Expect the loss of another 12 sawmills over next decade, analyst says

Tolko Industries' decision to close its Quest sawmill in Quesnel was greeted less with shock than resignation in certain circles with one report predicting the equivalent of 12 more will be shuttered in the next decade to cope with B.C.'s shrinking timber supply.

"They were the next mill on our list," said Russ Taylor, president of the consulting firm Wood Markets Group, that commissioned the analyst's report that concluded with that grim assessment.

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Tolko CEO Brad Thorlakson cited a lack of "economic fibre to keep all our (B.C.) mills running efficiently" in making the decision, announced May 10, to close the Quesnel mill affecting 150 jobs and cut one of two shifts from its Kelowna mill eliminating another 90.

Forestry remains a cornerstone of B.C.'s economy, accounting for 60,000 direct jobs, including one in every four people employed in manufacturing, with 140 mostly rural communities dependent on the industry, according to a recent assessment.

Over the next decade, however, catching up with necessary reductions in B.C.'s timber harvests could put a 2,000 to 2,500-position dent in those employment figures, Taylor said.

However, the massive mountain pine-beetle epidemic, a subsequent smaller spruce-beetle infestation and successive record years of forest fires have cumulatively compromised the province's Interior forests, said industry analyst Jim Girvan, who wrote the report.

Add to that requirements to set aside forest habitat for the protection of endangered mountain caribou, and Girvan said B.C.'s central regions will be left without enough timber for all sawmills operating in the region, where the province counted 51 as of 2017.

"In the worst-case scenario, 13 mills will close," said Girvan, who is a professional forester as well as a longtime industry consultant. "In the best-case scenario, 26 mills will reduce (one shift each). Either way, the impact on lumber production, residual chip production, the impact on employment is the same."

He expects the bite out of timber harvests will start taking hold between now and about 2025 into what the industry is referring to as the midterm timber supply, and estimates it will take 30-40 years before new growth in forests recover to levels that will allow an increase in harvests. As for where closures might happen, Girvan wouldn't say, because that topic is "just too sensitive," but, after the shakeout, "remaining mills should be able to run at close to their operating capacity."

Girvan's 2019 report is a followup to a forecast he released in 2010, which estimated that by 2018, 16 mills would have to close in response to the mountain pine-beetle epidemic. And by last year, the equivalent of 15 did (12 mills were shuttered, another six reduced shifts).

He delivered the 2019 report at a Wood Markets Group-sponsored industry conference last week, pronouncing that at least one closure was imminent, the day before Tolko made its announcement.

Taylor said difficult market conditions, with slow orders from rain-soaked U.S. states, are contributing to a crash in lumber prices that he estimates aren't profitable for any Interior mills.

"The best mills in the B.C. Interior are in the red," Taylor said. "And the average or higher-cost mills are just so offside."

Companies, communities and governments have known for some time about the conditions that will reduce Interior timber supplies, but this latest report highlights the imperative for them to co-operate on efforts to mitigate the potential damage.

"Some of these (issues) have been kicked down the road by previous governments for too long," said Doug Donaldson, minister of Forests, Lands and Natural Resource Operations, "(but) we know mills will be curtailing shifts, some will be closing.

"Part of our challenge there is to focus on maximizing value rather than maximizing volume" from timber production, Donaldson said, repeating his government's slogan for the sector.

And the coming timber-supply crunch is the reason government has been putting an emphasis on promoting the use of value-added engineered, mass timber components such as cross-laminated timber panels and glue-laminated beams that turn dimension lumber into products that can be used in large commercial construction projects.

Donaldson said government will be looking for fresh ideas from companies, communities and First Nations on how to handle the transition to reduced harvests from round-table groups that it's establishing at the grassroots level in specific timber-supply regions.

B.C. Premier John Horgan announced the initiative at the Council of Forest Industries convention in April and Donaldson said he is expecting two-to-three proposals coming forward on that front.

In the coming weeks Donaldson said the B.C. government will also be putting out a discussion paper to communities and First Nations looking for input on what policy changes they think would be helpful for the industry's transition.

Susan Yurkovich, CEO of the Council of Forest Industries, said whatever government does, the key thing industry needs is certainty around the eventual timber supply.

"The industry wants to reinvest, so does government," Yurkovich said. "We're on the same page there, (but) what we need is to have secure access to fibre, we need a robust regulatory environment, but it has to be stable, certain and transparent."

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