Processing beetle-killed pine continues to be a struggle for West Fraser Timber Ltd., chief executive officer Hank Ketcham said Tuesday during a third-quarter conference call, although there is some hope for improvement.
"We're constantly working in our mills to find new and better ways to improve the process, to mitigate the issues but the wood is getting drier," Ketcham said.
"Fortunately, we are able to get into some green wood in some of our areas now, so that's what's going to prevent any further decline in the deterioration of the pine.
"But our lumber recoveries and our grade recoveries and our productivity continue to suffer. I wouldn't say it's materially worse in the third quarter than it was in the second quarter, but it is certainly not improving."
He hopes a cold winter will hinder the spread of the beetle in Alberta where it has not reached epidemic proportions.
As for U.S. allegations that B.C. mills are passing off higher-grade lumber as beetle kill to cash in on a lower stumpage rate, Ketcham said West Fraser is confident in the merits of Canada's defence, "we cannot predict the outcome."
Canada is scheduled to issue a formal response on Nov. 9 and the case is to be heard by the London Court of International Arbitration in late February.
Ketcham also said several projects are now underway to raise the efficiency of its southern U.S. mills to the level of its Canadian operations.
But he added Canadian log costs are up 15 per cent year over year while U.S. log costs are down five per cent and attributed the jump to increased prices, higher fuel costs, longer haul distances and a very tight labour market.
Asked to elaborate, West Fraser woodlands senior vice president Wayne Clogg said part of problem is the start up of mills to meet Asian demand, "but probably the bigger pressure is coming from other industries like mining and oil and gas in areas like trucking where those operators can move easily between industries."
Exports to Asia accounted for an estimated quarter of West Fraser's shipments in the quarter but Ketcham said there has been a build up of inventories although he remains unconcerned.
"At the current time we think it is simply a question of rebalancing inventories," Ketcham said.
"To the extent that there is an oversupply of lumber on the docks over there, it is starting to work itself off now, we hope."
West Fraser reported Monday a loss of $27.3 million in its latest quarter compared with a profit of $42.1 million a year ago as the forestry company took a charge related to its pension plan.
Scotia Capital analyst Benoit Laprade lowered his price target on West Fraser on Tuesday to $53 from $56 based on higher costs at the company. However, Laprade maintained a "sector outperform" rating on the stock.
- with files from Canadian Press
