Forest industry looking at better futures

Paper-making companies and wood products manufacturers, both mainstays of the B.C. economy, have faced some gloomy times in recent years, but both can look forward to brighter, though only slightly brighter, futures.

This is the nub of two new analyses released Tuesday by the Conference Board of Canada. By most measures, including profits -- the all-important bottom line -- the wood products manufacturing industry has been slowly extracting itself from a very bad place since the recession of 2008. The Conference Board analysis in 2011 shows an industry-wide loss of $44 million, followed by combined profits of $166 million in 2012 and a robust $1.4 billion in 2013, a spike that might be explained in part by a dip in employment, and thus in costs, to its lowest point in recent years.

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Thanks to a healthier U.S. housing market and an improved macroeconomic outlook, employment in the industry is forecast to rise a healthy 10.7 per cent to 114,000 this year. But even though revenues will also rise slightly, profits will dip back down to a little less than $1.3 billion. The forecast going forward to 2018 is for generally steady increases in the four-to-five-per-cent range.

The picture for paper producers is quite different. Whereas wood products took a brutal hit from the recession -- B.C.'s production at the bottom of the trough in 2009, for example, was only two-thirds what it was two years later with the recovery well underway -- it didn't last very long.

Meanwhile, the paper products industry is undergoing what looks like a permanent a sea change driven by a huge shift in people's reading habits, especially the growing tendency for people to get their news on computers, tablets and phones. There is still international demand for wood fibre -- annual pulp exports from Canada have hovered at or near the $6-billion mark for the last decade -- but paper exports have nosedived from about $15 billion in 2003 to less than $9 billion in 2013.

But the Conference Board believes paper companies' revenues reached their nadir, just under $24 billion, last year. And it projects very slow but steady growth for the five years its report looks ahead.

The threats and opportunities for the two main arms of the forest industry are also quite different, the Conference Board argues.

The wood side of the industry is drawing strength from the development of engineered wood products and green options to meet growing market demand, and it's making increasingly better use of what used to be waste wood. Its outlook is also enhanced by regulatory changes that are allowing wooden buildings to exceed four floors in Canada.

On the other hand, despite a recovering U.S. market, the Canadian market may continue to be weak as consumers attempt to rein in their debt. And the industry is also threatened by both the prospect of higher mortgage rates and the supply problem resulting from B.C.'s pine beetle infestation.

For paper, part of the not-so-bad news for the industry stems from the way it has been able to bolster revenues by selling non-paper products such as electricity, which many mills used to generate only for their own consumption. As well, it may be able to grow its market for high-value specialty papers such as thermal or photographic papers.

But, as with wood, it will wrestle with supply issues as a result of the pine beetle, and it may face stiffer competition from recycled paper, a substitute for pulp, in the massive Chinese market. The industry may also find itself out-competed for workers in Western Canada by fast-growing, high-paying energy companies.

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