By Ian Ross
One of the nastiest cross-border trade squabbles in years over softwood lumber has some mills in Northern Ontario evaluating operations on a week-by-week basis.
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"We're swimming in red ink," says Martin Michaud, vice-president of Tembec's Northern Ontario operations. The company announced in November it was temporarily shutting down its Kirkland Lake sawmill beginning Nov. 12.
What began for the forest product producer as a soft year in lumber sales - forcing the layoff of 120 workers in February at four sawmills in Northern Ontario - went from bad to worse after the Sept. 11 events and the U.S. Commerce Department's decision to slap additional anti-dumping duties this fall on Canadian product exported to the U.S. market.
Since August the U. S. has imposed penalties, which now total 32 per cent on Canadian softwood lumber. The penalties are based on claims that Canadian governments subsidize forest companies with low timber-cutting fees on Crown land.
"I don't think anyone anticipated the market would take such a dive at the same time," says Michaud. "It's totally political. It has nothing to do with free trade, and it prevents the U.S. consumer from having the best deal."
Eighty-eight Kirkland Lake employees will be laid off over the next few weeks as the mill pares down its inventory. How long the mill will be shut down is dependent on market conditions, he says.
As Tembec's smallest operation, a one-line mill producing eight-foot studs, Kirkland Lake was the first to go down among a group of other struggling sawmills in Timmins, Cochrane, Kapuskasing, Hearst and Opasatika.
Michaud says despite frequent strategy meetings and good co-operation among employees to cut costs, the deteriorating market conditions have cancelled out every improvement on the cash side.
"Every week we're sitting down and re-aligning our strategy to make sure we come out with the least amount of damage," Michaud says. "We're running week to week."
In Hearst, the third shift in their wood room has been discontinued, affecting 10 to 12 employees.
Michaud says, for Tembec, which ships about half its production south of the border, to look at other Canadian markets or consider shipping offshore is costly and "unrealistic." But it has forced the company to strongly consider diversification with value-added, finished wood products.
Michaud is hoping Ottawa's strategy to negotiate with the United States and launch a time-consuming legal challenge to the World Trade Organization produces some favourable results soon.
"When I look at the impact this has had on our business and added to current market conditions, somebody better move fast because how long can we be expected to survive in this marketplace?" Michaud says.
At least one British Columbia lumber producer has had enough and is suing the United States for damages as politicians try to negotiate an end to a long-standing lumber trade war.
Canfor, one of Canada's largest lumber producers and exporters, filed a complaint under the free-trade legislation demanding $250 million US in damages due to American punitive duties against softwood lumber. They allege the U.S. Commerce Department violated several provisions under the North American Free Trade Agreement's Chapter 11 section by imposing these duties.
Weyerhaeuser spokesperson Jayne Murray says thus far the impact on their Northern Ontario operations has been "minimal," but the company has taken steps to temporarily shut down three of its mills to reduce its inventory.
Employees at their dimensional lumber mills are being encouraged to use up their vacation time, and use up any free days they have left for the balance of this year as they cut back production.
The Dryden mill, Weyerhaeuser's largest complex in Ontario, is encouraging its 1,200 employees to use vacation time while the mill temporarily shuts down for two days over the Christmas and New Year's Day holidays.
The Ear Falls mill will be shut down for a total of three days over the holidays, while their Chapleau plant has already cut production for five Fridays between Oct. 26 and Nov. 23, and for an additional four days over the holidays.
Murray says their Ontario operations ship about half of their production in jack pine and spruce used in the home-building industry to the United States, unlike their British Columbia plants, which are more reliant on the American market.
"We do have significant Canadian markets, that's why our Ontario operations haven't been hit as hard," Murray says.
"We can't speculate on what's going to happen in the future, we just have to constantly re-assess (the situation). But so far Ontario and Alberta have fared well as opposed to our other properties in the west."
The company's other value-added mills in Nipigon, which is a plywood mill; Wawa, an oriented strand board mill; Sturgeon Falls, a recycled packaging mill; and their woodlands operations, have not been affected.
