Softwood lumber issues could force a slowdown at Sapawe mill

Softwood lumber issues could force a slowdown at Sapawe mill

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Resolute Forest Products has added a third shift to the planer operation at its Sapawe sawmill, and a third shift at its Ignace sawmill. But these third shift workers will be subject to periodic layoffs, Michael Martel, Resolute’s vice president (forest products operations), told Council Monday, April 3.

That’s mostly because the company is anticipating Canadians will again take it on the chin over softwood lumber trade. The US Department of Commerce has launched yet another investigation of the Canadian softwood lumber industry (a trade deal in place for the past decade has expired), and it is expected to report preliminary findings later this month.

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Every time this has gone before international trade bodies, Canada has been found not to be subsidizing its lumber producers, said Martel.

“But it doesn’t seem to make any difference – they just slap the duties on and we have to fight it out. If history is any indication, expect the Americans to institute a 25 percent to 30 percent tariff.”

“[We also expect] we are going to be capped in terms of the amount of lumber that we can ship to the United States, and we expect that it will be made retroactive to January 1 of this year.”

The limit on how much lumber Canada could sell into the U.S. was the basis of the softwood lumber deal that brought some peace and stability to the market.

A cap and/or tariff will be particularly hard on the Ontario forest industry. Over ninety percent of the lumber produced in Northern Ontario is bound for the US market. Lumber demand is strong in southern Ontario, but “there are a lot of mills between here and Toronto,” said Martel.

He emphasized nothing was decided yet. “Really, we don’t control any of the cards – they are all on the other side of the border. But who knows? Something completely off the wall, positive or negative, could happen.”

Sapawe operation

There are now 156 people working at the Sapawe mill, including 102 hourly employees, 24 with Dallan Forestry (Dallan LP is a partnership between Lac Des Milles Lac First Nation, Nigigoonsiminikaaning First Nation (Red Gut), and Dale Levesque a member of the Fort William First Nation), and 24 with Rainy Lake Logistics (the partnership between Gardewine and Rainy Lake Tribal Contracting).

“We still have several skilled trades [people] working through contractors at the site. We have [so far] been unable to fill all the skilled trades positions. This has been a chronic issue for us in Northwestern Ontario,” he said.

To address this shortage of tradespeople, Resolute and Confederation College recently inked an agreement to create ten apprentice millwright positions with the forestry giant.

Martel praised the Atikokan Employment Centre for its work in helping the company fill all the positions on the new third shift.

And he noted the company now has 18 or 19 Indigenous people working at the mill. “This has been a key focus for us, making sure we have good representation from all the communities around Atikokan.”

“We have a very young workforce here, and have a very high turnover [rate] compared to some of our other facilities,” he said. “We understand, though, that shift work and the commute are not for everyone.”

Another issue for the company has been transitional housing. It is renting a couple houses in Atikokan now, and plans to rent a third soon.

“On any given day, we could have ten or more people from off site working here – people from Quebec to Washington,” he said.

  • The company and Rainy Lake Tribal management are working together to amalgamate the Crossroute and Sapawe Forests, a process that will have to go through a provincial approval process that will likely take several years. Such a move would streamline the forest management process.

“Atikokan will be kept fully informed and involved,” said Martel.

  • The Resolute executive said that Ontario’s new cap and trade carbon system added about $750,000 to costs for its logging contractors.
  • Asked about the possibility of Resolute building a mill for industrial pellets here, Martel acknowledged that space for such a facility was included in the design for the company’s Sapawe site. But he said the pellet market was not great, and that most demand was in Europe, which is expensive to reach.

He suggested the U.S. was now moving away from green energy, and that the market that was predicted for that country would wither on the vine.

With the local demand being met by Resolute’s Thunder Bay mill and Rentech here, he said resolute was unlikely to start another pellet mill.

Q4 report

The sawmill operation here was mentioned in the company fourth quarter report, issued February 2. Here, from that report, is the summary of the company’s wood products operations:

“The wood products segment generated operating income of $17 million in the quarter, compared to $36 million against the previous quarter. While prices slipped by $4 per thousand board feet to $327, the delivered cost increased by $29 per thousand board feet, prompted by seasonally higher fiber usage and higher operating expenses. Shipments were 503 million board feet during the quarter, very close to the third quarter. EBITDA for the segment was $25 million, compared to $43 million in the third quarter. Finished goods inventory increased slightly, by 3 million board feet, or 2%, to 124 million board feet.”

“For 2016, the wood products segment reported operating income of $69 million, up significantly from the $2 million reported for the previous year. This performance is explained mainly by the weaker Canadian dollar, which resulted in $32 per thousand board feet drop in our delivered cost. Our profitability was also supported by incremental volumes from Ontario’s Atikokan and Ignace sawmills and higher efficiency across our other facilities. Shipments for the year were 1.8 billion board feet, 10% higher than the previous year. Consequently, the segment generated $100 million of EBITDA, a significant increase from $39 million in 2015.” (All figures are in U.S. dollars.)

The company divides its operations into five segments: wood products, market pulp, tissue, newsprint and specialty papers. For the year, Resolute is estimated a net loss of $81 million, or 90¢ per share, compared to a net loss of $257 million, or $2.78 per share, in 2015.

The results led to steep fall in the company’s stock price, from $7.11 to $5.81 in one day. It has since rebounded, and stood at $6.95 on April 5.

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