TEMBEC’S TROUBLED TIMES CONTINUE

Implications: Just two years ago Tembec announced the permanent closing of their 1000mt/day NBSK mill at Smooth Rock Fall,Ontario because they had been unable to find a buyer anywhere. Now they’ve announced the indefinite closure of their 325,000st/year coated freesheet mill in St. Francisville, LA. They had purchased this mill in 2001 for US$185 million with high hopes that this acquisition would make a very positive contribution. In 2005 they spent another $30 million to shut down the mill’s groundwood pulp line and the newsprint machine while upgrading the remaining machines to produce a higher grade of coated freesheet. The mill’s kraft mill was capable of supplying over half their fiber requirements. However, now, because of high energy/labor and wood costs along with mill inefficiencies (usually meant to indicate unacceptable percent first quality production), the mill is being closed.

Analysis:  

A second announcement was that a half dozen additional sawmills in Ontario, Quebec and British Columbia are taking at least several weeks of downtime. A combination of reasons are blamed –

Currency exchange, a continuing poor market for dimension lumber and depressed markets as well as high wood/labor/energy costs. This has a serious implication to the market pulp mills since they rely heavily on the chips which come from sawmills as “residuals”. Without these chips the pulp mills are required to go into the forests to harvest trees. Ontario and Quebec both have reduced their a.a.c. (annual allowable cut) to 70% which means Tembec’s truckers must go one-third further from the mill to find the desired kinds of trees (in most cases Black Spruce). This adds to their trucking charges which already carry an 18% fuel surcharge.

Sawmills are huge energy consumers. HydroOntario and HydroQuebec have both raised their

rates by 60% over the past 3 years. So…what we have in Canada are all the ingredients of

“the perfect storm”…high labor/energy/wood costs coupled with low prices and diminished

demand for dimension lumber coupled with a strong currency that may see the loonie on a

par with the US greenback by year’s end.