Sawmills in Quebec and Ontario are running at record high levels, resulting in difficulty finding outlets for generated residuals
Record high production at sawmills in Ontario and Quebec in 2016 has generated large volumes of residues in the two provinces, reports the North American Wood Fiber Review. In the past that would have been good news for the local pulp industry, but with a declining pulp and paper sector, many sawmills are finding it difficult to sell their byproduct locally.
Seattle, USA. Sawmills in Eastern Canada have been running at record high levels in 2016, with production reaching levels almost ten percent higher than in 2015 and almost 40 percent higher than five years ago. This has been very good news to the forest industry, with sawmills running at 97% operating rates in late 2016, according to the WWPA. However, there are also worrisome developments regarding the large volumes of residual chips that are being generated and where the chips can be sold.
The pulp sector has been the key consumer of residuals in the past, but with a shrinking pulp industry in both Ontario and Quebec, there are concerns that sawmills in the region might be forced to limit production levels because it may be difficult to sell off the large volumes of chips that are being produced.
Despite the oversupply of residues in Quebec, wood chip prices have not changed much over the past few years in Canadian dollar terms. Most contract prices for residues are set on an annual basis and after four years of practically unchanged prices, they fell almost five percent in the 1Q/17. It is likely that prices will decline in the future but this will not necessarily solve the problem with access to chips in the province. Either new production capacity needs to be added (e.g. wood pulp, pellets, composite panels or bio-based products), or sawmills will have to find other outlets for their chips outside the province. Alternatively, sawmills might have to reduce production levels in the future.
Although the latter alternative would be less desirable for both the domestic forest industry and for lumber consumers in the US to which much of the lumber is exported, it could still be a reality later this year. If the new US softwood lumber import tariff is implemented at such a high rate that it reduces the profitability of the lumber companies in the two provinces, it is likely to result in reduced production levels and thus declining supply of residual chips to find a home for.
The North American Wood Fiber Review has tracked wood fiber markets in the US and Canada for over 30 years and it is the only publication that includes prices for sawlogs, pulpwood, wood chips, pellet feedstock and biomass in North America. The 36-page quarterly report includes wood market updates for 15 regions on the continent in addition to the latest export statistics for sawlogs, lumber, wood pellets and wood chips.
Wood Resources International LLC
Wood Resources International LLC (WRI), an internationally recognized forest industry-consulting firm established in 1987, publishes two quarterly timber price reports and have subscribers in over 30 countries. The Wood Resource Quarterly, established in 1988, is a 52-page market report and includes sawlog prices, pulpwood and wood chip price and market commentary to developments in global timber, biomass and forest industry. The other report, the North Americam Wood Fiber Review, tracks prices of sawlogs, pulpwood, wood chips and biomass in most regions of Canada and the US.