Strengthening Canadian dollar hurts forest industry's bottom lines

Market: Lumber
Posted June 2, 2009

Jun 02, 2009. /Lesprom Network/. Canada's lumber companies face another hard summer as persistent weak demand for their products and a surging Canadian dollar batter the industry, The Globe and Mail reported on June 1.

Buoyed by strengthening oil prices, the Canadian dollar has risen rapidly from 77.8 cents on the U.S. dollar at the 2009 low in March, to 91.60 cents last week.

CEO Hank Ketcham of Vancouver, British Columbia-based West Fraser Timber Co. Ltd., warned earlier that a stronger dollar loomed in 2009. After markets closed Friday, the company slashed its quarterly dividend from 14 cents a share to 3 cents a share, the first-ever cut since West Fraser went public in 1986.

For every penny the U.S. dollar slides against its Canadian counterpart, West Fraser sees a loss of C$14 million. The shift in the currencies erases C$273 million of potential profit for West Fraser on an annualized basis, reported The Globe and Mail.

The company said the dividend cut would save C$19 million a year, roughly 1% of annual revenue. In the first quarter, West Fraser lost C$83-million, its eighth three-month period in the red out of the past 10, the newspaper reported.

Vancouver-based Canfor Corp. late last week announced a widespread curtailment of lumber production. Canfor will close three major British Columbia sawmills indefinitely, including one of Canfor's largest, Rustad, in Prince George.

The new mill closings will occur through June and July as the mills process log inventories, The Globe and Mail reported.

The cuts amount to 11% of Canfor's total capacity, affecting almost 600 workers, and leaving Canfor operating at about half its capacity. The company was using only about 60% of its capacity at the time of the announcement, reported The Globe and Mail.

Several weeks ago, when Canfor said it would re-open a shuttered mill in Mackenzie, British Columbia, the announcement was seen as a potential sign of a long-awaited recovery.

Canfor CEO Jim Shepard said in a statement that the market downturn is unprecedented in duration and intensity.

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