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Lower Chinese lumber, pulp demand until mid 2012: Tembec

Forest products company Tembec says that Chinese demand for Canadian lumber and pulp has peaked and will remain soft throughout the winter.


November 16, 2011
by CANADIAN PRESS

MONTREAL: Forest products company Tembec says that Chinese demand for Canadian lumber and pulp has peaked and will remain soft throughout the winter.

China’s moves to tighten credit have forced Chinese companies to deplete inventories and hold back on new purchases, creating a climate that Tembec CEO James Lopez said is unlikely to improve until Beijing loosens its monetary policy, hopefully by mid-2012.

“We’re going to see how we ride this out over the next four to six months and we are not very bullish about lumber for the next year,” he said.

The Quebec-based company missed expectations by losing $17 million in its fourth quarter on lower sales as its BC pulp mill was shut for maintenance.

The lumber segment lost $10 million on $121 million of sales, compared with a loss of $16 million on $113 million of sales the previous year.

Lopez said if there is any improvement in the lumber business next year it will be marginal. The industry has increasingly relied on China while the US home building segment remains very weak.

But lower Chinese demand has caused prices to fall, although the recent decline in the value of the Canadian dollar has mitigated some of the impact, he said.

Weakness in paper pulp is also primarily driven by a slowdown in purchases from China.

“While the US and the European markets are not very good, they have not materially declined that much so what is happening in China is affecting the overall market,” Lopez said.

Tembec is considering a $190-million cogeneration plant to be constructed at the Temiscaming site over two years that will add $42 million in operating earnings.

The Quebec government is providing a $75-million loan and Tembec will soon begin negotiations for a long-term power purchase agreement with Hydro-Quebec.

“This is the most exciting investment this company has made in a long time,” Lopez said. “It’s going to be a real game changer investment for the company because of the green energy element that is going to substantially change the cost structure.”

A potential $100-million investment could expand annual specialty dissolving pulp capacity by 30,000 tonnes.

© The Canadian Press 2011