The head of West Fraser Timber Co. Ltd. said the recently announced closing of its paper mill in Kitimat, B.C., is a "grim reminder" of what happens to high-cost producers in a depressed industry.
West Fraser chairman, president and chief executive officer Hank Ketcham apologized Tuesday to investors who have seen the mill lose money for several years.
Mr. Ketcham also said he was "deeply sorry" for the impact the closing will have on the lives 535 employees at the mill, the town of Kitimat and the surrounding northwest region of the province.
"This action is a grim reminder that in an intensively competitive global environment all stakeholders must be cognizant of the fact that higher-cost producers in our industry will not survive over the long run," he told analysts during a conference call Tuesday.
He also said that's why West Fraser has invested money to upgrade its mills to ensure they operate as efficiently as possible, and cut production as needed.
"Our strong balance sheet, conservative business philosophy and long-standing emphasis on controlling costs will serve us well as we work through this difficult time in our industry's history," Mr. Ketcham said.
He made the comments after the company on Monday reported a third-quarter loss of $198-million, which includes a $138-million charge related to the closing of Eurocan.
West Fraser announced last week that it was closing Eurocan on Jan. 31. The 40-year-old mill, located about 640 kilometres north of Vancouver, produces linerboard and kraft paper.
West Fraser blamed the move on the recession's impact on the forestry sector and the rising Canadian dollar, noting that prices for the mill's products have fallen by 40 per cent.
West Fraser also cited sawmill curtailments in the region, as a result of a slump in demand for lumber, for reducing the supply of lower-cost wood chips to Eurocan. That left it to rely on more expensive whole log chips.
The Canadian lumber industry has been hammered by the U.S. housing crisis, since the majority of its product is used in that market. To cope with a drop in supply, forestry firms have cut capacity by as much as 50 per cent, which means closing mills and laying off thousands of workers to try to stave off deeper losses.
Other factors affecting the industry include the higher Canadian dollar, U.S. taxes on imports, and the mountain pine beetle that is chewing its way through forests in Western Canada.
Late Monday, West Fraser reported its third-quarter earnings, including a loss of $4.64 per share.
That compared to a loss of $2-million, or 5 cents per share, for the same quarter last year.
Sales were $679-million for the July-September period, compared to $848-million for the same period last year.
The latest quarterly results also includes $17-million in charges related to the company's sawmill assets.
West Fraser said there will be another $70-million in costs to come related to the Eurocan closing, about two-thirds of which will be taken in the fourth quarter.
In its outlook, the company said the U.S. housing market showed some signs of improvement in the quarter as housing starts increased slightly, the inventory of new homes continued to decline and interest rates remained low.
West Fraser said results from ongoing operations are expected to improve due to current stronger demand and pricing for pulp.
The Communications, Energy & Paperworkers Union of Canada said recently that the Eurocan closing is "shocking, but not a complete surprise."
CEP members from Western Canada met in Vancouver late last week to determine what can be done to address crisis in the pulp and paper industry.
"We know this industry is in deep trouble, we have known it for years. This week's announcement is a further indictment of the failed policies of both the federal and provincial governments as well as proof of the significant lack of investment by the companies," CEP vice-president Jim Britton said over the weekend.
The union wants Ottawa to set up emergency summit to be held with all stakeholders to try and "save the forest industry."
"We know there are no easy answers and we are not saying that we have all of the answers," Mr. Britton said. "But there is one thing that we do know; there are solutions to be found if we can get all the right people in the room talking to one another."
The union said more than 75,000 jobs have been lost in the industry in Canada and more than 226 mills closed.
"The current system is broken and we need to find solutions."
The CEP represents more than 40,000 forest industry workers across Canada, including 5,000 pulp and paper workers in B.C.
Eurocan was built in the late 1960s and West Fraser became a joint venture partner in the 1980s. It acquired the operations in 1993.
Eurocan produced about 450,000 tonnes of paper products annually, or about 2 per cent of total Canadian pulp and paper production.
About 75 per cent of Eurocan's paper production is linerboard, used in cardboard boxes, and about 25 per cent is kraft paper, used in a variety of applications such as cement packaging.