The company says the investments will allow them to develop new markets focused on high-quality shelving products for big box stores.

The expansion project will break ground in Q4 and extend into next year.

“We are highly integrated and these advancements allow us to add efficiencies and realize economies of scale. The two projects create further synergistic effects on sales integration, allowing us to expand our product base. Additionally, we will need to focus on hiring more skilled workers to handle the increased capacity. We are excited to break ground!” John Langstroth, San Group’s senior vice-president, said in a news release.

The company’s Port Alberni mill expansion will see the installation of an Anthem Line – a fully automized system designed to develop edge glued panels extending to eight feet.

“Anthem line’s advanced manufacturing process not only helps improve San Group’s product portfolio, but also increases the company’s push to create downstream high value products for global export,” the company said.

The Acorn Forest Products expansion will see a new auto grader and dry kilns installed. The projects are expected to enhance the mill’s output capacity and reduce waste.

San Group purchased the mill from Interfor in Q2 of this year.

Editor’s note: Read our latest profile on the company, Reman redefined: Checking in on San Group’s Port Alberni operation.

The provincial government looks to defer up to 26,000 square kilometres of old-growth forest, redistribute timber harvesting rights to First Nations and communities, and give government greater oversight with a view to making the province “the landlord of the forests again.”

All the while, the government is looking to the value-added sector to drive the industry forward, while cracking down on log exporters.

The irony of this, according to the industry, is that remanufacturers depend on high-value old-growth logs. Some feel the government simply does not understand the forest industry.

Following much doom and gloom at the annual Truck Loggers Association conference, Canadian Forest Industries visited one of the most forward-looking value-added forestry companies in the province – San Group – in February to find out how they are reacting to this paradigm shift.

“It’s going to impact us in a very big way,” San Group’s CEO Kamal Sanghera says of the old-growth deferrals, while noting that they are looking for clarity from the government on its direction. “We’re looking for what the government’s definition of value-added is.” 

For several years, San Group has been pouring millions of dollars (approximately $200 million by this point) into creating a tight ecosystem in Port Alberni. With the purchase and expansion of the Coulson mill, the creation of a remanufacturing facility, an agreement with the Catalyst paper mill next door to purchase pulp logs while providing waste fibre for hog fuel, a deep-water port, and now a biomass facility in the works to turn shavings and sawdust into pellets, San Group plans to do it all within a handful of kilometres.

This is all to keep costs for the business and the environment down, says Sanghera, and making the best use of every log they can get their hands on. “We use less to create more – this is the philosophy that is working here,” he says.

Kamal Sanghera, executive director for San Group, shows the results of their Microtec Goldeneye 502 Quality scanner, removing knotted wood from otherwise clear 2x4s.

This is achieved in many ways, including with major changes to what had been a large-diameter mill at Coulson, but which now processes every available tree species down to a 12-inch diameter; adding a HewSaw R200 line that can process lower-grade timber down to three inches in diameter (now in production); a Fezer Slicer, supplied by Quebec’s Industrial Machinery Sales, at the reman facility to make veneers with little waste; creating engineered products with high-value veneers atop low-grade wood cores, and more.

Giving an example as we walk through the reman facility, Sanghera points to some clear 6×6 old-growth lumber. You could get about six pieces of siding or other product out of one 6×6 normally, he says. But by slicing it into veneer and using lower-grade wood for the core, San Group gets 48 to 50 pieces.

Achieving San Group’s vision requires a dependence on cutting-edge technology (literally and figuratively), bringing in computer scanning and automation with tools like their Microtec Goldeneye 502 Quality Scanner to add speed and precision to their operation. Unfortunately, pandemic-induced supply issues mean the reman facility has been awaiting some components for months, leaving staff to run machinery manually.

Kamal Sanghera, executive director for San Group, shows the results of their Microtec Goldeneye 502 Quality scanner, removing knotted wood from otherwise clear 2x4s.

Those issues combined with an industrial fire in April 2020 in which San Group lost their Conception finger jointer (now replaced with a Western Pneumatic finger jointer) have caused some frustration. But Sanghera says the company is in good spirits as far as their Port Alberni project goes, with their reman facility currently at about 70 per cent capacity with 80 staff. They are looking to increase to 105 staff at full production. The Coulson mill’s new small log line has one shift now fully running, with aspirations for a second shift as fibre is secured.

Overall, the company expects their Port Alberni operations to be an example of best practice in the maximum use of available fibre while achieving a low-carbon footprint. And, though not yet quite fully realized, it’s a feat they hope to replicate elsewhere.

“Honestly, what the San Group has done, they are defining a lot of what the modernization policy speaks to,” says Kevin Somerville, vice-president of operations on Vancouver Island. “We are re-defining what value-added means to the coast, and how it should be defined.”

But the question is whether San Group’s redefinition fits with what the government is looking for. That is a question the company is looking to answer.

“Our calls are already out there to … understand what direction [the government is going in] and how we can help and how we can create the ecosystem which the government wants,” Sanghera says. 

As far as the government’s decisions relating to old-growth, some amount of it will always be needed, he says.

“We depend on a very small fraction of old-growth,” Sanghera says. “But we have to have some in order to make other components out of the low grade.”

Despite this reduced dependency, Sanghera says “the sword is hanging on our head, too,” with Somerville adding that exactly how much old-growth fibre has been removed from the harvest remains difficult to know.

But Sanghera makes it clear that an over-reliance on second and third growth would be, in his view, both ecologically and economically problematic. “If we’re going to eliminate the second growth, third growth in one generation out of the forest ecosystem, what will become old-growth?” he asks. “And if we’re going to leave the old-growth … it’s going to rot and it’s going to die. What good is that for us?

While San Group is committed to getting the most out of every log (their stance on waste is that no amount of waste is acceptable), Sanghera says they believe in a working forest where second and third growth has the opportunity to grow into old-growth, rather than being over-harvested to maintain existing old-growth.

While that may sound in contrast to some of the government’s recent decisions, San Group said it sees positives in the direction the government seems to be going, and notes there may be some opportunities as well.

Currently, San Group has about a year of fibre supply built up, but after that, supply becomes a question as they hold no licences, Sanghera says.

However, with the redistribution of timber harvesting rights, San Group is looking at prospective partnerships with local First Nations and communities to secure a consistent fibre supply. Greater certainty in their fibre supply would of course be a major boon to the business.

And, while others have decried this tenure redistribution to smaller players as a loss in efficiency, San Group begs to differ. 

It’s more efficient, Somerville notes, to mill logs and manufacture products in the regional areas in which the trees are grown, rather than shipping logs to another country or to other parts of B.C.

It’s also more efficient to make use out of every available tree in a given cut-block, rather than selectively logging high-value trees from a single species and leaving the rest to become fuel for forest fires.

“I think with the system we’ve got in place, you can create the jobs, you can have the working forest, you can have something which is sustainable for a long time to come,” Sanghera says.

And, in San Group’s opinion, their system fits very well into what the B.C. government and British Columbians are calling for.

“We’re re-defining the industry,” Sanghera says. “We have already done that, it’s already happening, in real life.”

But only time will tell if the government’s vision will align with San Group’s re-definition.

“The third quarter of 2020 was Norbord’s strongest quarter ever,” said Peter Wijnbergen, Norbord’s president and CEO. “The recovery in economic activity that unfolded in the latter stages of Q2 carried into Q3, driving strong new housing construction and repair-and-remodelling demand that helped lift North American benchmark OSB prices to all-time highs. Our European results also benefitted from higher quarter-over-quarter panel prices and continued recovery of UK panel demand that had been significantly impacted by the pandemic in the second quarter. Adjusted EBITDA increased nearly tenfold from year-ago levels and was 18 per cent above Norbord’s previous best quarterly result in the second quarter of 2018. I remain particularly pleased with our team’s ability to remain focused on working safely within the strict protocols required by the pandemic while at the same time containing manufacturing costs.”

“Customer demand has been significantly stronger than expected during this unusual period of economic uncertainty. We are optimistic, but we also recognize that our business is cyclical and that it is not yet clear whether the worst of the pandemic is behind us. Today we announce the permanent closure of the 100 Mile House mill in British Columbia, which will reduce Norbord’s North American stated capacity, as the ongoing wood supply shortage in that region makes the reopening of that mill uneconomic. As always, we will remain vigilant, focused on the health and safety of our employees as well as our customers’ needs, and we will manage the business to be resilient and flexible.”

Norbord recorded Adjusted earnings of $204 million or $2.52 per share (basic and diluted) versus Adjusted earnings of $31 million or $0.38 per share (basic and diluted) in the second quarter of 2020 and an Adjusted loss of $9 million or $0.11 per share (basic and diluted) in the third quarter of 2019. Earnings in the current quarter include $10 million of costs related to closure of the 100 Mile House, British Columbia mill.

Market conditions

In North America, U.S. new home construction activity, the single largest driver of OSB demand, has recovered from the economic impact of COVID-19 seen early in the second quarter. The September seasonally adjusted annualized rate of U.S. housing starts was 1.42 million, which is an 11 per cent year-over-year improvement. The pace of single-family starts, which use approximately three times more OSB than multi-family starts, improved 22 per cent to 1.11 million. The pace of permits (the more forward-looking indicator) was 1.55 million in September, an increase of eight per cent versus the same period in 2019. The 2020 consensus forecast from U.S. housing economists is approximately 1.36 million starts, five per cent higher than 2019 despite the pullback to a seasonally-adjusted pace of 0.93 million in April. Throughout the ongoing pandemic, demand from the repair-and-remodelling sector has continued at record pace.

Reflecting the stronger than expected recovery in North American OSB demand, North American benchmark OSB prices increased significantly as the quarter progressed. Average benchmark prices were higher than all comparative periods and were, for most of the quarter, at record highs.

In Europe, UK panel demand continued to recover from the COVID 19-related pullback in April and May. Continental demand, which was not impacted by the pandemic, particularly in Germany, remained steady throughout the quarter. In local currency terms, average panel prices were up 6% quarter-over-quarter and down nine per cent year-over-year.

Performance

In North America, third quarter shipments were up nine per centquarter-over-quarter but declined eight per cent year-over-year. Excluding the Chambord, Que., mill, Norbord’s North American mills produced at 86 per cent of available capacity in the third quarter of 2020 compared to 74 per cent in the second quarter and 92 per cent in the third quarter of 2019. Norbord’s third quarter North American OSB cash production costs per unit (excluding mill profit share and freight costs) increased by four per cent compared to the prior quarter and were unchanged compared to the same quarter last year.

In Europe, third quarter shipments were up 23 per cent quarter-over quarter, reflecting a strong recovery after the significant curtailments across the company’s UK mills in the second quarter in response to reduced customer demand due to government-imposed pandemic restrictions. Year-over-year, shipments were up 12 per cent, reflecting the continued ramp-up of the Inverness, Scotland mill. Norbord’s European mills produced at 97 per cent of stated capacity in the third quarter of 2020, compared to 70 per cent in the second quarter and 84 per cent in the third quarter of 2019.

The company generated net Margin Improvement Program (MIP) gains of $43 million year-to-date due to improved mill productivity and lower controllable manufacturing and overhead costs.

Investment in property, plant and equipment and intangible assets was $28 million in the third quarter ($67 million year-to-date), including $5 million ($44 million project-to-date) in the Inverness Phase 2 project and $1 million ($54 million project-to-date of the $71 million budget) in the Chambord mill rebuild project. At Inverness, the installation of the second wood room, heat energy and drying line is now complete and commissioning is well advanced, and the state-of-the-art continuous press is continuing to ramp up towards its targeted Phase 2 capacity of 945 million square feet (MMsf) (3/8-inch basis).

As part of Norbord’s initial COVID-19 Response Plan, Norbord’s budgeted 2020 investment in property, plant and equipment had been reduced from $100 million to $75 million. Based on the strong third quarter results and in line with Norbord’s capital allocation priorities, 2020 investment in property, plant and equipment is now forecast to return to its original budget of $100 million. Looking ahead to next year, while the company is still in the process of finalizing its capital plans, 2021 capital expenditures are targeted at approximately $150 million. This will include maintenance of business projects, projects focused on reducing manufacturing costs and enhancing process safety across the mills. It also includes further investments to support the company’s strategy to increase the production of specialty products for industrial applications and exports, as well as a portion of the Chambord mill rebuild. The company has not yet made a restart decision for the Chambord mill, and will only do so when it is sufficiently clear that customers require the production from this mill.

At quarter-end, the Company had un-utilized liquidity of $654 million, comprising $240 million in cash and cash equivalents and $414 million in unused credit lines. Operating working capital was $191 million compared to $139 million at the same quarter-end last year, owing primarily to higher accounts receivable, which were attributed to significantly higher North American OSB prices. The company’s tangible net worth was $1,183 million and net debt to capitalization on a book basis was 27 per cent, with both values well within bank covenants.

Operational update

Well positioned to respond to changing conditions

During the third quarter, North American demand for OSB remained extremely strong, resulting in significantly higher benchmark OSB prices. The key indicators for the U.S. housing market, including strong new home sales, housing permits and single family starts, minimal new home inventories, and low mortgage rates, provide a positive outlook for OSB demand. Similarly, repair-and-remodelling demand has been robust and demand from industrial customers has normalized following pandemic-imposed restrictions. Excluding the curtailed 100 Mile House and Chambord mills, Norbord’s operating North American mills ran as close as possible to full operating rates in the third quarter, producing at 92 per cent of capacity. In August, the company restarted Cordele Line 1 on a limited operating schedule to meet customer orders that Norbord would not have otherwise been able to satisfy. Notwithstanding these positive trends, there remains considerable uncertainty in the broader economic environment as a predicted second wave of the COVID-19 global pandemic appears to be underway. As the typical seasonally slower period for OSB demand approaches, it is not yet clear what impact this seasonality and the pandemic will have on the company’s core markets. Should conditions change, Norbord is well positioned to respond.

100 Mile House permanent closure

Earlier this year and in reaction to the pandemic, Norbord recognized the need to implement a more flexible operating strategy across its manufacturing platform. The objective was to be more agile in responding to changing market conditions and customer requirements while containing manufacturing costs through more efficient maintenance planning and execution. This strategy has proven to have significant merit and has been adopted as the company’s standard operating approach. At the same time, it became clear that the 100 Mile House OSB mill was unlikely to have a role to play in the future. As the company’s highest cost operation, this mill had been indefinitely curtailed since August 2019 in response to a wood supply shortage and rising fibre costs. The Cariboo region in which the mill is located has been under wood supply pressure for the past decade as a result of the mountain pine beetle epidemic and more recently significant wildfires, leading to a 50 per cent reduction in the region’s annual allowable harvest. Taken together, the current and expected ongoing wood supply shortage makes operation of the mill uneconomic and Norbord has decided to permanently close 100 Mile House.

Central Europe spruce bark beetles
The Central European spruce bark beetle catastrophe is changing domestic industries within Europe and in many global markets. Between 2017 and 2019, over 270 million m3 of standing timber in Central Europe was damaged by a combination of factors, primarily changing climate conditions that featured hotter, drier summers and warmer winters. In combination with frequent windstorms, this created ideal conditions for the spread of spruce bark beetles, especially at lower elevations. The damage is across many countries, including Poland, Switzerland, Slovakia, Italy and Sweden, but the most severe losses have been in Germany, the Czech Republic and Austria. The outbreak in these three countries is so severe that in our 2020 report, Central European Beetle & Windstorm Timber Disaster: Outlook to 2030, Forest Economic Advisors (FEA) predicts that the killed timber volume from the European spruce bark beetle will eventually exceed that of the British Columbia Interior’s mountain pine beetle outbreak.

The volume of dead spruce in the forests of Central Europe has grown exponentially over the past few years and is expected to peak in 2021. Unlike the beetle-killed pine in B.C. – which is salvageable for 10-12 years, and sometimes longer – the beetle-killed spruce can rot quickly so that the dead trees are salvageable for perhaps no more than five years. With hundreds of millions of cubic metres of dead wood already, this number is forecast to explode over the next half-decade.

This bulge of German log exports has made its way to China. Although Europe has not historically been a major log supplier to China, the recent U.S.-China trade dispute has provided an opportunity by making European logs cost-competitive. While tariffs on U.S. logs are now being waived, the pressure on European log producers to find a home for a rising volume of beetle-killed timber will persist; expect to see European logs in global markets (namely, China) for some time. So far in 2020, Europe (as a whole) is now the second largest log exporter to China and is threatening to match the radiata pine volumes from New Zealand this year. Heavily impacted are North American log exports to China, as these have withered as a consequence.

According to FEA’s 2019 Global Sawmill Cost Benchmarking Report, central European sawmills are now among the lowest-cost lumber suppliers of dimension lumber in export markets, including that of North America’s low-cost producer, the U.S. South. This will enable European sawmills to gain market share in the U.S. at the expense of higher-cost Canadian and U.S. West producers if they need to export increased lumber volumes outside Europe. From a European exporter’s perspective, the U.S. market also has the advantage of being accessible by both break-bulk vessels and containers.

The U.S. market looks to be a very good fit for central European mills in an era of spruce bark beetles, but it will depend on net lumber returns and prices relative to other markets. The previous peak of European lumber exports to the U.S. (2005) reached 4.5 million m3 (three billion board feet – nominal) from the 2019 level of 2.2 million m3. Current increases are likely to be seen for some time. In both 2005 and 2019, Germany was the largest European supplier to the U.S. (approximately 50 per cent of European exports), with Austria third (after Sweden) and the Czech Republic fifth. Despite COVID-19, European lumber exports to the U.S. have increased by 53 per cent in the first three months of 2020, with Germany’s exports up by almost 50 per cent, again representing about half of European exports.

U.S. market
At this year’s conference, the FEA team also discussed the impact of COVID-19 on the North American economies. A deep recession caused by COVID-19 is forecast for 2020, with the U.S. economy not returning to 2019 Q4 levels until 2022. However, the U.S. housing market is forecast to be more robust than the overall economy due to its strong underlying foundations:

• A demographic bulge will hit the key age 30–35 bracket (the peak age for buying a home).
• The U.S. is underbuilt in housing (Canada is slightly overbuilt).
• New homes have come down in price and are now just slightly more expensive than existing homes (builders are finally building smaller, more affordable houses).
• Mortgage rates are still at record lows.

Most states and provinces in North America designated the home construction, lumber, and pulp and paper industries “essential services,” allowing them to continue operating throughout the pandemic. While supply has therefore not been badly impacted, there has still been a significant impact on demand. Although DIY markets remained robust through the peak of the pandemic, new residential housing construction softened. Roughly 25 per cent of North American capacity shut down in response to weak lumber prices, with Canada (and B.C. in particular) bearing the brunt of the shutdowns due to their high log costs. Lumber prices have soared since early May, so curtailed mills have reopened, and prices were getting close to a peak by the end of June. A correction is expected in July, especially for U.S. lumber species.

Not surprisingly, mill shutdowns reduced the previously strong log demand that was evident in 2020 Q1. Offshore exports are also down. Domestic and export log prices have slipped sharply as a result and are not anticipated to recover anytime soon given the subdued state of lumber demand.

Challenges ahead
Speakers at the conference mentioned a range of ongoing issues aside from COVID-19, with common trends including climatic events, national policies aimed at developing domestic industries, and technological solutions to practical problems.

Probably the most important theme from speakers from the major exporting countries was that they all need China this year more than ever. With constrained global demand in the short term, there is more production capacity available than markets, so most exporters have the potential to increase exports. Since China was the first country to emerge from the pandemic, many exporters are trying to gauge how much volume the market might import. However, this is fluctuating week by week, and the current consensus (discussed in the Question and Answer sessions) pointed to the likelihood of an oversupplied log market, with prices expected to decline.

Global softwood markets have now largely shaken off the immediate COVID-19 shock. However, future waves of the virus could cause similar shocks to demand, labour availability, shipping logistics, and price volatility. Moreover, the situation could offer short-term opportunities if some producers can continue operating while others are shut down.

The question of the long-term effects on the global softwood log and lumber industries was also a key topic of discussion at the conference. It is possible white-collar workers will continue to work from home after the pandemic is over, as they are realizing they do not need to live in or close to (expensive) city centres; there could be a trend to building larger, primarily single-family homes in more affordable neighbourhoods. This trend (if it were to occur) could strengthen lumber demand given that single-family homes consume three times more lumber than their multifamily counterparts.

This article is extracted from the June 2020 issue of WOOD MARKETS Monthly International Report; further summaries can be found at getfea.com/publication/wood-markets-monthly.

Russ Taylor is the managing director of FEA-Canada based in Vancouver. International WOOD Markets Group was purchased by Forest Economic Advisors LLC in August 2017 and now operates as FEA-Canada.

Months after the conclusion of the dumping and subsidies investigations, U.S. Customs & Border Protection suddenly announced in March 2018 that the 20.23 per cent duty was immediately applicable to Canadian shakes and shingles.

“The unprecedented inclusion of our products by U.S. Customs and Border Protection blindsided our industry, and we effectively never had a chance to appear or argue the issue in the dumping and countervailing duty investigations, which in itself is constitutionally unjust. We will continue to actively seek remedies to this matter as this decision catastrophically affects Canadian businesses and citizens. Ironically, those that the U.S. government seeks to protect with these unilateral decisions, their U.S. businesses and citizens who rely on our Canadian-made shakes and shingles for their livelihood, are also dramatically affected,” said Meeker.

In its 20-page decision, the DOC rejected all of the industry’s array of legal arguments. The Shake and Shingle Alliance primarily argued, with the support of the Government of Canada, that shakes and shingles have never been part of the softwood lumber investigations and were not examined in the most recent investigations. DOC briefs even cited language from the U.S. industry’s investigation petition which specifically suggested that shakes and shingles were not products within the scope of the latest investigations. The DOC also rejected the argument that shakes and shingles fell within the exclusion for finished products that were produced by more advanced processing and specially identified.

“The DOC’s ruling deals a severe setback to the hardworking men and women employed by the shake and shingle industry, most of which are small, family-owned businesses,” noted Charles Tardif, vice-president for development at Maibec, a Quebec producer of cedar shingles. “Sadly, it is the American building industry and American consumers that will end up paying these duties,” he added.

The Shake and Shingle Alliance and its counsel, in conjunction with the Government of Canada and Provincial Governments, are examining multiple appeal options. Industry desperately looks to government to step in and provide support for its citizens and small businesses which are needlessly suffering because of this unjust decision issued by the U.S. Department of Commerce.

This new round of modernization will focus on screening, sifting, milling and intermediary storage equipment which will lay the foundation for the following phases of upgrading the Val-d’Or press and finishing lines.

With the installation of new state-of-the art, innovative equipment, Uniboard is pursuing its vision of operational and product excellence for its Val-d’Or facility. The fibre quality of this region contributes to Val-d’Or’s renowned history as being one of North American most appreciated particleboard substrates and decorative melamine panels (TFL) in terms of performance, machinability cost, weight, and colour.

“Uniboard Canada is a key economic player in the Abitibi-Témiscamingue region. It generates hundreds of good-quality jobs and supplies its operations using raw materials from the region,” said Guy Bourgeois, MNA for Abitibi-Est and Parliamentary assistant to the Minister of Energy and Natural Resources and Minister responsible for the Northern Plan.

The project’s new dry preparation capabilities will substantially improve fibre processing efficiency and also involves a new building with state-of-the-art protection safety systems for our employees.

“We are building on 40 years of success in Val-d’Or and raising the bar again. We are taking the next step-up at Val-d’Orso that our customers throughout North America will continue to be well served for the next 40 years”, stated James N. Hogg, president and chief executive officer of Uniboard. “This important modernization project confirms Uniboard’s leadership position in the North American composite panel industry and allows Uniboard to further enhance its offering of engineered wood and value-added products.”

Uniboard Canada employs 855 people in Quebec in its five mills located in the Abitibi‑Témiscamingue (two mills), Bas-Saint-Laurent and Laurentides regions, and in Laval, as well as at its head office, also in Laval. The company is Quebec’s main manufacturer of reconstituted wood products and is a leading supplier for manufacturers of furniture, cabinets and construction materials.

It was in 1978 that the company decided to start up the popsicle stick business, in La Tuque, Que. La Tuque is in the Haute-Mauricie region of Quebec where high quality and density white birch wood species are found, which are ideal for the production of food sticks.

“[White birch] is a species that has the least effect on the taste of the food,” says Frédéric Tremblay, manufacturing plant manager of John Lewis since 2006, noting that the white colour of the wood is a confidence factor for customers.

“As well, “Birch Lewis” [its colloquial name] is a Nordic birch that grows slower and has a very good density, allowing it to better withstand impacts during its transformation,” says Eric Bouchard, vice-president of manufacturing operations and corporate development at Rémabec. Rémabec took over ownership of John Lewis in 1997 in partnership with the Royal Bank Corporation and a subsidiary of the Caisse de dépôt et placement du Québec (CDQP).

In 2002, Rémabec bought out its partners and became the sole owner of the business.

Chinese influence
In 2003 Chinese producers aggressively entered the North American wooden stick market, cutting the price almost in half, according to Bouchard.

“There was an advantage for the Chinese forest industry when the Chinese government created tax-free zones and offered subsidies to develop the industrial zone, which enabled China to emerge with very low prices, but with a very variable quality,” he noted.

From then on, U.S. customers began asking for the Chinese price with North American quality.

In response to the new competition, Rémabec formed a joint venture with a Japanese partner and launched a rod plant in China. The goal was to produce North American-product quality with Chinese labour.

Meanwhile, the company changed its business model to enhance the competitiveness of the La Tuque mill. From 2004 to 2006, the plant operated for four months of the year.

“A business plan was redone, including our employees, suppliers and even customers, to make sure we know their current and future needs,” Bouchard says. “Then we invested $2.5 million to retrofit the plant that was making losses. It was that or we were closed.”

In an effort to reposition itself in the wood stick market, the company decided to drop products such as tongue depressors and paint sticks because the quantities produced were too small and the costs were too high. Rémabec invested in automation at the plant, which increased production from five to seven billion sticks per year. By 2009, the company once again became profitable.

As for the Chinese manufacturers, when the government subsidies dried up they began to raise prices. From this point forward, the Chinese producers have turned to products with higher added value than the wooden sticks.

Thin margins and high volumes
The profit margin for each stick is measured in fractions of cents so John Lewis must produce them in mass quantities for its operation to be profitable.

“Even if it’s a niche market, we only work with large buyers who have some power,” Bouchard says.

Today, Rémabec makes a lot more money with the wooden sticks than with timber. “It may be 100 times better, but that’s because we do not make money with timber,” Bouchard says.

The big advantage of the stick market is that prices are negotiated well in advance, thus ensuring greater stability. However, challenges still remain. In 2013 the Quebec government introduced a new forest management system that contributed to higher fibre costs. The new system set aside 25 per cent of the forest to be awarded through auctions to reflect better the price of wood. The cost of fibre increased by about 10 per cent as a result.

For John Lewis that meant thinner profit margins, Bouchard says.

Stand out
The John Lewis factory differentiates itself from competitors by being a leader in terms of quantity, quality, cost and delivery based on customer needs, says Eric Bouchard.

“We want to remove problems for our clients, meeting their needs,” says Bouchard, who wants to instill this philosophy and brand image in all the subsidiaries of Rémabec.

“A stick, it has looks simple, but it’s very complex,” says Bouchard.

If the geometry, thickness, colour or any other technical defect is present, the stick will be downgraded to the craft market – a market of 700 million units annually. To ensure the highest quality, the John Lewis Industries earned certification from the Safe Quality Food (SQF) Program in 2009.

New markets
John Lewis Industries eventually reached its max growth in the popsicle market by supplying most of the big players. To grow, the company had to find new markets. Rémabec decided to bet on the batter-coated sausage market, also known under the generic name “Pogo”.

In early 2015, Rémabec invested $2.3 million to construct a new building dedicated to the production of sausage sticks. For now, two processing lines have been installed in order to produce 650 million sticks.

“We are able to double our production quickly because there’s room for four machines and the building was designed to be extended,” Bouchard says.

Since John Lewis Industries works in a very niche market, the development of new equipment is often done internally and sometimes with industrial partners. For the coated sausage sticks, high-speed sanders were developed with Inotech Canada to treat sticks up to 16 kilometres per hour.

After two years of development, the first sales began to materialize. In a year or two John Lewis Industries intends to settle permanently in this market, which produces around three billion units annually.

“If you want to keep your place, you need to look forward,” Tremblay says. “The John Lewis Plant is a beautiful showcase for Rémabec’s expertise and achievements.”

Read the full article here.

Sales reached $594.2 million, up 5.5 per cent from $563.1 million last year. Acquisitions contributed sales of approximately $16.0 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones’ reporting currency, versus the U.S. dollar, had a positive impact of $16.9 million on the value of U.S. dollar denominated sales. Excluding these factors, sales decreased marginally by $1.8 million, or 0.3 per cent.

Railway tie sales amounted to $214.2 million, compared with sales of $216.3 million in last year’s second quarter. Excluding the conversion effect, railway tie sales decreased approximately $10.4 million, or 4.8 per cent, as lower pricing was partially offset by increased volume due to the early delivery of certain tie orders.

Utility pole sales reached $167.5 million in the second quarter of 2017, representing an increase of 17.3 per cent over sales of $142.8 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales increased approximately $3.7 million, or 2.6 per cent, reflecting organic sales growth in the southeastern United States.

Sales in the residential lumber category remained relatively stable, reaching $153.2 million in the second quarter of 2017, versus $152.1 million a year earlier. This stability reflects higher selling prices due to increased untreated lumber costs, offset by lower volumes as a result of less favourable weather in Canada during the second quarter of 2017 compared to the same period last year.

Industrial product sales reached $27.1 million, essentially stable in comparison with $27.0 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales decreased 5.0 per cent mainly due to lower sales of marine pilings in Canada and lower sales of rail-related products. Logs and lumber sales amounted to $32.2 million, versus $24.8 million in the second quarter of last year. The variation reflects the timing of lumber purchase and resale activities as well as the timing of timber harvesting.

Operating income stood at $74.5 million, or 12.5 per cent of sales, compared with $83.2 million, or 14.8% of sales in the second quarter of the previous year. The decrease in absolute dollars and as a percentage of sales essentially reflects lower selling prices for railway ties and a less favourable geographical mix in the utility pole category.

Net income for the second quarter of 2017 was $48.9 million, or $0.71 per diluted share, versus $54.7 million, or $0.79 per diluted share, in the second quarter of 2016.

Six-month results
For the six-month period ended June 30, 2017, sales amounted to $991.2 million, versus $984.0 million for the corresponding period a year earlier. Acquisitions contributed sales of $38.8 million, while the currency conversion effect had a positive impact of $5.6 million on the value of U.S. dollar denominated sales. Excluding these factors, sales decreased approximately $37.3 million, or 3.8 per cent.

Operating income reached $115.3 million, or 11.6 per cent of sales, compared with $137.8 million, or 14.0 per cent of sales, last year. Net income totalled $74.8 million, or $1.08 per diluted share, versus $89.7 million, or $1.30 per diluted share, in the prior year.

Solid financial position
As at June 30, 2017, the company’s long-term debt, including the current portion, stood at $615.8 million compared with $698.5 million three months earlier. The decrease mainly reflects a solid cash flow generation during the quarter as well as the effect of local currency translation on U.S. dollar denominated long-term debt. As at June 30, 2017, Stella-Jones’ total debt to total capitalization ratio was 0.37:1, down from 0.40:1 three months earlier.

On Aug. 8, 2017, the board of directors declared a quarterly dividend of $0.11 per common share payable on Sept. 22, 2017 to shareholders of record at the close of business on Sept. 1, 2017.

Outlook
“As previously anticipated, we expect higher year-over-year sales in the second half of 2017 when compared to the previous year. While higher railway tie volume will be offset by lower pricing, a return to normal maintenance demand patterns and improving demand for special projects should result in higher year-over-year sales in the utility pole category. However, overall operating margins will remain affected by soft railway tie pricing and a less favourable geographical sales mix for utility poles. Stella-Jones remains committed to maximizing operating efficiencies and minimizing costs throughout the organization, while continuing to study any expansion opportunity that offers strategic value in our main product categories to the benefit of our shareholders,” concluded Mr. McManus.

Gary Sharon, Executive Vice President of Litco said: “Dr. White’s study is important because it independently compares the strength and functionality of the pallets. From that, he then concludes the impact of each pallet’s design on supply chain operating efficiency.

Strength and functionality, along with price, determines an optimal design and cost benefit basis for shipping products on pallets.”

The complete study is available at: www.litco.com/GMACompareReport. This paper makes the case that a stronger, stiffer and more durable pallet will better protect packaged product from the rigors of supply chain handling. “It is important to note that mechanical stresses imposed on the packaged product in a unit load during handling and shipping pass through the pallet first.” said Dr. White.

In addition to comparing pallet weight and moisture content among other characteristics, the study specifically evaluated Litco’s Inca molded wood pallet and new and rebuilt GMA-style wood pallets on two measures: Pallet Strength and Deck Stiffness. Two measures of shipping pallet strength were compared:

1. Dynamic strength when supporting loads on forklifts
2. Static strength when supporting loads on the warehouse floor

Of critical importance, the comparative deck stiffness was evaluated as the single most important functionality characteristic of a pallet. Stiffness is defined in the study as how much the top deck deforms under load. Simply put, “stiffer pallets are better” because they enhance all other packaging components of a unit load.

A significant finding in the study was that the Inca pallet performed remarkably well at twice the stiffness compared to the GMA pallet designs.

The study concludes that when Inca pallets are compared to a GMA-style:

1. When used as a one-way shipping platform, the Inca pallet will improve supply chain operational efficiency
2. There will be less product damage and product contamination when shipping on an Inca pallet.
3. There will be fewer injuries associated with the use of the Inca pallets
4. Using the Inca pallet will significantly increase shipping and materials handling efficiency

Additional key findings in the study:

• The Inca pallet has a much higher resistance to mold because it has 86% less moisture content than a new, heat-treated GMA-type hardwood pallet
• At the time of manufacturing, the Inca pallet is sanitized at temperatures exceeding 350 degrees Fahrenheit
• Inca pallets with rounded corners are lighter and ergonomically easier to handle, manually, and therefore reduce work-related injuries

Litco’s Molded Products Group specializes in innovative transport packaging solutions including molded pallets for domestic and export shipping and core plugs. Litco’s Inca pallets come in a variety of sizes and dynamic load capacities to meet individualized shipping needs. Inca pallets ship from Dover, Ohio and Sardis, Mississippi. They are designed to carry products safely through the most demanding supply chains.

Marshall S. (Mark) White, Ph.D., President of White and Company LLC. White and Company LLC is a consulting and software development company specializing in pallet, packaging, and unit load design. Dr. White is also Professor Emeritus at Virginia Polytechnic Institute and State University, Blacksburg, Virginia, and a graduate of Colorado State University and Virginia Tech with B.S., M.S. and Ph.D. degrees.

Dr. White taught graduate and undergraduate courses in the Packaging Science option and served as Director of the Center for Unit Load Design and The Pallet & Container Research Laboratory. Additional information at www.whiteandcompany.net. 

“The U.S. Northeast is an attractive market with a population base of over 40 million people and we’re thrilled to have D&R, a highly respected hardwood lumber distributor in the region, join our team,” commented Rob Brown, Hardwoods’ president and CEO. “This acquisition provides us with turnkey access to a comprehensive lumber products offering in the U.S. Northeast, brings us a significant number of new customers, and is immediately accretive to shareholders. We have been successful with our acquisition strategy having now completed six acquisitions in the last six years, and we will continue to pursue transactions that complement our internal growth strategies.”

The transaction purchase price was financed by a draw on the company’s existing US credit facility.

“We are very excited to acquire U.S. assets for the first time in our history,” Steve Rhone, president of Weston Forest, said in a news release. “Owning a facility in Michigan allows us to support our customers on both sides of the border. In this time of uncertainty around the trade of softwood lumber between Canada and the United States, this is one more step to ensure we can continue to deliver the exceptional service our customers have come to expect from us.

“We are thrilled to have a team of people joining us that believe in delivering a great customer experience. We are pleased to have them all as part of our team, and look forward to growing the business and delivering on our brand promise, you’ll love doing business with us,” Rhone said.

Mississauga, Ont.-based Weston Forest distributes and remanufactures softwood and hardwood lumber and specialty panel products. 

**Correction: a previous version of this article incorrectly stated the deal involved a remanufacturing facility in Illinois. 

Infographic by – Log Cabin Hub.

To make matters worse, Quadra’s recovery from the fire coincided with the U.S. quota on softwood imports. The quota was based on previous shipments to the U.S., which for Quadra had plummeted after the fire to just 1 mbf from 30 mbf a year. For five years the company was limited to producing for the U.S. market at a reduced rate.

“We had to diversify,” says Quadra Cedar sales manager Cal Dyck. The strategy led them to find new markets, both locally and in Asia, and to produce new products that were exempt from the quota.

Today, Quadra Cedar is holding strong in the B.C. remanufacturing industry, producing 15-18 mbf of cedar products a year, bringing in between $15 and $18 million in sales.

In spite of the ever changing and challenging cedar market place, Quadra Cedar Products, the company’s distribution side, has managed to secure long-term contracts, as well as maintain its long standing loyal customer base.

Inside the shop
Quadra purchases raw, random length Western red cedar lumber from various major sawmills and produces approximately 150 SKUs of siding, fencing, decking, facia, 4×4 and 6×6 timbers, and paneling.

Since the products are so diverse, the production line changes significantly depending on the cut, Dyck says. It’s only with years of experience that the operators are able to change over product lines in an hour, on average.

Siding, one of the mill’s main products, will start with rough, tight-knot, two-inch lumber fed into the mill’s trim line to be trimmed for defects. From there the lumber goes through one of the mill’s two Stetson-Ross planers to receive dressing and then is dropped through one of two McDonough resaws and is split into two one-inch pieces.

“So if we’re running 1×8 channel siding, for instance: two inch through the trim line, two inch through the planer, then it drops into the belt for the resaw, gets split into two pieces of 1×8 and then comes out to be graded and piled,” Dyck explains.

There is a bypass for the siding line as well, which goes through the Newman KM16 trim system to cut to the order length before being graded and piled.

Fencing begins with two-inch rough that can be anywhere from eight to 20-feet in length. The lumber is first fed into the planer, then sent up through the trim saws and is cut to length. Next is the resaw, and then grading and piling. There are 24 sorts for fencing according to the different grades. Some of those are rip grade, which requires further processing to remove wane or defects.

Other products are treated with one of the mill’s two moulders – a Weinig moulder and a Wadkin moulder – and two dog-ear machines.

Some products end up in the drying facility, which uses a fan system to dry the lumber to 15 per cent average moisture content. Quadra then stores the SKUs in one of two 6,000-square foot fully enclosed warehouses.

The mill’s residuals, sawdust and ends are sold to a local shavings company that processes biomass fuel as well as mulches, sawdust and shavings for farming, ranching and landscaping uses.

The right operators
Because of the range of products the small mill churns out, skilled planer operators are essential to keep up processing speeds, Dyck says. “They need to be experienced within the facility that they’re working in. It’s equipment specific. The current maintenance staff has practically built the entire operation so they tend to have an unmatched understanding of all the equipment.”

Such is the case with most Quadra employees. Its seasoned workforce has meant low turnover for the company, which allows Quadra to consistently produce a quality product on a daily basis.

“The majority of our staff has been here for a long time, so when we need to replace the odd person or expand our staff, we rely on current qualified personnel to set the tone and train all new staff accordingly, “ Dyck says.

The shrinking labour pool is a challenge, but it has forced the company to become more efficient, he says. “We have to be able to do the job with less people and utilize our more experienced staff.”

Finding the market
Quadra, as with all Canadian mills, is facing the reality that is duty on softwood lumber shipped into the U.S. from Canada. In early February, when this interview took place, the mill was just beginning to slow down production in anticipation.

Dyck says he expects the duty will force Canadian cedar mills to find other markets, which could mean U.S. customers may lose access to a portion of Canadian cedar products if the market is unable to bear the potential increase in price.

“There hasn’t always been enough Western red cedar to satisfy the market, therefore the pending duty in the U.S may afford other markets access to more volume of Western red cedar than they may have had in the past,” Dyck says. “There is an appetite for it in other areas of the world, and markets overseas are most likely the most viable option if the duty is as high as expected.”

It’s not an easy time to be in the lumber business, he says, but the future is still bright for Quadra Cedar.

“I still believe there is going to be opportunity. We’ve got a very strong foothold in the Canadian market. We have an extremely loyal customer base across the globe and we have a very good reputation for providing a high degree of quality and service to all the markets we are in.

“We realize that we will most likely continue to be faced with the ongoing challenges in the lumber business, but continue to have confidence that we will always find a silver lining,” Dyck says. “Sometimes there are mill closures, sometimes people change careers, but the strong survive and we think we are still one of the strong ones.

“My attitude in anything I do has always been that tough times don’t last, but tough people do,” he says.

Quadra Cedar has all the right resources, staff and experience to fend off yet another potential obstacle in the ever-changing lumber business, Dyck says, and will continue to produce a quality cedar product shipped on time to its customers for many years to come.

Read the full story by BCLocalNews.com.

Read the full story by CBC News.

“In its heyday, there were 320 people employed here,” says Peter Loy, plant manager for Columbia’s Rutherglen plant, during a tour of the facility.

Fibre supply
A reliable and secure log supply is critical for the long-term sustainability of the Rutherglen plant. Well-managed, certified Crown forests are the main sources of veneer logs for the mill, and the company is working with government on securing long-term supplies. Currently the plant purchases white birch, yellow birch, maple and red oak.

The operation, which uses board feet for measuring its log consumption, currently processes 50,000 bdft. of logs per week. All of the logs are transported in by truck with the option of rail a possibility for the future.

“Each log is graded for volume, quality and length, and an inventory tag is placed on each,” Loy explains. “We verify the load, off-load them with the ends to keep the stain out and put them into our inventory.”

The tags are then entered into the plant’s inventory system. The tags show where each log was purchased, the dollar amount paid for the log, species type and where they were cut.

Peeling process
Two John Deere wheel loaders transport the logs from the inventory yard over to the plant’s heated conditioning vats for a steam and hot water treatment. Depending on species, the logs sit in the vats for anywhere from 30 to 100 hours. Red oak typically takes the longest to prepare for the peeling process. The logs need to be heated to somewhere between 125F and 140F to be ready to be sent to the lathe line for peeling.

After reaching the necessary temperature, the logs are dropped onto an infeed deck and sent through metal detectors before moving through a line where the log tag information is scanned,  the stained ends are cut off and the logs are debarked.

The logs then move onto a COE (USNR) lathe line equipped with McDiarmid Controls. The lathe line went through an extensive rebuild to prepare for the re-opening of the plant. The lathe peels the logs 0.024” thick. The veneer from the peeled logs is rolled up then sent to the first clipper.

“Because the lathe line runs faster than we can dry it, we roll it up,” Loy explains.

The rolled up veneer moves across a carriage system and then passes through a Merritt defect clipper that clips out 4’ by 8’ ribbons. Any narrower components left over are shipped to a splicing line at another one of Columbia’s plants where they are reassembled to create additional 4’ by 8’ panels.

After passing through the clipper, the peeled logs are sent through a 2005 Grenzebach BSH dryer where they pass through the dryer between two screens. The dryer is a steam heated,  press dryer. The wood is dried for two minutes then sent to the cooler and comes out as dry veneer.

“It is cut on the same spot on the logs so the characteristics line up about half-an-inch thick,” Loy says.

The veneer is then manually piled up in bunches of 18 to 20 pieces and sent to a grading line. Full pieces of
4’ x 8’ veneer are sent down a separate line where they are transported over to a palletizing line. The full pieces are then either shipped over to one of Columbia’s plywood plants in Canada or the U.S. or to a third-party plywood plant. Approximately 65 per cent of the veneer is shipped to one of the Columbia plywood plants.

Smaller pieces are graded, separated by grade and piled on pallets to be shipped to Columbia’s other veneer plants in Canada and the U.S. where a splicing department will re-assemble the smaller pieces of veneer back together into 4’ x 8’ panels.

About 95 per cent of the finished product ends up finding a home in the U.S. marketplace.

Columbia has also found a home for all of the residuals left over from its veneer operation in Rutherglen.

The cut-off log pieces end up being turned into firewood or are fed into the plant’s boiler, while all the other residuals from the operation are burned in the boiler used for heating the plant, cooking logs, and heating the dryer.

Expansion plans
The plant currently employs 52 employees on a single shift with plans for that to increase in 2017, when the company plans on expanding its production at the 120,000 sq. ft. facility to include a splicing department for reassembling the smaller pieces of veneer produced in-house.

These additional jobs will not add up to the previous 320 positions once held at the plant, but the surrounding community, which has struggled with finding good paying, and stable full-time employment, will definitely appreciate them.

“We will stay on one shift until the market dictates otherwise,” Loy says. “We don’t want to have to start and stop. We want to be able to operate consistently.”

“Stella-Jones’ strong sales growth in the second quarter stems from its greater reach in the residential lumber category and sustained demand in the railway tie category. Further improvement in operating profitability reflects economies of scale generated by higher volumes as well as our ongoing focus on optimizing network efficiencies,” President and CEO Brian McManus said in a press release.

Railway tie sales amounted to $216.3 million, up 11.1% from $194.8 million last year. Excluding the currency conversion effect, railway tie sales rose approximately 7.3%, primarily as a result of healthy industry demand.

Sales of utility poles reached $142.8 million, compared with $136.7 million last year. Excluding the currency conversion effect and the contribution from acquisitions, sales declined approximately 6.7%. During the quarter, sales of distribution poles softened as a result of reduced maintenance demand in certain regions, while sales of transmission poles held steady versus last year.

Sales of residential lumber totalled $152.1 million, up from $60.9 million last year. This strong increase reflects sales of $51.7 million from the Ram acquisition, increased market demand as well as the impact of the transition from treating services only for wholesalers to a value-added full service direct offering for retailers.

Industrial product sales amounted to $27.0 million, compared with $25.4 million a year ago, as the currency conversion effect more than offset a decline related to the timing of orders for rail related products in the United States. Logs and lumber sales were $24.8 million, versus $10.4 million last year, due to procurement efforts to support residential lumber requirements and the timing of timber harvesting.

Operating income reached $83.2 million, or 14.8% of sales, versus $61.1 million, or 14.3% of sales, last year. The increase in absolute dollars stems from increased business activity, the contribution from acquisitions and the effect of currency translation. As a percentage of sales, the increase is mainly attributable to economies of scale generated by higher volumes in the residential lumber category, greater efficiencies throughout the Company’s plant network and the year-over-year variation in other net losses and gains. These factors were partially offset by the greater logs and lumber sales, which are performed at a value close to their cost of sales.

Net income for the second quarter of 2016 increased 40.4% to $54.7 million, or $0.79 per diluted share, compared with $38.9 million, or $0.56 per diluted share, in the second quarter of 2015.

Outlook

“Market demand for our products should remain healthy for the remainder of 2016. With respect to railway ties, we expect second-half demand for 2016 to be down on a year-over-year basis following a strong first half of the year. In the utility pole market, regular maintenance demand is expected to remain relatively steady for the balance of the year, despite a slight softening in the first half of 2016, while transmission pole sales should hold following the stabilization in resource prices. Stella-Jones’ broader reach in the residential lumber category will allow us to further benefit from continued demand for new construction and outdoor renovation projects in the North American residential and commercial markets. As for the short-term, our priority is to integrate recent acquisitions into our network by leveraging best practices to enhance network efficiencies and create lasting value for our shareholders,” McManus said.