In March of 2010, the International

Transcription

1 After the Beetle: Is TheRE Opportunity? By Jim Girvan & Murray Hall In March of 2010, the International Wood Markets Group, together with the support of the authors, released a ground breaking forecast for the BC Interior forest industry after the beetle 1. In it, the authors forecast that: Sawlog shortages caused by the mountain pine beetle could trigger the permanent closure of about 16 large primary sawmills and/or plywood production facilities within the BC Interior by As of today, 13 mills have closed and if the most recent analysis of sawlog supply and demand holds, the 2010 prediction of 16 mill closures may end up being optimistic. The release of the Merritt Timber Supply Area (TSA) Timber Supply Analysis Public Discussion Paper 2 in July of this year may be the catalyst for additional mill closures and marks the beginning of what is sure to be a tumultuous time for the post-beetle BC Interior forest industry. However, the narrow spread between the allowable annual cut (AAC) and the actual harvest of the Merritt TSA suggests that this area is an anomaly within the wider Kamloops Okanagan Region and the BC Interior in general. We tend to focus on the news headlines that talk about AAC reductions but the reality on the ground is that for much of the BC Interior, the pain has already occurred as actual harvest levels have already decreased over the last few years. A Closer Look at Merritt TSA The British Columbia Ministry of Forests, Lands and Natural Resource Operations (FLNR) regularly reviews the timber supply for all TSAs and Tree Farm Licences (TFLs) in the province. This review, the fifth for the Merritt TSA, examines the impacts of current legal requirements and demonstrated forest management practices on the timber supply, economy, environment and social conditions of the local area and province. Based on this review, the province s Chief Forester will determine a new allowable annual cut (AAC) for the Merritt TSA. The Merritt TSA is one of many areas hard hit by the beetle and like Photo: istock Fall 2015 Truck LoggerBC 23

2 Photo: istock many BC Interior TSAs, had its AAC increased to promote the salvage of dead timber while it could still be used to make forest products. In 2014, while the AAC was approximately 60 million cubic metres, the log harvest in the same year was only about 45 million or 75 per cent of the AAC. The pre-beetle AAC for Merritt was about 1.5 million cubic metres. Following a number of changes to the AAC to address fire salvage, small pine harvest and Innovative Forest Practices Agreements, in 2005 the AAC was increased to 2.8 million cubic metres to address the mountain pine beetle epidemic. By 2010, the beetle epidemic had peaked and the volume of beetle-killed pine was decreasing. As a result, the provincial Chief Forester decreased the AAC slightly to 2.4 million cubic metres. But as indicated in the public discus- sion paper, the new analysis suggests a reduction in the AAC to a level of between 1.16 and 2.0 million cubic metres, depending on the assumptions made. That is a 400,000 (17 per cent) to 1.2 million cubic metre (52 per cent) reduction in cut. However, the 2013 and 2014 actual harvest in the Merritt TSA was approximately 2.3 million cubic metres or 96 per cent of the current AAC. Unlike other mountain pine beetle impacted TSAs, Merritt has had a high level of harvest relative to the AAC given that it provides a log supply to the forest industry both within the Merritt TSA and Bank Trust Wealth Management Part of your crew. M ARINE LINK TRANSPORTATION Full Service Marine Transportation Specialists CWB Equipment Financing gets what you do and what it takes to get things done. And because we re local, we work when and where you do. Need equipment? Make us your first call. Call Michael, our crew leader, at CWBequipment.com Creative, cost-effective, and efficient problem solving in Marine Transportation. CWB Group dispatch@marinelink.ca 24 Truck LoggerBC Fall 2015

3 beyond, including sawmills in adjacent regions including the West Kootenay and the coast. As a result, demand for logs harvested was virtually the entire AAC. Impacts on the Broader Interior Region For the larger Kamloops Okanagan Region, the regional AAC is approximately 11.3 million cubic metres. This includes the Merritt, Kamloops, Okanagan and Lillooet TSAs, regional TFLs, woodlots, community forests and private contributions to the log supply, In 2014, the regional harvest was only 9.7 million (87 per cent) or 1.6 million cubic metres less than the AAC. This lost harvest opportunity was due in part to the difficult economics of salvaging long since dead pine and a significant reduction in demand for logs as a result of mill closures. A similar story is seen when looking at the BC Interior as a whole where the currently available AAC is also not being fully harvested. The figure (see page 26) depicts the historic total volume harvested (in orange) together with the current forecast for the BC Interior AAC (blue line) based on the most current analysis and assumptions made by the authors. As can be seen in 2014, while the AAC (including traditional contributions from private harvests) was approximately 60 million cubic metres, the coniferous log harvest in the same year was only about 44 million (45 million when including deciduous harvest), or 75 per cent of the AAC. Some of this shortfall, however, reflects the undercut in areas such as Fort Nelson where there is an available AAC, but no industry to consume it. As a result, the AAC went unharvested. Looking forward, the BC Interior AAC is forecast to fall to just over 40 million Servicing Sawmill and Logging Companies PR66, Air Tracs Factory Replacement & Drilling Parts Rolls, spikes and guides for sawmills CALL OR KEVIN FOR PRICING Tel: l Fax: kevin_hansman@shaw.ca Unit #104, Street Surrey, BC V4N 3M2 Fall 2015 Truck LoggerBC 25

4 cubic metres in the mid-term, a 33 per cent reduction from the current level. to reduced work opportunity since as indicated above, a large portion of the In 2014, the regional harvest for the Kamloops Okanagan Region was only 87 per cent of the AAC. The coniferous sawlog component of the AAC (green bars in figure above) which supports sawmills and rotary mills across the BC Interior is forecast to be about 35 million cubic metres. The difference between the total AAC and the sawlog supply reflects harvest used for deciduous consuming plants, and non-saw logs used for pulp or biomass consumers. At the same time, the posted schedule for TSA reviews suggests as many as eight TSAs will have their AACs reviewed and likely reduced within the next two years. What This Means For Contract Loggers Despite the dire news headlines of falling AACs, for contract loggers what is important is that the forecast reductions in AAC are not directly correlated forecast AAC reductions are simply not being harvested today. If the entire mid-term AAC of 40 million cubic metres is harvested to provide sawlogs, pulp logs and deciduous logs to BC Interior mills, the forecast of actual harvest reduction is only a mere 12 per cent when compared to the actual 2014 harvest of 45 million cubic metres for the same area. While still not a good news story, the future of the BC Interior is not as bad as the AAC reduction forecasts alone suggest! As AAC reductions occur, so too do changes in the apportionment of the AAC to various harvest tenures contractors operate on. Temporary tenures are the first to be eliminated, generally not being replaced as they expire. This has been seen extensively across the BC Interior already. And, when the AAC falls below the pre-beetle level, replace- able tenures are then typically reduced proportionally across each TSA. But what about places where there still may be opportunity for contract loggers? Two areas may provide new opportunity for some. As indicated above, the first is Fort Nelson. With an AAC of million cubic metres in the Fort Nelson TSA and essentially no forest industry consumers for the coniferous or deciduous logs within the area, opportunity may be possible. The difficult economics of operating in this area are highlighted, however, on the Northern Rockies Regional Municipal Council website in, Wood Products Business Case Options For The Fort Nelson Area, a report authored by Woodmarkets 3. Should markets improve, however, the wood is there for use. The area west of the Bulkley Valley is another area of the province where a chronic shortage of industry log demand keeps an otherwise available AAC from being harvested. Like Fort Nelson, however, the West Prince Rupert Region also has its economic challenges. The area has an aggregated AAC of about 26 Truck LoggerBC Fall 2015

5 3.6 million cubic metres, but in 2014 the harvest was only 1.3 million or 36 per cent of the allowable. That said, the difficulty in operating in this area is slowly being overcome by some. or to overseas consumers. Regardless of the level of harvest, the opportunity for more exists and we are sure many investors are looking at this area as an opportunity. Despite the dire news headlines of falling AACs, for contract loggers forecast reductions in AAC are not directly correlated to reduced work opportunity. 1 BC Interior Mountain Pine Beetle Report, special-reports/pine-beetle Merritt Timber Supply Area (TSA) Timber Supply Analysis Public Discussion Paper, tsa18/2015/18tspdp_2015.pdf 3 Wood Products Business Case Options For The Fort Nelson Area, northernrockies.ca/assets/business/pdfs/ WoodProductsBusinessCase.pdf The largest log consumer in this area is the Terrace-based sawmill owned by the ROC Holdings Ltd. ROC has invested significantly in the mill and it is typically operating on a one-shift basis with the potential to go to two should markets improve. The Kitwanga Lumber mill is currently owned by Morning Glory Farms in Hazelton who purchased the mill after the operation, run by Pacific BioEnergy Ltd., was placed into insolvency protection in The majority of the wood cut within the mill is cedar and it is operating on a one-shift basis. Most regional harvest not consumed by these two mills was exported from the region to either south coast pulp mills As a final note, contractors should make themselves aware of the changes coming to the BC Interior allowable harvest as we collectively move into the post-beetle world. While the future AAC and the current harvest level may not be that far apart, some regions will experience greater declines than others and some contractors may feel the pain. Contractors should also be mindful of the type of tenure they typically operate on and be prepared to review their business plans should the AAC change in their area and on their tenure. You do not want to be the contractor that fails trying to chase the last stick of wood after the beetle. Jim Girvan of MDT Ltd. and Murray Hall of Murray Hall Consulting Ltd. provide strategic fibre supply consulting and industry forecasts for clients in BC, western Canada and abroad. see you at the Western transport Logistics and resource road safety seminar Insights into Forest Transportation Civic Center, Prince George October 15, 2015 Join FPInnovations for a one-day intensive woods-to-mill seminar for the forest transport professional. This technical event will bring you up-to-date with the latest technologies and business practices in the forest transport sector and connect you with industry leaders and innovators who can help you take your operations to the next level. Featuring guest speakers from fleets, equipment manufacturers, safety experts, scientific research staff and regulators, if there is only one event you have time to attend each year, make this the one! See the agenda here: Fall 2015 Truck LoggerBC 27