The economics of raw logs The sale of unprocessed timber plays a controversial, but needed role in B.C.'s forestry sector
By Gordon Hamilton, Vancouver Sun July 14, 2012 http://www.vancouversun.com/business/economics+logs/6934626/story.html [cid:image001.jpg@01CD656C.644B4420] Garry Reece (left), chief of Lax Kw'alaams First Nation, with Wayne Drury, who heads Coast Tsimshian Resources, a firm that exports 35 per cent of its allowable cut overseas, mostly to China. Photograph by: Ian Smith, PNG, Vancouver Sun If there is a way to build an economically viable sawmill in British Columbia's northwest, Wayne Drury, chief executive of Coast Tsimshian Resources, is determined to do it. But if it were easy, others would have done it long ago, said Drury, who heads one of the largest and most successful companies in the northwest. In the meantime, Coast Tsim-shian - owned by the Lax Kw'alaams First Nation of Port Simpson - relies on log exports, sending up to 35 per cent of its annual allowable cut overseas, mostly to China. A provincial order-in-council permits loggers from the central and north coast, where there are no manufacturing facilities, to export 35 per cent of the harvest. "If we and others in the northwest did not have that 35 per cent, none of us would be in business. How many offers have we had to buy our wood?" he asks, then answers his own question: "Two years ago one [southern B.C.] sawmill was looking. They didn't buy." Log exports have a long and contentious history in B.C. Popularly viewed as exporting jobs, they were first banned in 1897. In 1916, the export of surplus logs was allowed, a policy that is still in place today. Coast Tsimshian relies on log exports as the foundation of a business the company is building one step at a time. It employs, or is responsible for the jobs of, 170 people, including the longshoremen who load logs on Asia-bound ships. The first nation has an office in China and, during the inter-view, Drury mentioned that an executive is in that country nailing down details on potential lumber contracts. Coast Tsimshian wants to build a mill that will make lumber from the low-grade pulp logs that populate much of the northwestern forests. But exports, Drury notes, provide the cash flow that keeps the company running, even when margins disappear. On northern Vancouver Island, where logger Eric Dut-cyvich of Lemare Lake Logging cuts timber in the mixed hem-lock, balsam and cedar stands of the coastal rainforest, log exports also ensure his business is running and profitable, providing paycheques for 300 people at times when domestic demand is down. A veteran of the coastal industry, Dutcyvich knows the logging business inside out. The reality of the different species and ages within the coastal forest, coupled with the economic reality of lumber demand fluctuating up and down, dictates that there will always be an equally varied mix of log markets, he said. IMPERFECT SYSTEM "I've been watching for years a lot of the drama around log exports play itself out," Dut-cyvich said from the Port McNeill headquarters of Lemare Lake Logging. "People who rely solely on log exports see it as a solution to every-thing. And people who feel as though their jobs are in jeopardy because of not enough log supply, they like to demonize [log export] policy as the reason for all their problems. But it's really not that simple." "We don't log in a homogeneous forest. There are many different species. Last summer, for example, was some of the best pricing for small log hem-lock for pulp that we have seen for a long time, in probably a decade." But cedar - non-exportable from Crown land - was off. "Way off," he says. "Now it has come back. And it is the driver in a lot of decision-making about which stands are economic and which ones are not." That mix of species, prices and markets has created a unique industry on the Coast, where loggers, log brokers, major licensees and sawmills jockey for the best prices and the best logs for their needs in behind-the-scenes negotiations. To play in the game, you've got to be big - with a large inventory of logs or a large capacity to make lumber - to negotiate the best deal. When discussions are congenial, it leads to contracts where the right wood goes to the right market, whether export or local, and everybody gets enough timber to make money. When they break down, it leads to bad blood, with log suppliers threatening to cut off log buyers and log buyers threatening what is termed "blockmail" - blocking a broker's bid to get an export permit. "Although it's an imperfect system, it's a pretty good system because it's the right mix of global competitiveness mixed in with protection of a local sawmilling infrastructure," said Dutcyvich. "And when the export market goes down and the domestic market hopefully comes back, we need those mills. Without those mills, we would be at the mercy of log export. And that'd not be a very comfortable thing." SURPLUS TEST APPLIED The export market is driven by price. When the U.S. market was strong, logs exported south commanded twice the price that domestic mills could pay. Now, the Asian market is paying around 30 per cent more. This is how the system works: Before they can receive a permit from the federal Timber Export Advisory Committee, exporters need to show that logs are surplus to the needs of domestic manufacturers, can-not be economically processed in the province, or that export will improve utilization and reduce waste. There is a surplus test; the timber is advertised for sale. If no offers are received, an export permit is issued. Sawmills can block a permit by making an offer, but they are not obliged to purchase the wood, as markets can change by the time the TEAC process is completed. Further, an exporter pays a fee-in-lieu of manufacturing that varies from five to 15 per cent of the log value, depending on species and grade. The whole process is bureaucratic and time-consuming. Some mills are outspoken in their opposition to exports. The Teal Jones Group of Surrey argued in a Jan. 21, 2010 letter to the government that log exports reduce demand for B.C. lumber in those same export markets. And when they can't get enough logs, sawmills run reduced shifts. Teal Jones operates a small log sawmill and said in the letter that exporters take premium lengths, leaving the domestic mills with uneconomic logs. Ken Johnson, a log broker with Lions Gate Forest Products, said before he starts to fell any timber, he goes to the mills that he knows are blocking exports. "I strike up a deal with them [using other logs] and that way they get the lengths they want and they are a lot happier than they would be blocking a bunch of timber that would be off-lengths to them." Johnson said the system needs changes to become more efficient. Right now, the wood has to be logged and in the water in a boom before a broker can apply for an export permit. That creates risk and uncertainty; risk that pests like the teredo worm could get into the logs or that some could sink. Further, there's uncertainty whether the permit will go through. That instability hampers business investment for both loggers and sawmillers. The B.C. government is con-ducting a log export review. ghamil...@vancouversun.com [Non-text portions of this message have been removed] ------------------------------------ Native News North List info{all lists}: http://nativenewsonline.org/natnews.htm Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/NatNews-north/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/NatNews-north/join (Yahoo! ID required) <*> To change settings via email: natnews-north-dig...@yahoogroups.com natnews-north-fullfeatu...@yahoogroups.com <*> To unsubscribe from this group, send an email to: natnews-north-unsubscr...@yahoogroups.com <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
