The province's forestry sector is experiencing what is being dubbed "a perfect storm" - pounded by a soaring Canadian dollar, increasing utility costs and rising interest rates.

Alberta has lost four sawmills in the past two years: Atlas Lumber in Blairmore; Canfor's lumber mill in Hines Creek; Seehta Forest Products' Red Earth lumber mill and Weyerhaeuser's lumber mill in Grande Cache, although a buyer has taken over the Grande Cache plant and transformed it into a forestry specialty-products operation.

"Secondary manufacturers are also facing increasing pressures, many to the verge of closing, as was seen with the recent announcement by Sawn Wood Products in Drayton Valley to close its doors," adds Parker Hogan, director of public affairs for the Alberta Forest Products Association (AFPA).

"Alberta's pulp mills are also facing significant cost pressures and are struggling to stay competitive in the current global market. The recent announcement at West Fraser's Hinton pulp mill, including decommissioning one pulp line and eliminating 100 permanent jobs, is a direct consequence of the competitiveness pressures felt by the industry."

According to the AFPA, the forest products industry is Alberta's third-largest primary industry - behind agriculture and energy - and provides about 54,000 jobs.

Hogan pulls no punches and calls the forestry outlook "gloomy," pointing to 2005 product values that fell by $545.8 million to $3.764 billion.

"We're basically in the midst of what's almost a perfect storm, that is, while our lumber producers continue to fight the softwood lumber issue there's a couple of other issues that are as important or even more important," says Hogan, referring to increasing transportation costs, higher prices for diesel fuel, rising electrical costs and labour challenges in trying to retain or find people to work in mills or woodland operations.

The oil and gas boom is also creating significant pressures for the sector, he adds, and "we're facing the fact that the Canadian dollar has increased quite substantially against the U.S. dollar - our products are sold in American dollars. Our margins are being substantially reduced."

The number of housing starts, down in the first three months of 2006 compared to the same period in 2005, is also reducing demand for construction materials. Also, the expected boom from rebuilding in the U.S. South after the devastating hurricane season last year has not materialized.

"It hasn't happened. It probably looks like it's a year to two away potentially from starting (reconstruction), and then how much impact that will ever have on prices remains to be seen," adds Hogan.

As far as provincial relief, the industry has not asked for a handout, Hogan notes.

"And frankly we don't expect it from this government. What we have done is we're working with the Department of Sustainable Resource Development to look at the issues impacting the competitiveness of our industry. That has just been announced and over the next year we will look at a number of things: The economics, the local and global marketplace and how that all relates. It's a step in the right direction for us," he adds.

Despite all the dismal news, the AFPA says there are some bright spots as forestry companies turn to innovation and entrepreneurship.

Cochrane's Spray Lake Sawmills has a new division that is taking woodwaste and mulching it together to provide landscaping products. Vanderwell Contractors, near Slave Lake, is taking the shavings from its mill and transforming them into wood pellets used for heating in wood stoves - a product that is being shipped to Europe.

And should the softwood lumber issue reach a settlement, there is more than $5 billion being held by the U.S. - 10 per cent of that coming from Alberta producers - that if returned would make a difference, says Hogan. "But we may be looking at five to six or seven years before that happens."

Lumbering On:

* Lumber: The value of lumber in 2005 was $1.378.8 billion, down $328 million or 19.2 per cent from 2004. Lumber prices ranged from a high of $420 per thousand board feet in early March to a low of $286 in late August. Lumber futures on the Chicago Mercantile Exchange show little upward pricing, with November 2006 futures contracts currently priced about $380.35 Cdn.

*Panelboard: Alberta’s panelboard manufacturers saw 2005 production decrease by 123.9 million square feet from 2004. The 2837.7 million square feet of production was 4.18 per cent lower than 2004’s production of 2961.6. Value declined 21 per cent to $930.2 million, a reduction of $246.8 million from 2004.

*Pulp and Paper: Alberta Forest Products Association pulp and paper members recorded marginal increases in production and value year over year. Production in 2005 was up 2.6 per cent, or 51.2 Air Dried Metric Tonnes, to 2.012 million Air Dried Metric Tonnes for 2005. The value was up 2.03 per cent ($29 million) to stand at $1.455 billion at year-end. This is the second straight year that pulp and paper value has moved upward, albeit at about two per cent per year.

– Source: Alberta Forest Products Association

(Laura Severs can be reached at laura@businessedge.ca)