Chinese buying spree over for now, forcing B.C. sawmill to close

By Gordon Hamilton – Vancouver Sun

Chinese buying spree over for now, forcing B.C. sawmill to close

The mill has shut down within months of Premier Christy Clark celebrated its reopening.

A northwestern B.C. sawmill has shut down within months of Premier Christy Clark celebrating its reopening, the victim of a swift decline in lumber demand.

Kitwanga sawmill near Hazelton reopened July 8 amid optimism that the B.C. forest sector was rebounding from the deepest downturn in memory. But mill owners Pacific Bioenergy said Tuesday that they had to take a temporary shutdown because of market events that were completely unforeseen when they made the decision to start up last summer. Chinese demand has dropped and U.S. demand has remained flat. The mill’s 45 employees and staff have been laid off temporarily.

“We started the mill in the early summer period. All the experts leading up to that period in time were predicting stronger market outlooks,” Pacific Bioenergy president Wayne Young said in an interview.

“It’s unfortunate things have softened since.”

Young said the company is looking into options such as custom cutting lumber to keep the mill running until prices improve for commodity lumber. Pacific Bioenergy also plans to build a pellet plant at Kitwanga. Those plans have not changed, Young said.

Kitwanga is a small mill and Young said it is difficult for a small player to compete in the commodity lumber market when prices fall as low as they have this autumn.

“Markets softened this summer and there is no near-term recovery on the horizon,” Young said.

Lumber prices have fallen from a high in the $300 US range for 1,000 board feet early in the year to $229 US, which is below break-even for all but a handful of B.C. mills.

Further, China, touted as the saviour for B.C. lumber mills as recently as last summer, has cut back its buying, industry analyst Paul Quinn said.

“Lumber prices have definitely drifted off in the last couple of weeks,” Quinn, an analyst at RBC Capital Markets, said in an interview. “There is an inventory buildup in China. Now you are starting to see inventory buildup in the docks over here. Definitely China is slowing down.”

He said most in the industry consider it to be a temporary slowdown. With other commodities, China is known to buy and build inventory when prices are low, then back out of the market as prices climb, waiting for them to drop again.

Chinese buyers backed off just at the time the lumber supply was going up, driven largely by B.C. mills that were reopening. Quinn said that on the North American side, “You know the story. It hasn’t changed in the last five years. There is really very little demand and that is why you are seeing prices come down.

“At this point, maybe the majors, somebody with first quartile sawmills like Canfor and West Fraser, are making some money, but the average guy is losing money at this price.

“That’s reality. How quickly it corrects is anybody’s guess.”

He said more short-term mill closures are likely.

“This is a short-term issue,” he said of China pulling out of the market.

“But if you are a smaller player without the deep financial pockets to manage that, you tend to get squeezed in times like this.”

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