WE HAVE MOVED: Please visit The Union News blog: here.

Sunday, June 17, 2007

Steelworkers vote to strike, Hampton shuts mill

Canadian forestry companies could be forgiven for thinking their world is coming to an end. A soaring Canadian dollar, low prices due to weakness in the U.S. housing market and a 15-per-cent export tax for lumber headed to the U.S. have all combined to hammer the industry and prompt a wave of mill shutdowns as companies look to reduce supply.

And now the potential for a strike by thousands of workers on the B.C. coast looms. Roughly 8,000 workers represented by the United Steelworkers have voted 90 per cent in favour of a strike.

"It shows that our members say we're on the right track and are prepared to take action if we don’t get a deal that respects their needs," union spokesman Steve Hunt has said.

Though talks are continuing between the union and two companies, talks have broken off between the union and the Forest Industrial Relations Ltd., which represents 31 employers.

FIR spokesman Ron Shewchuk says the talks broke off over shift scheduling and alternative shift arrangements that were part of an arbitrated contract in 2003.

"The arbitrated concessions that came out of that were specifically designed in acknowledgment of the extremely harsh market conditions our industry was facing and since 2003 those conditions have deteriorated," Shewchuk said.

"We were already being hammered by the rising Canadian dollar, now the dollar is almost at par, the housing market in the United States has continued to decline and on top of that we have a new export tax that we’re paying."

Canada's forest industry has long been one of the most important sectors in the economy, contributing just under three per cent to Canada's gross domestic product.

Canada is the world's largest exporter of wood products, and lumber and pulp mills are critical to the future of the more than 300 rural and remote Canadian communities that depend on the forest industry for at least half their income.

In 2005, the forest industry had $80.3 billion in shipments and employed 339,900 people directly, mostly in lumber and pulp mills and wood product plants in Quebec, British Columbia and Ontario.

Desjardins Securities analyst Pierre Lacroix identified the paper and forest products sector as one of the most affected by the sharp rise in the loonie. This is because virtually all the industry's product prices are quoted in U.S. dollars and a significant portion of the companies' costs are in Canada.

"While the companies receive some relief from the fact that some of their raw material costs are in US dollars and from the fact that they generally borrow in US dollars, this far from offsets the impact on overall profitability and cash for many companies," Lacroix wrote in a note to clients.

Lacroix noted that Canfor Corp. (TSX:CFP), the Vancouver lumber giant with more than 90 per cent of its assets located in Canada, was among the most vulnerable to fluctuations in the Canadian dollar. He estimated that a change of one U.S. cent in the value of the dollar moved Canfor's operating earnings by $28 million or 13 cents per share.

Last week, Canfor, Canada's biggest lumber producer, moved to curtail production from the end of June to mid-August at various sawmills and at its PolarBoard oriented strand board mill and Tackama plywood plant.

The move followed the announcement of the indefinite closure of its Mackenzie sawmill as of August and several other mill shutdowns.

Other closures announced last week included:

- Construction products company Commonwealth Plywood, which cut nearly half its workforce - about 1,200 jobs - as it closes 18 mills in Quebec.

- Oregon-based Hampton Affiliates closed its Decker Lake Lumber mill, west of Prince George, B.C., for the month of July affecting 110 workers.

- Tembec (TSX:TBC) announced a "two-week full or partial closure" in July and August of mills in Senneterre, Taschereau and Bearn in Quebec and Hearst and Chapleau in Ontario. As well, the company permanently cancelled some shifts at the Elko sawmill and Cranbrook mills in British Columbia and the Cochrane sawmill and planer mill in Ontario.

In Western Canada, lumber companies are also under pressure from the mountain pine-beetle infestation that has destroyed thousands of hectares of timberlands and forced companies to harvest timber ahead of the pine-beetle's ravages, resulting in a market oversupply in the short term.

Three unions representing workers in British Columbia have called for a provincial summit to discuss the various challenges faced by the provincial industry, including the threat to jobs and communities raised by the pine-beetle infestation.

"It looks like we're going to have severe supply constraints beyond the next couple of years and the most severe issue will be the mountain pine beetle epidemic in British Columbia," Tembec president and CEO James Lopez said in an interview with the Toronto-based BNN business channel.

"In several years, we're going to see a dramatic drop in supply coming out of that province in conjunction with what we think will be good markets."

Ian Nakamoto, director of research at the MacDougall, MacDougall & MacTier brokerage, said he thought the downturn in the U.S. housing market could be longer than expected.

"It certainly seemed the frenzy in housing in the U.S. was somewhat similar to the frenzy we had in the technology sector," Nakamoto said in an interview.

But even with the downturn in the market, Nakamoto said he still didn't see value in the forestry sector as his sense was Canada was not a low cost producer.

While the mining and income trust sectors in Canada have seen a wave of consolidation and takeovers by private equity, Nakamoto said he didn’t see the same thing happening with the forestry sector.

"Just because you mark the price of stock or a company down doesn't mean there is value there," Nakamoto said. "I just don't see the catalyst to get this thing going again."

(amherstdaily.com)