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Lumber industry ripe for consolidation: Tembec CEO

Persistently low prices make Canada’s lumber industry ripe for consolidation, but it’s not clear who would be willing to take the plunge, says Tembec’s chief executive.


July 27, 2011
by CANADIAN PRESS

MONTREAL: Persistently low prices make Canada’s lumber industry ripe for consolidation, but it’s not clear who would be willing to take the plunge, says Tembec’s chief executive.

“If you call it right you’re going to look like a really smart CEO and if you’re going to call it wrong you may be an unemployed CEO,” said James Lopez.

He said industry leaders have been burned in the past in predicting a recovery in the US housing market coming into 2011.

Low lumber prices have been prevented from falling even more dramatically only because of increased Chinese demand.

“We had one good month but that was one good month in a number of bad months and we’re not optimistic for the balance of the calendar year,” Lopez said.

High operating losses at Tembec’s lumber and high-yield pulp businesses contributed to a 68% drop in third-quarter earnings. The company beat expectations even though it earned just $19 million, down from $59 million a year earlier.

Like other forest products producers, the Montreal-based lumber and pulp and paper producer has faced the negative impact of weak US housing starts and lower pulp prices.

Tembec lost $16 million on $113 million of lumber sales, compared with a $9-million loss on $124 million of sales in the second quarter. It incurred $3 million on lumber export taxes, down from $4 million in the prior quarter.

A 10% surtax on softwood shipped from Ontario and Quebec to the US ended in June, saving Tembec $4 million a year going forward.

The bright segment of its operations continued to be dissolving and chemical pulp. It earned $45 million on $188 million of sales. Sales increased by $11 million from the prior quarter as pulp prices increased by $129 per tonne.

Paper operations were stable while high-yield pulp weakened from the prior quarter on lower prices and increased costs.

Lopez said he expected the fourth quarter will also be challenging because of weak NBSK pulp prices and the financial impact of a planned 16-day shutdown at its Skookumchuck, BC mill to replace a boiler.

Tembec recently announced plans to invest $6 million, including more than half coming from the Quebec government, to reduce energy costs by replacing boilers at its Bearn sawmill.

It also indefinitely suspended production in May at its pulp mill in Matane, Que., after unionized workers went on strike after a breakdown in labour talks. The plant in Matane employs 143 people, of whom 99 are unionized, and ships to customers in North America, Europe and Asia.

Lopez said the strike hasn’t had a material impact on the company’s results so far.
Tembec is an integrated forest products company, with operations in North America and France. It has some 4,300 employees and operates more than 30 market pulp, paper and wood product manufacturing units, and produces silvichemicals from byproducts of its pulping process and specialty chemicals.

Tembec markets its products worldwide and has sales offices in Canada, the US, China, Korea and Japan. It was created in 1973 after a closed paper mill in Temiscaming, Que., was purchased from a large multinational company.

© 2011 The Canadian Press