Forestry

Newsprint

Strong markets and high prices resulted in record production levels for the local newsprint industry in 1994 and 1995. The return to profitability during these years enabled one local mill to repay wage concessions and allowed all mills to undertake considerable capital investment. It also provided a cushion for the mills against falling world prices and reduced consumption during 1996. Producers worldwide restricted production last year in an effort to halt the sharp decline in prices precipitated by supply and demand imbalances. Newsprint prices appear to have stabilized at around the US$500/tonne mark over the last several months, and there may be some upside potential for the remainder of 1997.

As part of the effort to restrict worldwide supply, newsprint shipments from the Province were curtailed by about three percent in 1996. Employment at the mills was relatively stable as the reduction to 714,000 tonnes was achieved through the use of downtime. Lower shipments, falling prices and the appreciation of the Canadian dollar were reflected in the value of shipments which fell from $674 million in 1995 to $628 million last year. Although both the value and volume of shipments declined last year, both remained relatively high by historical standards.

The volatility of newsprint prices and industry profitability over the last few years have increased competition in markets, and thus intensified producers' efforts to control costs, improve the quality of existing products, and diversify the range of products offered. These objectives are being achieved through a number of means including consolidations, mergers and takeovers, some of which have implications for Provincial newsprint mills.

Abitibi-Price Inc., which operates mills in Grand Falls and Stephenville, recently announced plans to merge with Stone-Consolidated Corporation. Both companies reported profits in 1996 and the new company created by the merger, Abitibi-Consolidated Inc., will be the largest newsprint producer in the world with the capacity to supply almost nine percent of global newsprint requirements. The Company reportedly plans to increase its market presence outside North America, targeting markets in South America, Europe and Asia where Provincial mills already have a strong presence. The merger is seen by most industry analysts as a positive step which will provide a strong basis for growth.

Kruger Inc., which owns and operates the newsprint mill in Corner Brook, recently announced its bid to acquire all outstanding common shares of Scott Paper Limited, a major producer of tissue and other consumer products. For Kruger, the move is a strategic one motivated by its desire to diversify its product base. Kruger hopes that the acquisition will be approved sometime in late May of this year.


Lumber

The Provincial lumber industry has used aggressive export marketing and investment to expand production. Aside from local sales, major markets for the industry include mainland Canada, the United States, United Kingdom and Japan. In the last couple of years, production averaged an estimated 68 million board feet, up substantially from the 1980s when it averaged 42 million. Increased emphasis is being placed on the development of value-added wood products (e.g., fencing, panels, upgraded lumber) which have been identified as an area with significant growth potential.


Forest Management

A recent review of the Province's timber supply indicates that on the Island, the forest's ability to provide raw material is being outpaced by demand for the resource. The shortage stems from an imbalance in the age structure of the forest which is being addressed through strong forest management and protection measures including: ecosystem planning teams; more recycled fibre; greater fibre efficiency; better access to remote timber stands; silviculture work; importation of wood; and more. Labrador also offers a potential source of timber supply. The resource in this area could produce an estimated 480,000 cubic metres per year (beyond current production levels), which could help significantly with the short run supply problems on the Island. Development of this resource hinges, more than anything else, on the negotiation of a mutually satisfactory development regime with the native peoples of the region.


Outlook

Newsprint shipments from the Province are expected to rise in 1997 as world newsprint demand recovers. Recovery on the demand side coupled with producer adjustments on the supply side is expected to lead to some upward movement in prices. Investment in the Provincial newsprint industry will continue in 1997 with mills committed to spending $28 million in capital improvements. An additional investment of $32 million is in the approval stage. Lumber production is expected to increase this year, as further export opportunities are developed. While the wood supply issue will continue to challenge stakeholders, the imbalance is expected to be resolved through the implementation of aggressive measures. The ultimate goal is to provide a sustainable wood supply without compromising the long-term health of the forest.


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