy is a non-issue, as parties dwell on the long-ago sponsorship scandal, the exposure and resolution of which are draining the federal treasury but creating jobs only among a passel of big-city lawyers.

The Liberal platform makes commitments to R&D spending and specialized job training. But the Martin government has not developed either a national industrial strategy or comprehensive plans for reviving selected troubled sectors.

The NDP decries a 12-year Grit legacy of "no national strategy to help jobs-rich industries adapt to changing markets and rising costs — like steel, aerospace, shipbuilding, forestry and agriculture." Alas, the NDP's own turnaround strategies for those sectors is a well-kept secret in a poll-driven campaign that identifies Liberal corruption, healthcare and tax breaks as the vote-getting issues.

The Tories correctly note that "this election is a chance for working families to send Ottawa a wake-up call on job losses in sectors such as manufacturing, natural resources and agriculture."

But the Tories also offer no specific plans for rescuing towns and regions dependent on those ailing sectors.

It's not like the solutions require more than the usual brainstorming. The response of Queen's Park to a similar forestry crisis a decade ago was to bail out troubled mills, modernize them and usher them into the hands of new private-sector owners.

Once again, it's Ontario and Quebec that have responded to a forestry crisis, with a combined $780 million in proposed industry funding. But that money isn't enough to finance an overdue renaissance for an industry that needs to replace obsolete plants — some dating from the 1920s — with state-of-the-art technology by which European producers have continued to thrive in the current downturn by developing innovative products and manufacturing processes.

To the residents of Dryden, Thunder Bay, Stephenville and Squamish, the electoral contest must seem surreal indeed.

Elsewhere in the country, many voters are sanguine about an economy with a 6.4 per cent jobless rate, the lowest in three decades; and debate on how best to treat ourselves to the $80 billion in projected federal surpluses over the next decade or so — a reward, many would understandably see it, for the sacrifices in high taxes and social-services cuts of the 1990s.

But the dynamic economic recovery of recent years bypassed many parts of the country, which appear to be alone in thinking that an obvious use of a modest portion of that surplus would be a nation-building exercise in restoring prosperity to troubled communities.

The spirit of the season is lost on Dave Coles, a CEP union vice-president, whose negotiations with Weyerhaeuser and the Saskatchewan government were abruptly short-circuited by the company's "horrific" announcement last week.

"To string our members along for more than two months and then slam them with this news 10 days before Christmas is simply unconscionable," Coles said. It's not easy to find gentler words for the political leaders whose campaign-trail priorities so far betray a similar insensitivity. (*)

Weyerhaeuser shuts Ontario and Prairie Mills

U.S. forestry giant shuts Ontario and Prairie mills
Dec. 16, 2005. 01:00 AM

U.S. forestry giant Weyerhaeuser Co. is closing two paper operations in Canada, affecting more than 800 jobs in northern Ontario and Saskatchewan.

The moves, announced late yesterday, reflect a continued slump in the North American paper industry, which has been hit hard by rising energy costs and weak demand.

Weyerhaeuser said one of the paper machines at its Dryden pulp and paper mill in northern Ontario will close April 1, affecting 80 of the mill's 795 employees. Another 40 jobs were cut earlier.

Meanwhile, the Prince Albert pulp and paper mill in Saskatchewan, which the company said in October it would shut down, will end paper production at the end of this month.

The pulp mill, which is being put up for sale, will continue operating until spring to minimize risk of cold-weather damage.

The Prince Albert mill employs 690 employees.

The Federal Way, Wash., company said the latest cuts will result in a pre-tax charge of $380 million (U.S.) to $385 million in the fourth quarter.

Weyerhaeuser is one of the world's largest integrated forest products companies, with 2004 sales of $22.7 billion.

Weyerhaeuser's announcement comes a day after Abitibi-Consolidated Inc. said it had permanently closed two newsprint mills — one in Stephenville, Nfld., that employed 300 people, and another in Kenora, Ont., where 320 people had worked.

The Tory government in Newfoundland and Labrador said yesterday it will consider expropriating Abitibi's Stephenville mill if a buyer appears. Both Premier Danny Williams and Natural Resources Minister Ed Byrne said the tough measure is being kept as an option.

Abitibi has made it clear it hasn't obtained a buyer for the plant or equipment, nor does it plan on selling at this point.

Abitibi-Consolidated said the closings were brought on by high costs and an inability to renegotiate a union contract.

The decision has embarrassed the government in Newfoundland, which just a month ago offered the company $150 million in assistance over 10 years to keep the plant going.

Canadian Press

Have a hot, dry, stormy life, kids

SOURCE: International Herald Tribune

OTTAWA My wife and I recently became empty-nesters. Our children moved out, and we began to think of downsizing. But climate change is forcing us to reconsider. My children may need shelter yet.

The thousands of delegates who attended the United Nations conference on climate change in Montreal, which concluded on Dec. 9, reinforced the fact that after some 20 years of debate, the threat of climate change is indisputable and pervasive.

To be sure, climate is not static. It has always changed over time. But this is the first time that humans have been the principal drivers of such change. In heating our homes or propelling ourselves across our planet, we are contributing to the rate of change.

And because there are so many of us, we are now using energy in unprecedented amounts. We are converting carbon stored in coal and oil into atmospheric gases, and the increased carbon dioxide along with other gases in the atmosphere traps heat. The conveniences we use today have serious consequences for our children and grandchildren.

What if one ignores all this and says, If my children are affected, I will provide for them. If they are living in areas likely to be flooded or afflicted by severe droughts, or if they must escape conflicts over resources, or lose their jobs or run out of food, I will take them in, and their children, and maybe even some of their friends.

Those with children living in low-lying areas of the world, and particularly in hurricane-prone regions, must definitely start making plans now. Ocean waters are rising, and storms of increased intensity and frequency are already upon us. The displaced people of New Orleans are still looking for a semblance of normalcy and stability. Island states in the Pacific are building up walls that are probably as vulnerable to breeching as the Louisiana levees.

Oceans are changing. The algae in the seas are absorbing some of the excessive carbon in the air, but as they do so, the acidity of the oceans is rising. You may recall from your chemistry class how calcium carbonate fizzes when acid is poured on it. Shellfish do poorly in acidic waters, so there goes the shrimp, crab and lobster fishing industries. What will your children eat when they move in with you?

In the past, mountain glaciers melted in the warm summer months and were replenished with winter snowfalls, providing a regular source of water downstream. Urban centers expanded, farmlands were irrigated and oil production was enhanced by the water pumped into the ground.

However, as glaciers recede and disappear, water will become scarce, droughts will increase and farm crops will fail. The ice on Africa's Mount Kilimanjaro is already gone. Conflicts are inevitable, as we cannot live without water; I hope you will have some for your children to drink.

Diseases and pests that have been kept in check by limiting temperatures are on the move. Forest-killing beetles are eating their way across areas never touched before in British Columbia and now Alberta. The forests of Saskatchewan, Manitoba and Ontario await them. Forestry jobs are at risk, and the dead trees heighten the risk of fires; if your children will be affected, better make some room.

If all that is not enough, polar ice caps are melting and are expected to release a plug of cold, fresh water that could drastically affect ocean currents. Moderating currents like the Gulf Stream will be abruptly deflected, leaving northern countries in the cold and contributing to drought. Wherever they live, our children will have to burn more fossil fuels, perpetuating the problems we are creating for them.

If you are still smug about global warming, I would like to know where you live. I need to move to this safe haven and wait for my children to arrive, along with other displaced people.

Just think of the level of investment we will need to secure this zone. I can't help believing that any measures we can take now would be justified if it will help avoid such chaos in the future. That would enable us to downsize, and to stop using up fuel to heat my empty nest.

(Nikita Lopoukhine, formerly director general of national parks in Canada is chairman of the World Commission on Protected Areas of the World Conservation Union.)

Forests Urged as New Front in Global Warming Fight

December 02, 2005 — By Alister Doyle, Reuters

MONTREAL — Forest preservation should be the new front in the fight against global warming with Third World nations earning cash for protecting trees, tropical countries told a U.N. climate conference Wednesday.

"The present state of affairs is untenable," Papua New Guinea and Costa Rica wrote in a proposal backed by seven other developing nations, complaining that they lacked incentives to slow logging or forest clearance for farming.

"Globally ... tropical deforestation is the second leading cause of climate change behind fossil fuel combustion," they said in the report to a 190-country climate meeting in Montreal from Nov. 28-Dec. 9.

Most efforts to curb global warming center on reining in emissions from burning fossil fuels in power plants, factories and cars in industrial nations. But trees soak up carbon dioxide, the main gas blamed for global warming, as they grow. They release it when they die and rot.

The report suggested that tropical nations that slow the rate of deforestation -- perhaps tracked from space by satellites -- might win cash incentives from rich nations to encourage better management and more tree plantings.

It estimated that deforestation, from the Amazon to Africa, represented losses of billions of dollars. Forests are home to half the species living on land and a key source of food, building materials and medicines for people.

LOST FORESTS

A net 7.3 million hectares (18.04 million acres) of forests -- the size of Panama or Sierra Leone -- was lost each year from 2000-2005, according to United Nations data.

The conference agreed to study the proposal and report back in a year's time. The proposal also had backing from Bolivia, the Central African Republic, Chile, Congo, Democratic Republic of the Congo, Dominican Republic and Nicaragua.

Richard Kinley, acting head of the secretariat of the U.N. Framework Convention on Climate Change, said the reaction among delegations was "very positive."

"We'd be very interested in exploring it further," said Sarah Hendry, head of the British delegation. Britain holds the European Union's rotating presidency. Some delegates warned, however, that it was extremely hard to measure forest area.

The Montreal talks are also looking at ways to widen a U.N.-led fight against global warming to involve poor nations and the United States and Australia, the two main industrial nations outside the U.N.'s Kyoto Protocol.

Under Kyoto, about 40 industrial states are trying to cut emissions by 5.2 percent below 1990 levels by 2008-12 to curb warming that may cause catastrophic effects including more powerful storms, rising sea levels and more desertification.

Source: Reuters

What's a boreal forest really worth?

By Mark Hume (Globe and Mail)
Friday, November 25, 2005 Page A9Key

VANCOUVER -- How much is a forest worth if it's simply left standing instead of being logged and sent to a mill?

That question, in simple terms, is what researchers from the Pembina Institute set out to answer in a two-year study that calculated for the first time the "natural capital" contained in Canada's boreal forest ecosystem.

Considering everything from the pest-control services provided by birds to the worth of having peat lands filter drinking water, the researchers calculated the boreal forest ecosystem's non-market value at more than $93- billion annually.

In addition, the study found that the boreal forest, which reaches from Yukon to the Eastern Seaboard, works as a massive carbon sink. It stores an estimated 67 billion tonnes of carbon, the equivalent of 303 years of Canada's total 2002 carbon emissions. Considering the global effort to control carbon emissions, researchers said the boreal forest could be looked at like a "carbon bank account" worth $3.1-trillion (U.S.).

David Schindler, a professor of ecology in the faculty of science at the University of Alberta, said the Pembina Institute report should help convince Canadians that nature has far more to offer than just aesthetic value.

"Dollars and cents are part of a language everyone understands," Prof. Schindler said. "I hope this will make people sit up and take notice of the value of the resources around them and the value of the services they provide."

He said society generally looks only at the market value of natural resources, without taking into account the services that forests and wetlands are providing for free.

Prof. Schindler said the value of the "natural capital" must be considered whenever resource projects are contemplated in the boreal forest region.

"What it's saying is, 'Look at these values before you turn the forest into another pile of logs and sell it.' "

The Pembina Institute, an independent, not-for-profit policy research organization, undertook the study for the Canadian Boreal Initiative, a conservation group concentrating on issues affecting the boreal forest. The report is to be released today.

The report defines natural capital as the "resources, living systems, and ecosystem services," that provide benefits to humans.

When that value is added to the balance sheet, the study states, the picture is more complete, and remarkably different.

The report says the non-market values to be considered include: $5.4- billion for pest-control services by birds; $4.5-billion for nature-related activities; $575-million in subsistence value for aboriginal peoples; $79- million in non-timber forest products and $18-million for watershed services, such as holding municipal water resources.(*)

Domtar to Cut 1,800 Jobs, Close Some Mills

November 30, 2005 11:31 AM ET | Associated Press

MONTREAL (AP) - Canadian paper-maker Domtar Inc. is cutting 1,800 jobs and plans to close or sell several mills as part of a plan to steer the company back into profitability amid a downturn in the paper industry.

Montreal-based Domtar said Wednesday it expects to permanently shutter its mill in Cornwall, Ontario, and parts of its Ottawa, Ontario, mills. Under the plan, Domtar also would sell its mill in Vancouver, British Columbia, and shut its sawmills in Grand Remous and Malartic, Quebec.

The Cornwall cuts include 390 positions already eliminated in December 2004. The Cornwall mill is the largest to be closed, with 910 workers and a total capacity of 265,000 tons of uncoated and coated printing grades on three paper machines

Domtar is North America's third-biggest producer of free sheet paper, which is used for photocopying, as well as a major producer of other business papers and lumber products.

As part of the plan, the company's North American administrative offices will be consolidated in Montreal and Cincinnati, and Domtar will overhaul its supply chain. In all, the measures will result in pretax restructuring charges of $505 million, the company said.

"Unfortunately, sustained actions and dedicated efforts by our employees, as well as capital investments by the company, were not sufficient to guarantee the long-term viability of these operations within Domtar," Chief Executive Raymond Royer said in a prepared statement.

Employees affected by the cuts will receive financial assistance and be offered access to job-search services, Royer added.

Domtar's cuts follow similar moves by a number of other paper and lumber companies in recent months as they cope with rising energy costs and weak markets. For example, Atlanta-based Georgia-Pacific Corp., maker of Brawney paper towels and other products, said in October it would cut 1,100 jobs worldwide and 850 in North America in a broad restructuring that aims to save $100 million a year.

Domtar also blamed a stronger Canadian dollar, which has made its products more difficult to sell in the key U.S. market.

"The strengthening of the Canadian dollar has pushed some of our Canadian mills to negative cash-flow generation and we must focus on our most efficient mills in order to return to profitability in the foreseeable future," said Richard Garneau, executive vice president of operations. The strategy should improve cash flow by $160 million, he said.

Last week the forestry giant abruptly shut down its Lebel-sur-Quevillon pulp mill in northwestern Quebec, cutting 425 jobs. It cited rising costs and weak markets for pulp. The company warned last month it was considering closures as it posted a loss of $52 million in the third quarter. Domtar also canceled its dividend.

Domtar has 10,000 employees across North America and owns 50 percent of Norampac Inc., Canada's largest cardboard producer, which also reported a third-quarter loss -- of $11 million.

Domtar also said it has amended its credit facility, which matures in 2010, "to improve financial flexibility." The new arrangement includes a maximum debt-to-capitalization ratio of 60 percent and reduces the company's credit line by $100 million to $600 million.

U.S. shares of Domtar fell 8 cents, or 1.5 percent, to $5.24 in morning trading on the New York Stock Exchange. The stock has traded in a 52-week range between $4 and $12.64. (*)

Cascades shuts down Thunder Bay fine paper mill

Another hit to Northern Ontario’s forestry industry...

By Peter James | Kenora Daily Miner and News | Wednesday November 23, 2005

Northern Ontario’s forest industry took another big hit Tuesday as Cascades announced it is shutting down its Thunder Bay fine paper mill.

“This is starting to get scary,” Kenora Mayor Dave Canfield said, when reached at the Association of Manitoba Municipalities Conference in Brandon.

The shutdown is the latest in a long line of cutbacks and mill closures that have hit workers and communities across the region in recent months.

Cascades hinted earlier this fall the Thunder Bay mill was on shaky ground. Originally they had planned to shut down one paper machine and cut 150 jobs. Now they’ve decided to close the doors completely, putting an additional 375 people out of work.

“The sad truth is this isn’t going to end anytime soon,” Communications, Energy and Paperworkers Union Ontario vice-president Cecil Makowski said of the closures of mills across the north.

Makowski said Cascades decision to shut the mill comes at a strange time considering the federal government is set to announce an aid package for the sector. But speaking on CBC Radio Cascades spokesman Hubert Bolduc said he expects the federal package will be targeted more towards the sawmill sector.

Ontario NDP Leader Howard Hampton put the blame for the closure on the provincial government’s energy policies. He said other challenges the industry is facing, like falling prices and a rising Canadian dollar are the same across Canada, yet Ontario firms also have to deal with higher costs for electricity. “As long as that disparity continues more Northern Ontario paper mills will be pushed over the edge,” he said.

The closure of the mill should signal that the provincial government needs to do more to help the industry or the whole region will suffer, Canfield said. Thunder Bay’s economy will suffer the biggest blow as they will lose not only the mill but also any associated jobs.

“They are the service centre for the industry,” he said.
Makowski said the mill jobs are even more important because they’re difficult to replace. “When it closes you lose primary employees. You can’t absorb those jobs anymore,” he said.

Bowater’s Thunder Bay mill, already on shaky ground, could also be affected by the Cascades closure. Makowski said Cascades buys market pulp from Bowater. “It’s tightening the noose around that mill,” he said.

There is plenty of uncertainty about the future of other Thunder Bay mills. Abitibi-Consolidated still has its Fort William mill and the associated timberlands on the selling block. “We are expecting that the sale process will be completed by the end of the year,” company spokesman Denis Leclerc said.

In Kenora the Devlin Timber mill closed in February and the Abitibi-Consolidated mill hasn’t been making paper for a month and the long-term future is still up in the air. (*)

Thunder Bay: 40 mill jobs axed

From the Chronicle journal (Thunder Bay, Ontario)

Regional News | By BRYAN MEADOWS | Nov 15, 2005, 22:40

Another wave of layoffs is coming in the perfect storm facing Northwestern Ontario’s forest industry. Citing high energy and wood fibre costs, Weyerhaeuser will permanently shut down the round-wood processing plant at its Dryden paper mill on March 31. About 40 employees will lose their jobs — 35 in the mill and five in contract harvesting operations — when the wood-room closes. Mill management told employees of the closure Monday morning.

Weyerhaeuser vice-president of Ontario operations Norm Bush said the action comes in the face of rising costs, a rapidly appreciating Canadian dollar, declining demand for fine papers and industry oversupply.

“This is one step in our drive to reduce our delivered fibre costs,” Bush said, explaining that current technology allows wood chips to be delivered to the mill for about the same cost as delivering an unprocessed log, which then requires chipping in the wood-room.

In addition, he said, concerns about chip quality have been addressed by new technology used in on-site wood-chipping equipment in the bush.

The layoffs come as Dryden continues to battle economic and social demons from a restructuring exercise at the local mill two years ago that chopped more than 385 workers.

“It’s a sad day for our community,” said Dryden Mayor Anne Krassilowsky. These cuts, she said, “compound the effects on everyone in the community as well as individual families. It causes a chain reaction across the community (with far-reaching effects on) individual homes, businesses and tradespeople.”

“I’m disappointed in the provincial government for not taking the necessary steps” to prevent further forestry job losses, Krassilowsky said. “The provincial government is missing in action.”
NDP Leader and Kenora-Rainy MPP Howard Hampton agreed. “The McGuinty government has done nothing to reduce the high electrical and wood fibre costs” crippling the forest industry.

While the government claims only older, smaller newsprint mills are shutting down machines and laying off people, Hampton said the Weyerhaeuser mill is perhaps the most modern in Ontario, and it produces fine paper.

“It shows the McGuinty government is wrong again,” he said, adding the plant closure is at a mill that’s modern and owned by a company that has invested millions on infrastructure, “yet it is being forced to the wall.”

Communications, Energy and Paperworkers Union spokesman Cec Makowski called the province’s inaction “a travesty.” “To date nothing substantial has been done to reduce the cost of delivering fibre to the mills,” he said. “It’s the workers who continue to pay the price of this inaction.”

Weyerhaeuser spokeswoman Bonny Skene said the province needs to do more to help the industry become more competitive. “We’re calling on the province to focus on fibre costs and make them competitive . . . (and) we have asked them to reduce fibre costs (immediately) by at least $5 per cubic metre.”

Skene said the forest industry aid package reduced fibre costs by only 78 cents per cubic metre, while the global and Ontario “gap” in costs is about $20. The average cost of wood delivered to Ontario mills is about $55 per cubic metre while the global cost averages to $35.

The wood-room closure had been the subject of speculation in the community over the past few weeks, and it was tied to a rumour that the mill’s finishing room was also facing the axe. Skene refused comment on the finishing room.

“We’re looking for all cost reduction opportunities that are within our control,’’ she said. “We have cost reduction teams in place throughout the mill.”

In the 2003 restructuring exercise in Dryden, Weyerhaeuser closed its studmill and chopped the workforce at its pulp and paper mill by about 25 per cent, citing factors including high manufacturing costs, overcapacity in lumber production in North America, the rising Canadian dollar and the impact of U.S. duties on Canadian softwood.

© Copyright by Chronicle journal.com

Loonie looms large as forest sector deals with junk ratings

By HARRY KOZA | Friday, November 11, 2005 | Globe and Mail

Shed a tear for the vanishing Canadian lumberjack. It's tough work in the woodlot at the best of times, and these days, what with the strong Canadian dollar, softwood tariffs, and soaring energy costs, companies that employ lumberjacks are in rough shape.

It's not a sector that I usually pay a lot of attention to, as most of the bonds issued by domestic forest products companies are U.S. dollar-denominated high-yield debt, and we seldom see any of it trade up here in the Great White North.

Still, the papers are full of the travails of the forest sector lately. Jobs are being clear-cut, stock analysts are doing the earnings-estimate limbo every quarter (How low can they go?) and politicians are promising new subsidies and handouts and rattling their, er, chainsaws. As if any of our Solons in Ottawa knows one end of a chainsaw from the other.

Actually, that's something I'd really like to see: Paul Martin down in Washington to talk to the U.S. Senate about softwood lumber and he puts on a goalie mask and fires up the old McCulloch and cuts the podium in half. That'd get their attention.

Anyway, I hadn't realized just how sweaty the bonds issued by forest companies are getting these days, but then I looked at a Canadian forest industry report card that the credit boffins over at Standard & Poor's released this week. If this was your kid's report card, little Johnny would be permanently grounded, and you'd be considering sending him to military school.

S&P rates 13 Canadian forest firms and four building materials companies. Fifteen out of the 17 companies are rated as junk -- or non-investment grade. Of the forest firms, two are triple-B, which is the low end of investment grade; four are double-B-plus, which is the high end of the junk spectrum; one double-B, two double-B-minus, two B-plus, one B, and one triple-C-plus.

Even worse, eight of the companies have negative ratings outlooks, and none of them have positive outlooks. The best that bondholders can hope for is that the companies' credit quality doesn't get any worse. It's like your doctor telling you there's good news and bad news: The bad news is that you are sick as hell and not getting any better, and the good news is, at least you aren't getting any worse.

Yet the individual company ratings are a litany of the same endemic problems: "credit metrics remain stretched as the appreciation of the Canadian dollar and rising energy costs will hurt earnings." ". . . energy and resin costs have increased." " . . . remains under pressure from the Canadian dollar and energy costs." ". . . continues to face a strong Canadian dollar and rising energy costs." ". . . compounding the problem is the rising Canadian dollar and energy costs" ". . . cost reduction initiatives . . . are absolutely critical for long-term survival." Gee, I'm beginning to see a pattern here.

The big burden for these companies has been the loonie. Most of the industry's costs are in Canadian dollars, and most of their revenues are in U.S. dollars. For pulp and paper companies it's an even more bitter pill: While pulp and paper prices, denominated in U.S. dollars, have been rising for more than two years, the appreciation of the Canadian dollar has wiped out the gains.

That's really harsh -- you're in a cyclical business and when the up-cycle comes, it still isn't enough to cover your currency losses. In Canadian-dollar terms, prices have gone nowhere.

It gets worse, though. Energy costs have risen too, for oil, gas, and -- especially in Ontario -- electricity. That's had a nasty impact on direct costs, but it has also raised costs for freight, chemicals and resins.

Meanwhile, the softwood lumber dispute goes on and on and on, despite the macho posturing and tough talk from Ottawa. It's about $5-billion in duties, and counting. If that ever gets resolved, the return of those duties will be a shot in the arm for a lot of these companies. But no one can predict how long it will take before any refunds are forthcoming, and the dispute continues without any resolution, so we could be talking geological time here, folks.

There's a couple of other fundamental problems with the industry, too. One is a lack of pricing power. Costs rise, and the companies can't raise prices to cover them, because there is too much overcapacity. And every year, they have to haul the logs further to the mill.

S&P says these conditions will continue, and thus credit quality will "decrease in the near term." Gee, if you're already rated triple-C-plus, any further decrease in credit quality will put you in receivership.

Maybe it's high time someone does put on a goalie mask and trims a few slabs off the West Wing.

Harry Koza is senior Canadian markets analyst at Thomson Financial and a columnist for GlobeinvestorGOLD.com.

Interview: Frank Dottori, Tembec

Out of the fire

By GORDON PITTS
Tuesday, November 8, 2005 Posted at 11:51 AM EST
From Friday's Globe and Mail

For 32 years, Frank Dottori, CEO of Tembec Inc., was the growth-happy warrior of the forestry industry, creating a diversified, billion-dollar company from its roots in an employee-owned pulp mill in Temiscaming, Quebec. At the end of this year, the 66-year-old onetime engineer will step aside for veteran company executive James Lopez. Dottori leaves a debt-laden company reeling from the high Canadian dollar, new competition and U.S. lumber duties that, he says, have cost Tembec $300 million. Still, Dottori remains unrepentant about his aggressive strategy for growth.

Did you expect to leave when the company was doing poorly?
No, I didn't, but this is a cyclical business. I think this particular decline turned out to be significantly worse than anticipated. It's now going into its fifth year; it normally lasts three years. There are some new factors, particularly in the pulp business, which has been hit the hardest. It's an issue of Third World production becoming about the same size as Canadian production, and therefore a major factor in global pricing.

You've been depicted as someone who adheres to a strategy of growth at all costs. Is that fair?
I don't think we've bought anything that doesn't fit in strategically, contrary to what some analysts have written in the past. There was criticism levelled at us when we bought some sawmills two to three years ago. But we said this is a business that we have to look at long-term, and ensure our wood supply. Today, we're lucky we bought these sawmills.

Do you find the criticism hard to take?
That's one of the negative sides of our business. At one time, it was more of a long-term thing: You invest in multimillion-dollar projects, which can only be done with 10- and 15-year horizons. But most mutual fund investors are thinking quarter to quarter. That's incompatible, especially in a cyclical business. So I think you'll see a lot of companies go private.


Will you still stay on as a director of the company?
As the founder of the company, and as a fairly dominant, opinionated type of personality, I think my presence as a director would create undue stress on the new CEO. I just think this makes it clean cut. It's his show now, but if he wants any advice, he can call me.

What will you do with your time?
I bought a cottage recently, and rebuilding it should keep me busy for six months. I get requests to sit on voluntary boards. So I think I'll do a couple of those things, and maybe a few corporate directorships.

You have been called a genius at employee buyouts. What was your best deal?
Along with its employees and townspeople, we bought the Spruce Falls, Ontario, newsprint mill in 1991; that was a hell of a good deal. At the same time, we were taking tremendous criticism on the pulp side, which was doing terribly. So I had a split personality--half of me was bright and half of me was dumb.

Does employee ownership still work?
You can't ask your employees to be loyal to the company and make the extra effort unless you do something to protect their jobs and their security. Today, with this ruthless competition, it's tough saying, "I'm going to eliminate 30% of the jobs and I want you guys to keep working hard and be loyal and make an effort." And they're going to say, "Why don't you protect our jobs?"

But hasn't Tembec embarked on aggressive cost-cutting measures?
Yes, but there has never been anything like a Friday afternoon where we go whack. I think it's part of the culture of Tembec, that if we do good planning and use attrition, we shouldn't have to do it on a Friday.

Do you have any regrets?
Three to four years ago, we were trying to make some significant mergers and acquisitions, but I succumbed to public pressure. If we had just gone ahead and done a few of the transactions, we would be the biggest wood fibre company in Canada. I think if I had a bit stronger character and marched on, and said the hell with the analysts and the hell with the worrywarts, we'd be an extremely successful company, and I'd be sitting here today at the top of the heap.