Canada’s top lumber companies boost U.S. mill activity as domestic production wanes

Canada’s top lumber companies, struggling to make two-by-fours from trees killed by the mountain pine beetle, made less lumber at home in 2014, but made up for it by increasing production at mills they own in the United States, according to a survey by industry consultants International Wood Markets.

The top five Canadian companies saw their production here drop by 3.6% over 2013, according to Wood Markets. However, three of those five companies — Canfor, West Fraser Timber, and Interfor — have mills in the United States, and they made a dramatic increase in production from their U.S. mills. The other two on the Wood Products list of top five companies, Tolko Industries and Resolute Forest Products, do not have mills in the U.S.

West Fraser Timber, No. 2 company in Canada, is now the fourth largest lumber producer in the U.S. It increased its production of Southern Yellow Pine by 15%. That shift even took the Wood Markets researchers by surprise, president Russ Taylor said in an interview.

It’s not just the acquisitions that have boosted production.

“Companies like West Fraser and Interfor are putting huge capital into those mills that they have acquired. That was the whole objective in buying them: to get more out of them,” Taylor said.

The Canadians began moving into the U.S. little more than a decade ago, with the purchase of two mills in the U.S. South by West Fraser. By 2014, Canfor, West Fraser, and Interfor owned 31 mills combined, producing 3.6 billion board feet of wood. The trend has continued this year, with Interfor buying another four U.S. mills.

Taylor said a chief attraction of the U.S. South is its proximity to housing markets. Further, their U.S. production is not subject to trade action. B.C. producers expect to begin paying an export tax of between 5% and 10% for their U.S. shipments beginning April 1, Taylor said, a consequence of a dip in lumber prices below a threshold negotiated in the 2006 Softwood Lumber Agreement.

In Canada, the decline in production is directly attributable to the mountain pine beetle.

“That’s basically a function of the mountain pine beetle and the inevitable change of moving away from utilizing dead wood,” Taylor said.

The three companies with the largest production within Canada, Canfor, West Fraser Timber, and Tolko, all have sawmills in the northern and central Interior, the region that was most heavily affected by the mountain pine beetle infestation.

Although the infestation peaked a decade ago, its impact is now hitting lumber production, as fewer of the dead trees can be manufactured into wood products. Overall lumber production in B.C. dropped in 2014 for the first time in five years.

Canfor shut down a mill last year at Quesnel and West Fraser shut one down at Houston. Both companies cited the declining quality of mountain pine beetle timber in their decision to close their operations. Canfor’s Canadian production dropped 11% from 2013, while West Fraser’s was off 3%. Tolko was also down 3%.

Montreal-based Resolute Forest Products and Interfor, with mills on the B.C. Coast, the Southern Interior and Kootenays – had production increases. Neither company is heavily exposed to beetle-damaged timber.

Taylor said he believes B.C. Interior companies have already absorbed most of the impact of losing so much timber to the beetle. He said over the last decade 24 mills have closed. Twenty-one of them have not re-opened and are not likely to, he said. The rationalization has already occurred in the Smithers-Prince George region and to a lesser degree in the Cariboo. He speculated that one or two more mills could go down but he does not expect lumber production to drop much further. Mills have adapted to the new B.C. reality by utilizing smaller logs improving their lumber recovery by investing in technology, he said.

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