Jussi Pesonen, President and CEO of UPM, will assume, on top of his regular duties, temporary responsibility as the Head of UPM Biorefining. The businesses and the transformative growth initiatives in Uruguay and biofuels formerly reporting to Heikki Vappula, will continue operations with existing resources and plans.

UPM will initiate a process for permanent management arrangements in due course.

UPM Biorefining consists of pulp, timber and biofuels businesses.UPM has three pulp mills in Finland and one mill and plantation operation in Uruguay. UPM operates four sawmills and one biorefinery in Finland.

Photo: Jussi Pesonen, President and CEO of UPM

Mercer International Inc. reported strong results for the 3Q ended September 30, 2018 due to higher pulp sales realizations. Operating EBITDA in the current quarter was $86.7 million compared to $64.3 million in the 3Q 2017 and $60.5 million in the 2Q 2018.

For the 3Q 2018, net income was $41.2 million, or $0.63 per share, compared to net income of $21.1 million, or $0.33 per basic and $0.32 per diluted share, for the 3Q 2017 and $16.8 million, or $0.26 per share, in the prior quarter of 2018.

In the 3Q 2018 operating income increased to $63.3 million, or by approximately 69% from $37.5 million in the prior quarter of 2018, and approximately 52% from $41.7 million in the same quarter of the prior year. The increase in the current quarter over the prior quarter is primarily due to lower maintenance costs at its pulp mills and higher pulp sales realizations.

David M. Gandossi, the CEO, stated: “Our agreements to acquire Daishowa‐Marubeni International Ltd. and the Santanol sandalwood business reflect our disciplined approach to acquisitions and capital allocation. Both advance our long‐term value creation strategy to deliver sustainable profitable growth. These businesses leverage our core competencies and complement the world‐class assets that comprise Mercer’s platform for growth.”

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 1.5 million tonnes of NBSK pulp and 550 million board feet of lumber.

Until about six months ago, B.C.’s forestry companies were riding a lumber bull market.

Record-high lumber prices in the U.S. had muted softwood lumber duties, and B.C. forestry companies were netting record profits.

But the party may be over reports Nelson Bennett, BIV.

A shrinking timber supply and high log prices in B.C. and a sudden drop in lumber prices in the U.S. have created a sudden bear market for B.C. sawmills.

“We think the majority of those folks are going to be able to land in other opportunities within our company in our other operations,” James Gorman, vice-president of government and corporate relations for West Fraser Timber, told Business in Vancouver. “But at the end of the day, that’s still 135 positions that won’t exist in British Columbia in the forest industry.”

Starting in January, West Fraser will take about 300 million board feet out of production – roughly 13% of West Fraser’s B.C. production.

Almost all other major forestry companies are also cutting production in the fourth quarter, including Conifex Timber Inc. (TSX:CFF), Tolko Industries, Canfor Corp. (TSX:CFP) and Interfor Corp. (TSX:IFP).

Tolko announced last month that it would lay off 100 workers at its Quesnel sawmill, and on November 9 Conifex announced that it is temporarily curtailing its production at its Fort St. James sawmill for two weeks, affecting 180 to 200 workers.

Last month, Interfor announced it would reduce production at all three of its B.C. Interior mills, and on November 1, Canfor announced it was curtailing production at all of its B.C. sawmills.

Two weeks ago, Teal Jones Group shut down sawmills for one week – its seventh one-week curtailment this year.

“The lack of availability of logs was the main driver for us taking the downtime,” said Teal Jones CFO Hanif Karmally, adding that the level of raw log exports is a contributing factor.

The recent curtailment announcements came at a time when B.C. forestry companies were announcing hundreds of millions of dollars in acquisitions outside of Canada. Tolko recently announced it is taking a 50% stake in a lumber mill in Mississippi, and Canfor announced November 9 that it is buying a sawmill in South Carolina for $110 million. And, on November 15, Canfor announced it is investing $580 million to take a 70% stake in a Swedish lumber company.

American lumber prices have fallen by roughly half since May: to just over US$300 per 1,000 board feet from nearly US$600.

The higher lumber prices had muted the impacts of U.S. softwood lumber duties. But now that prices have fallen, companies will be feeling the pinch.

“When you’ve got scarce fibre, which pushes prices for it up, and then you’re paying duties on top of that, and your market price has declined significantly, that puts companies into the bite,” said Susan Yurkovich, president and CEO of the Council of Forest Industries. “And that’s why you’re seeing announcements about curtailments, either temporary or permanent.”

It’s not lower lumber prices in the U.S. so much as high log prices in B.C. that are the biggest problem for companies operating in this province.

“Timber prices in British Columbia are now among the highest in North America, and that’s a result of too many mills chasing too few trees,” Gorman said.

The mountain pine beetle infestation, which started more than 20 years ago, has been a short-term blessing and a long-term curse for B.C. forestry companies.

A surplus of dead and dying trees meant a timber supply bonanza. But most of that beetle-killed timber has been used, and more recently wildfires have taken a bite out of an already shrinking annual allowable cut (AAC).

Fires in 2017 took 22% out of the AAC for Quesnel and 18% for Williams Lake, for example.

Doug Donaldson, minister of forests, lands and natural resource operations, was unavailable to comment on government policies on the annual allowable cut or log exports. But Gorman said there’s not much the provincial government can do about the problem anyway.

Forestry companies have known for about a decade that a long-term decline in B.C.’s AAC was coming, which explains why so many B.C. companies have been investing in sawmills in the U.S., where there is still an adequate timber supply. The biggest players now own more sawmills in the U.S. than in Canada.

David Elstone, executive director of the Truck Loggers Association, which represents logging companies, said sawmill curtailments will affect loggers, depending on how long they last.

“The scary aspect of this whole story is, while the balance sheets have been repaired through the good times for the sawmills,… contractors are left with balance sheets that have not grown any fatter. It just means we’re probably going to have a lot less contractors when it comes out the other side here.”

The “other side” could be 2075. That’s when the AAC in B.C. is expected to return to normal.

In 1987, B.C.’s AAC peaked at 90 million cubic metres. The long-term forecast is for an AAC of 58 million cubic metres by 2025. The AAC is expected to return to between 65 million and 70 million cubic feet around 2075.

Meanwhile, over the next decade, demand for lumber in the U.S. is expected to remain strong, and Canada will continue to be its main supplier, according to a recent report by ForestEdge LLC and Wood Resources International LLC. But Eastern Canada, not B.C., will fill that role.

Canfor expands with Swedish acquisition
Vancouver-headquartered Canfor Corp. (TSX:CFP) is now an international forestry company, thanks to the acquisition of a Swedish lumber company.

Canfor last week announced plans to acquire 70% of Vida Group for $580 million. Vida owns nine sawmills in Sweden and produces 1.1 billion board feet per year.

Over the years, Canfor’s expansion outside of B.C. has mainly been in the U.S. and other parts of Canada. The Swedish acquisition expands Canfor’s customer base and positions it as an international wood manufacturer.

Canfor CEO Don Kayne acknowledged that B.C.’s shrinking annual allowable cut (AAC) is partly behind the expansion outside of North America, but he added that market access was the main consideration.

“More importantly, I think this has been driven more by our customers and their desire to see Canfor grow with them.”

Kayne added that most of Canfor’s production still comes from Canada, and the bulk of that is from its B.C. sawmills and pulp mills.

He said Canfor still believes B.C. is well positioned geographically to grow in the long term in the Asian and U.S. markets, but Kayne added that the reduced AAC resulting from forest fires and the mountain pine beetle infestation limited opportunities to expand in B.C.

Kayne said Canfor’s customer base is global and the company needs to ensure a reliable supply of quality wood products.

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Photo The Teal-Jones Group provides customers around the world with top quality wood products

One year after leading B.C.’s largest-ever forestry-sector delegation to Asia, B.C. Forests/Rural Development Minister Doug Donaldson is taking an even larger group to three key Asian countries this winter in a push to expand exports beyond the suddenly slowing American market reports Chuck Chiang, BIV.

Donaldson, whose portfolio also includes Lands and Natural Resources Operations, will visit South Korea, Japan and China Dec. 5 -15 with a group of officials from more than 40 companies, research institutions, unions and trade associations. The number of entities represented by the delegation in last year’s trade mission (to China and Japan) was around 30.

The key difference, Donaldson says, is that this year’s edition will include a large First Nations component. He noted that he realized during last year’s trade visit that it behooves the province to put First Nations communities in direct contact with potential customers in East Asia, since most of these communities’ lumber businesses lack the scale to reach Asia by themselves.

“We’ve consistently had conversations with First Nations communities around tenure and processing more wood locally, so it just makes sense for those First Nations who are interested in growing their economies to have representation on this trip,” Donaldson said. “The major licensees can often establish their own connections – although they do find it worth their while to come along on this trade mission, as well – but there’s a significant contingent of people who represent licensees that aren’t as large, and this trip helps open doors and and make the connections.”

China, Japan and South Korea are B.C.’s second, third and fifth largest wood-product export markets respectively. The three markets combine to make up about 29% of B.C.’s current wood-product exports, although each presents a distinct opportunity for local companies, officials said.

B.C. has been on a major bull market in terms of lumber exports until this summer, when a sudden drop in U.S. lumber prices removed the insulation between B.C.’s forestry industry and the softwood lumber duties imposed by the United States. Prices in the American market for lumber fell from US$600 per 1,000 board feet to US$300 this month.

There are additional factors contributing to a slowdown; officials have cited a striking timber supply in B.C. due partially to wildfires. The downturn has resulted in West Fraser Timber Co. cutting shifts at sawmills in Quesnel and Fraser Lake and laying off 135 workers. West Fraser estimates the adjustment will take 13% out of the company’s B.C. production.

“There are certain things that government can do to ensure we have jobs in rural communities that depend on forestry, and there are areas where it’s difficult to exert influence on as a government – global markets on lumber prices, for instance,” Donaldson said. “But this trade mission is one example of something where the B.C. government has a very legitimate and importance role, and we are acting on it to make sure that there will continue to be rural jobs in forestry.”

Photo: B.C. Forests/Rural Development Minister Doug Donaldson
Source: Chuck Chiang

The UK Forest Market Report 2018, launched in London November 21, has revealed a continuing great performance from forestry investment.

Many UK forest owners who purchased their property 30 or 40 years ago are now reaping exceptional rewards for patiently growing their timber assets.

Not only is their investment showing returns of 13.9% per annum – one of the best performing asset classes – but the price of standing timber has soared 30% in the last year alone.

The 20th edition of The UK Forest Market Report, produced by Tilhill Forestry and John Clegg & Co describes the commercial forestry market as “brisk and robust” in the year to September 2018, with £104.2m of forest properties traded.

This is a 6% drop from 2017 but the market comprised a smaller number of higher value sales (57 in 2018 compared to 87 in 2017) with an average size of 196ha (149ha in 2017) and an average price of £1.83m (£1.28m in 2017). Scotland retained its dominant position in the marketplace with 69% of the sales recorded.

The report points out that standing timber prices have rocketed by around 30% over the last 12 months – great news for owners whose forests are now ready to harvest. Additionally, despite political uncertainty, the report suggests that new agricultural policies may be on the horizon that will encourage a more integrated approach to land use particularly with forestry and farming.

“Overall we believe that the market continues to behave robustly in the light of the wider economic environment, demonstrating the strength and resilience of forestry as a long-term investment,” says the report.

“New investors are coming through to investigate the marketplace with many of these based within the EU and reassuringly confident to invest in the UK.”

Fenning Welstead, director of John Clegg & Co, said demand from investors seeking ownership of forestry assets has never been stronger in his experience.

“The upward movement in the price of timber in the last 12 months has been staggering,” he said. “It has been driven partly by the weak pound and more expensive imports but also, I believe, by the dawning realisation that the supply of fibre is finite.”

More conifers were planted in Scotland last year than in any year since 2000 and encouragingly, the report says, Forestry Commission Scotland has reported strong demand for woodland creation schemes for 2018/19 and 2019/20 with over 12,000ha being assessed – well exceeding their target of 10,000ha per year.

The forestry grant budget in Scotland has been increased for 2018/19 to accommodate the increased demand – a clear sign of how the Scottish Government perceives the importance of forestry as part of the rural economy.

Timber sale levels on the Chequamegon-Nicolet National Forest  reached 128.7 million board feet in fiscal year 2018, a level of sales not seen since the early 1990’s reports Green Bay Gazette.

The 2018 fiscal year was also the sixth year in a row timber sales have increased in the forest. In 2017, the forest sold 120.5 million board feet of timber for an estimated value of $7.72 million. Contractors also harvested 93.1 million board feet of timber valued at $7.48 million.

“I am very proud of the great staff and partners we have in making this achievement possible,” said Paul Strong, forest supervisor of the Chequamegon-Nicolet National Forest.

In addition to the forest’s regular timber sale program, which sold 98 million board feet this year, 30.7 million board feet were sold through the Good Neighbor Authority agreement with the Wisconsin Department of Natural Resources.

“The 2014 Farm Bill permanently authorized Good Neighbor Authority as well as Stewardship Contracting, and the forest continues to leverage them to increase timber sales and sustainable forest management activities on the National Forest,” Strong said.

The continual increase in timber sales in the Chequamegon-Nicolet provides more wood to Wisconsin’s important forest products industry while creating and maintaining healthy forest conditions prescribed in the forest’s 2004 Land and Resource Management Plan.