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A New Generation in Canada?

As I mentioned a few months ago, times are tough for the Canadian pulp and paper industry, despite a spell of high pulp sales prices.  Although the high pulp prices have been helpful, they now seem to be heading back down, as they always do in pulp and other cyclical products.

 However, there is good news on several levels.

 Lumber sales to Asia are booming, particularly to China. It seems that China may overtake the USA as Canada’s biggest customer for lumber in 2012.

The boom in lumber sales to China is really more significant to the industry than the high pulp prices, because it has many signs of being sustained for at least a number of years. The growing Chinese middle class wants houses and North American-style wooden homes make a lot of sense, particularly in earthquake prone areas.

Some of the credit for the rapid growth in lumber sales from almost nothing 10 years ago to about a billion dollars last year must go to work over the past few years by industry associations and the Canadian government to encourage modification of Chinese (and other) building codes to permit North American-style wood frame construction. Of course, the more lumber being sold, the more -- and hopefully cheaper -- chips will be available for the pulp mills. Canada is already pretty good at integrating lumber production with pulping, which helps offset the price advantage the South American mills have with their fast-growing wood.

There is a boom in converting paper-grade kraft mills to produce dissolving pulp as an intermediate for the textile industry in India and China. This also has promise of being sustained for some time, as the standard of living rises in Asia, particularly China, and people want more and better clothes. Canada has more potential to expand textile pulp production than the cotton growers to produce more. Of course there are uncertainties, such as the possibility of one or more giant, highly efficient dissolving grade pulp mills being built in South America or Indonesia, or oil prices dropping enough to make petroleum-based fibers cheap. A well-built dissolving kraft mill is an energy exporter, and so it gains from high oil prices. Hopefully, the mills being developed will be engineered to take advantage of this opportunity. I have worked in a couple of dissolving grade mills that are energy hogs. One is long since shut down. Wonder why.

We saw a new research center opened by Canfor in British Columbia last year, which is a pleasant reversal of years of decline in R&D investment, even though it is relatively small. To me, one of the most optimistic features of the opening ceremony was to see the photo of Joe Nemeth, the president and CEO of Canfor. I looked up his profile and find that he is young enough to be my son. That’s great, even if I envy his salary. The industry is in dire need of youth at the top.

The start-up of the Celluforce nanocrystalline cellulose industrial-scale pilot plant in Domtar’s Windsor kraft mill is good news. It is, of course, too early to tell how much nanotechnogy will mean to the industry, but it is good to see it move beyond the laboratory.

For several years we heard the refrain, “The industry is in trouble. Most of the top management people are nearing retirement.”  To me, the sooner the better. No offence intended to any individuals, but I agree with a comment by Ted Seraphim of West Fraser at the PacWest conference that “We do not have enough young people coming behind us… It is the smart young people who will transform the industry, not us.”  We need a lot more young people in management, to lead the new directions.

I suspect that Joe Nemeth and others like him are hoping that a younger generation will take over soon, but are too diplomatic to say so to us oldsters.

One major, outstanding problem for Canadian mills is that they are competing for customers with U.S. mills that benefit from the Cellulosic Biofuel Producer Credits (a gift of USD 100-200 per ton of pulp from the taxpayer). The Canadian government’s answer to the problem was the CAD 1 billion Green Transformation subsidy. Although much less monetarily beneficial than the U.S. biofuel credits (it was available only to subsidies energy conservation measures) it has boosted the long-term competitive level of the mills involved, while much of the biofuel credit seems to have been passed on to stockholders.

Western Canadian mills have to compete with Alberta’s booming oil developments for skilled and professional staff. Presumably, the U.S. taxpayer will get fed up with the subsidy soon, but the oil industry will probably remain serious competition for years.

All things considered, things look better than they did a year or so ago, although we are far from the boom times of last century.




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