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Canfor rides a forest sector recovery Add to ...

Four years ago, when Jim Shepard came out of retirement to take on the role of CEO at embattled Canfor Corp. , the forestry business was stumbling headlong into the maw of the worst industry depression in memory.

Mr. Shepard was installed after a push for change led by major shareholder Jim Pattison. Don Kayne, the Canfor veteran who has succeeded Mr. Shepard, remembered the situation as so severe that the company was being managed on a "week-to-week" basis.

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On Thursday, Mr. Shepard retired for a second time, leaving a reinvigorated company that has made a substantial advance in a new market, China.

But recovery in forestry is long and difficult. Success in China does not outweigh the effects of an extended recession in the key United States housing market, the primary destination for Canadian lumber. It's been five years since the peak of the market - and the consensus among forestry executives, investors and analysts is that it will still be several more years before a recovery is ensconced.

Mr. Kayne, who has worked in sales for three decades at Canfor and was key to the company's China push, officially took over as CEO on Thursday afternoon, after the company's annual meeting in Vancouver.

"We will have some difficult waters ahead of us over the next one to two years," Mr. Kayne said after the meeting. "It is, and will get, better."

Long-term hope for a sustained boom lies in the combination of a recovered U.S. housing market, strength in China, and wood supply reduced by factors such as a mountain pine beetle.

The first quarter of 2011 clearly illustrates the staccato nature of the recovery in forestry. Late last year, lumber prices spiked but then began to fall back in the first quarter before crashing lower at the start of the second. Stock prices soared before also retreating. Canfor's first-quarter results mirror some of those movements. Its lumber business generated an operating profit of $18-million in the first quarter of 2011, better than the $14-million in the same period a year earlier but not as strong as the $21-million in the fourth quarter of 2010.

Still, Mr. Kayne, 53, predicts a strong future for forestry - "a huge turnaround," he said, "more than even most people believe. It's exciting, to be on the cusp of that. Whether it's two, three, four years, whatever. It's coming."

The rest of 2011 appears less bright, a view shared by rival, and industry leader, West Fraser Timber Co. Ltd., which reported first-quarter results earlier this week.

"We expected a slow and uneven recovery of the North American lumber industry and that seems to be playing out," West Fraser CEO Hank Ketcham said in a statement.

Mr. Ketcham said the improved but still weak lumber business was offset by strength in pulp, which was reflected in Canfor's results as well. Canfor's operating profit in pulp - where prices are high - was $64-million in the first quarter, more than triple that of lumber in the first quarter, and up 25 per cent from last year.

For Mr. Kayne, China remains a top priority. He first travelled there for Canfor a decade ago, but it wasn't until the past two years that significant growth occurred. The main push now is to sell higher-quality, and more expensive, wood to China for uses such as construction of apartment buildings, a challenge in a country where concrete and steel are the chief building materials.

The B.C. industry has a supporter in Qiu Bao Xing, a senior minister in the Chinese Ministry of Housing and Urban-Rural Development. He made his first trip to Canada in April, which Mr. Kayne said indicates the increased strength of B.C.'s connection with China.

In the first quarter, Canfor's shipments overseas rose 50 per cent from a year ago, buoyed by Chinese orders, which underpinned the 9-per-cent overall gain in lumber shipments compared with a year ago. About one-quarter of the company's total shipments now go to China.

Mr. Kayne said an added push is necessary to sell better wood in the promising market.

"It's really going to take an ongoing aggressive, relentless, concerted effort, as we have been doing, he said.

Follow on Twitter: @davidebner

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