Pulp and Paper rebounds in 2006, looks good for 2007

The long suffering forest industry in British Columbia received a little bit of good news today, as pulp industry indicators are that 2007 will see an upward curve in the price of the province’s pulp market. The possible increase in revenues comes from indications that the price of pulp on the North American market will rise to 790 a tonne.

There is concern over the increasing cost of wood chips, with the number of sawmills that have shut down in BC rising, the supply is suddenly not as plentiful as in the past. The price of chips has risen from $39 a tonne to $65 per tonne, with even more increases expected if more sawmills close.

For Prince Rupert the closure of the Skeena mill couldn't have come at a worse time, a missed opportunity that doesn't come along very often. With the price of pulp now on the increase, one wonders if the trend will still be in effect should the local mill ever be revived and once again start producing pulp and paper.

The Prince George Citizen provided a look at forest sector of the province, the good news for the pulp industry and the continuing struggles of the sawmill sector.

PULP LONE STAR IN B. C. FOREST SECTOR
Gordon Hoekstra
Citizen staff
Prince George Citizen
Tuesday, December 12, 2006

As the year nears its close, pulp is the only bright spot in the B.C. forest sector, as lumber and oriented strand board are in the tank.

Prices for North American-produced bleached softwood kraft pulp have reached $770 US a tonne in North America, $730 US in Europe and $700 US in Asia.

Mercer International -- a pulp producer with one plant in Canada and two in Germany -- has already indicated it will raise its prices in January to $790 US in North America, $770 in Europe and $720 in Asia.

"The momentum continues," forest industry analyst Paul Quinn said Monday. "It's looking good right now."

The price levels in US dollars have reached 12 to 13 year highs, however that price gain is eroded for Canadian producers because of the increased value of the loonie compared to the U.S. currency.

In Canadian dollars, the pulp prices have been at these levels two years ago and were higher during the 2000 to 2001 period, said Quinn.

The pulp price increases have been driven by production curtailments in Canada and the U.S., the rise of the Canadian dollar, and higher input costs for items like bleaching agents and other chemicals, noted Quinn.

He said of particular concern going forward is the increasing cost of wood chips.

For example, Canfor Corp. paid $39 per tonne for its chips in 2005 and that cost had gone up to $65 per tonne by the end of this year, said Quinn.

It could go even higher if there are more sawmill curtailments, and if pulp mills have to chip whole logs, he said.

Pulp production is an important part of northern B.C.'s economy.

There are pulp mills in Chetwynd, Taylor, Mackenzie, Prince George and Quesnel.

Prince George alone has three pulp mills -- owned by the Canfor Pulp Income Fund -- that employ more than 1,000 people.

The positive market for pulp was born out by Canfor Pulp's results in the third quarter of this year when the company had profits of $41.9 million on sales of $214.3 million.

While pulp has been doing well, the same can't be said for lumber and oriented strand board.

The benchmark price for random length spruce-pine-fir -- known as SPF -- two by fours is now in the $250 US range, well back from the highs of more than $400 US in 2004 and 2005.

Oriented strand board has also been hard hit.It's now trading below $200 Cdn, well below its highs above $500 in 2004 and 2005.

It's now trading below $200 Cdn, well below its highs above $500 in 2004 and 2005.