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Soaring loonie troubles anxious forest sector
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by GORDON HOEKSTRA Citizen staff The rising loonie is worrying the B.C. forest industry because it could take a major chunk out of its bottom line.
"Our operation costs are in Canadian dollars, but we're selling in U.S. dollars," Brink Forest Products president John Brink said Tuesday. "Absolutely, it creates a huge squeeze."
The rapid rise in the Canadian dollar -- it passed the 82-cent US level on Monday for the first time in 12 years, before slipping to 81.53 cents on Tuesday -- has come at the same time as lumber prices have fallen sharply in North America, exacerbating concern.
Northern Interior lumber producers, like all Canadian producers, also continue to pay 27-per-cent tariffs on shipments to the U.S., by far its biggest market.
"All the way around, things have got much, much tougher very, very quickly," said Brink.
However, Brink said he has no plans to change operation levels at his plants. Brink Forest Products has a remanufacturing and finger-jointing operation in Prince George and a trim-block plant in Houston, 300 kilometres to the west.
Brink said work continues on a third finger-jointing lumber plant, adjacent to the existing operations in Prince George, which he hopes to open before the end of this year. Although the rise in the Canadian dollar gives Brink more buying power in the U.S. -- useful when buying equipment -- the benefit is minute in comparison to the loss in income from lumber sales, he said.
But Brink said he continues to retain an optimistic outlook on the medium and long-term prospects for the forest industry in northern B.C., which he believes is strategically located to take advantage of markets in the U.S. and Asia, particularly as the transportation infrastructure is enhanced.
Brink is bullish on CN's effort to move lumber to market in the U.S. midwest more quickly, and the $500-million proposal to build a container terminal in Prince Rupert.
B.C. forest industry analyst Paul Quinn said the jump in the dollar is the big story in the forest sector. "You're going to hear a big sucking sound out of Canada," said Quinn, a forest and paper analyst for Salman Partners in Vancouver.
He said every cent the loonie increases compared to the U.S. dollar is estimated to cost the B.C. forest industry $150 million. Quinn has calculated the Canadian dollar's average this year at just below 76 cents US, so a seven cent increase could add up, he said.
The Council of Forest Industries has estimated the B.C. forest sector took a $450-million hit to its bottom line in 2003 from an increase in the loonie compared to the U.S. dollar.
The dollar has risen steadily in recent months, and has been on the increase since its low of 62 cents US in January of 2002.
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