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A convoy of logging trucks arrives in downtown Vancouver, on Wednesday September 25. A convoy of approximately 200 logging trucks drove to Vancouver from Merritt as owners and drivers hoped to highlight the effects from dozens of mill closures and thousands of layoffs in British Columbia's forest industry.DARRYL DYCK/The Canadian Press

B.C. forestry companies are set to report lacklustre third-quarter financial results as tough market conditions send ripples through boardrooms and mill towns.

Companies are suffering from low wood prices while paying high stumpage fees to the British Columbia government for chopping down trees, analysts say. They are also being hurt by U.S. lumber duties and are scrambling to find enough timber to prevent more sawmills from closing down or scaling back production.

“We expect sentiment to remain challenging for the group through year-end,” CIBC World Markets analyst Hamir Patel said in a research note. “The much-anticipated turn in the market failed to emerge in September.”

West Fraser Timber Co. Ltd. and Canfor Corp., Canada’s two largest lumber producers, will release their third-quarter results next week. The Vancouver-based producers are among the B.C. forestry companies that have been hurt during the industry’s decline over the past 16 months. Western Forest Products Inc. and Interfor Corp. will announce their quarterly results in early November.

Communities in the B.C. Interior have been especially hard hit, with mill shutdowns such as Canfor in Vavenby, West Fraser in Chasm and Conifex Timber Inc. in Fort St. James.

“The forestry industry is dear to my heart. I’ve been in it for over 40 years,” said Howard McKimmon, who runs a logging truck company in the B.C. Interior. “My father was in this business, my children are in it and I want there to be something for my grandchildren.”

Supplies of timber have dwindled over the years, worsened by an infestation of mountain pine beetles in the B.C. Interior that began in the late 1990s and peaked in 2005, with the effects lingering. Wildfires in the province in 2017 and 2018 further depleted supplies of wood fibre. B.C. lumber producers also face uncertainty over exports to China that have declined since 2013 and worries about the pace of home building in the United States.

Lumber prices have fallen as inventories increase amid disappointing demand with lower-than-expected U.S. housing starts, exacerbated by a severe winter and then prolonged wet weather that delayed construction in some markets.

“These are the challenges we’re facing and we all need to work together with solutions to move through this transition period,” said Susan Yurkovich, president of the BC Council of Forest Industries. The council issued a series of recommendations last month designed to bolster the sector, including calls for the province to lock in certain forested areas for the long term for harvesting trees.

Don Kayne, Canfor’s chief executive officer, said part of the solution to weathering the tough times will be continuing to diversify geographically away from the United States and expanding the product mix through measures such as increased marketing offshore for window frames and doors. “There are opportunities in value-added, customizing our products more than we ever have before," he said in an interview.

B.C. billionaire Jim Pattison, who owns 51 per cent of Canfor through Great Pacific Capital Corp., is betting on a forestry upswing. He announced his bid in August to acquire the rest of Canfor’s stock and take the company private with a $981.7-million cash offer.

Mr. Kayne said there are opportunities for Canfor to help ramp up promotion of mass timber in construction and tout wood products for industrial projects in the long term.

For now, U.S. duties on shipments of Canadian softwood lumber south of the border are contributing to the pain in British Columbia. In the latest round of the cross-border fight, Canadian softwood producers have been paying U.S. duties on lumber shipments since April, 2017.

In the long-running dispute, the U.S. Commerce Department says most provinces provide subsidies by charging unfairly low stumpage fees to Canadian producers harvesting trees on Crown land. Under the U.S. system, most producers pay for U.S. timber rights on private land.

The BC NDP government is worried that any political intervention to reduce B.C. stumpage rates would infuriate the U.S. lumber lobby and derail efforts to reach a compromise with the Americans in the protracted softwood battle.

B.C. Forests Minister Doug Donaldson said the lack of log supplies combined with strong demand for timber translates into stumpage rates that reflect economic reality.

Last month, the province announced a $69-million, two-year program designed to help about 3,000 displaced forestry workers in the B.C. Interior. “We’re continuing to work with workers and contractors and communities in the short term in order to address the immediate needs of communities and families," Mr. Donaldson said in an interview.

Russ Taylor, managing director at wood-research company Forest Economic Advisors Canada, said British Columbia has been much slower to adjust to lower lumber prices when compared with Alberta.

“In conjunction with punitive U.S. import taxes, the net result of higher stumpage rates during this period of low lumber prices is nothing short of a catastrophe for beleaguered B.C. Interior mills,” Mr. Taylor wrote in FEA Canada’s October issue of Wood Markets Monthly. “For B.C. producers, forest workers and communities, the outcome amounts to something of a perfect storm.”

Jerry Canuel, a retired B.C. forestry manager, helped organize a convoy of more than 230 logging trucks that weaved through downtown Vancouver on Sept. 25 to highlight the decline of British Columbia’s forestry sector.

B.C. stumpage rates have been at least four times higher than what Alberta charges in some cases, convoy organizers cautioned.

Even after taking into account that some trees species harvested in the B.C. Interior contain wood with a higher value per cubic metre than in Alberta, the BC NDP government needs to find ways to narrow the competitive gap with its neighbouring province, Mr. Canuel said.

“There’s all this worry about hurting the Americans, but meanwhile, we’re crippling our own industry and our own communities,” he said.

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