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More companies may collapse under the burden of high interest and exchange rates, the 15 per cent export tax and the GST.
The president of the Canadian Lumbermen's Association, Jim Hickey, foresees dark clouds looming in the future for the solid wood products industry. You could argue that his gloomy forecast is a little biased by the fact that his hardwood/plywood business is going under, weighted down by interest rates and the high value of the Canadian dollar. But Hickey is not the only pessimist, and it is clear that a number of factors threaten the survival of lumber producers in the 90s.
The recent closures of a number of businesses and the threat of an economic recession do not bode well for the industry. During the association's annual meeting, held February 14 to 16 in Montreal, the importance of staying efficient and competitive, and the need to exploit global markets were stressed. The goods and services tax (GST), the high exchange rate, high interest rates and the Memorandum of Understanding were the most commonly cited industry ills. Hickey said the failure of his company is symptomatic of what is happening to all the forest industries.
The grim forecasts began on Valentine's Day when Hickey told reporters
that profit margins are slim and companies have to produce at maximum capacity
and productivity to survive.
John Holland, Noranda Forest Sales, commented that the recent spate of sawmill closings is only a taste of what is to come in 1990. A lessening of demand for chips in Quebec could cause the disappearance of many mills, he explained.
Looking overseas for salvation is tempting, but not all mills have the flexibility to serve European markets, he said. However, he pointed out an opportunity for eastern Canadian producers is opening up in Europe. The Eastern bloc countries have always been a key supplier to continental Europe and North Africa but have recently reduced their export volumes to these areas by 15 to 20 per cent. This internal demand within the Eastern bloc has left somewhat of a vacuum in Western Europe which could be filled by Canadian products.
Financing for modifications is hard to come by, said Rolland, because no one in solid wood products is getting good returns. To serve European markets, mills have to expand their dry kiln capacity and change material handling systems to produce European sizes and packaging that will withstand overseas shipping.
On the domestic front, with the GST coming into effect in 1991 "there will be a dislocation of businesses and jobs," Hickey warned. He said he has already seen examples of companies moving across the border.
The tax will have to be financed by businesses at every step of the manufacturing process. For example, reload centres that purchase wood from mills will have to pay the tax on the material they process. This means a seven per cent tax on all their inventory, said Hickey. Wholesalers will also pay tax to the mills and only recoup it when they resell the wood. In the interim, wholesalers and reload centres will have to finance the tax.
While the GST is a burden in some ways, it could help the industry in
others. The pending introduction of the tax in 1991 is expected to boost housing starts this year. Despite high interest rates, potential home buyers are likely to build before the new tax comes into effect.
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