VANCOUVER -- Canada's lumber companies face another hard summer as a series of blows, led by persistent weak demand for their products and a surging Canadian dollar, pound the industry.
The rapid rise in the dollar is the latest hit. The dollar has risen on the fortunes of a higher crude oil price, including a near 2-cent jump on Friday to 91.60 cents (U.S.), a big gain from 77.8 cents 11 weeks earlier at the 2009 low in March.
What has unfolded was the biggest worry of leaders in the moribund industry, including chief executive officer Hank Ketcham of West Fraser Timber Co. Ltd., WFT-T who warned a stronger dollar was the year's looming threat.
For every penny the U.S. dollar slides against its Canadian counterpart, West Fraser sees a $14-million (Canadian) knock on its bottom line, and the shift in the currencies erases $273-million of potential profit for West Fraser on an annualized basis.
The board of directors of West Fraser, the world's largest producer of lumber, based in Vancouver, has made a move that is symbolic of the long three-year forestry depression. Late Friday, after markets closed for the week, West Fraser slashed its quarterly dividend to 3 cents a share, down from 14 cents and the first-ever cut since the company went public 23 years ago.
"The markets are extremely challenging," said West Fraser chief financial officer Gerry Miller. "The strengthening of the Canadian dollar is making it more challenging."
Most of the lumber sold by Canadian foresters, whose main base is British Columbia, is to the housing market in the United States, where the large supply of existing homes and the recession discourage the construction of new homes, leaving lumber prices at historical lows.
The rising dollar makes the products sold by Canadian foresters in the United States more expensive.
West Fraser went public in 1986 on the Toronto Stock Exchange at $20.50 a share and its initial quarterly dividend was 8 cents a share. On Friday, the stock closed at $29.06.
The company said the dividend cut would save $19-million a year, roughly 1 per cent of annual revenue. In the first quarter, West Fraser lost $83-million, its eighth three-month period in the red out of the past 10.
At Canfor Corp., CFP-T West Fraser's crosstown rival in Vancouver, the situation is just as dire. Late last week, the company announced a widespread curtailment of lumber production. Three major B.C. sawmills will be closed indefinitely, including one of Canfor's largest, Rustad, in Prince George.
The cuts amount to 11 per cent of Canfor's total capacity. Given that it was using only about 60 per cent of its capacity at the time of the announcement, Canfor is effectively left with its whole system at half-capacity. Almost 600 workers are affected.
The news comes several weeks after Canfor decided to re-open a shuttered mill in hard-hit Mackenzie, a small forestry town in the B.C. Interior. That announcement was seen as a potential sign of a long-awaited recovery.
The new mill closings will occur through June and July as log inventories at the mills are processed. "These decisions are never easy, but are taken in the face of a market downturn that is unprecedented in terms of both duration and intensity," Canfor CEO Jim Shepard said in a statement.
© The Globe and Mail
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