The Tolko sawmill is trying to weather the storm as the upcoming timber supply review and a struggling lumber industry present challenges to their business. But unless the market gets better, the Merritt mill may be facing layoffs.
Representatives from the mill met with council at a committee of the whole meeting June 23 to give council an update on their business.
Amidst hard times in the industry, Tolko representatives said the company is evaluating all its operations, including the Merritt sawmill.
“Currently, the facility here in Merritt is focused on value extraction, cost control measures and site efficiencies to help weather the poor lumber markets,” Merritt sawmill manager Clayton Storey told council.
Tolko has postponed major capital improvement projects for the Merritt facility as a cost saving measure.
So far this year the mill has not had to shut down and continues to operate with 206 hourly employees, Storey said.
Back in May, the downturn in the lumber industry resulted in the two-week shutdown of the Aspen Planers sawmill in town. That mill reopened back on May 18.
Storey told council the North American lumber market price has declined more than 20 per cent since the start of the year.
That dip in price triggered duties on lumber exports to the U.S. as per the Softwood Lumber Agreement between the two countries.
“Canadian lumber producers faced a five per cent export duty in May, a 10 per cent export duty in June and we will be facing a 15 per cent export duty in July on all the U.S. lumber shipments,” Storey said.
Tolko’s mill in Merritt has about 30 per cent of its business in the U.S., which is down from the 70 per cent eight years ago, Storey said.
Storey said building permits in the U.S. are starting to increase, but this positive trend hasn’t affected lumber prices.
The Asian market isn’t much better.
“Those lumber prices have also declined, especially in China,” Storey said.
The Softwood Lumber Agreement will expire on October 12, just a week before Canadians go to the polls for the 42nd federal election.
Storey said the expiration will essentially put the lumber industry back into a state of free trade.
“It’s uncertain as to how the industry’s going to react,” Storey said.
The timber supply review from the provincial government is expected to be complete soon, and will determine the allowable annual cut (AAC) allocated to forest licenses.
Minister of Forests Steve Thomson has told the Herald the AAC is expected to drop.
The allowable annual cut for the Merritt timber supply area was set at 2,400,000 cubic metres in 2010 — a decrease from the previously allowed 2,800,000 cubic metres.
Tom Hoffman, Tolko’s manager of external and stakeholder relations, said the timber supply review will almost certainly effect Merritt.
“It will have an impact on the current industrial footprint,” he said of the impending drop in AAC.
Bracing for the review’s impact, Tolko is examining alternatives.
“It’s looking at what other options are out there in terms of non-traditional supplies, looking at what we can shore up in terms of volume, utilizing fibre differently. There’s a lot of different things,” Bragg said.
Storey said market diversification is a key to survival for Tolko.
Layoffs are a possibility if the AAC drops low enough, he said.
“If there’s no change, then our operating footprint stays the same, if there’s a change there could be potential for evaluating the footprint of the facility,” Storey said.