'The next 18 months are gonna be very hard': Quebec forestry

There could be more mill closures in Quebec and more job losses in coming months as the forest industry adjusts to deflated demand for softwood lumber, analysts say.

Several forest products companies have announced significant closures and layoffs across the province this fall, with the latest announcement coming Tuesday from Abitibi-Consolidated, one of the largest operations in Quebec, which will shut down four mills and cut 700 jobs at the end of October.

The fall announcements cap a dismal 18-month period for the sector, in whichmore than 10,000 Quebecers have lost forestry jobs because of 116 mills closing temporarily or permanently.

Unless there's swift restructuring within the industry, coupled with immediate government support, the situation will get worse before it gets better, analysts predicted Wednesday.

"The next 18 months are gonna be very hard. No matter how we look at it, it's gonna be hard," said Denis Brire, dean of l'Universit Laval's forestry and geomatics faculty.

Quebec Natural Resources Minister Pierre Corbeil insists the latest round of closures are temporary, and pledged to help the industry. "We will together face the challenge to restructure, consolidate and make the sector more profitable, and more sustainable," he said.

That task is tall given the challenges plaguing the industry, explained Luc Bouthillier, a forestry economist who teaches at l'Universit Laval.

High costs, low demand

The combination of an unsatisfactory solution to the softwood lumber dispute with the U.S. and a sluggish softwood market because of low housing starts has dragged lumber prices down to decade lows.

The North American lumber market is hard-pressed to absorb the regular volume of softwood produced by Quebec mills, Bouthillier said.For companies like Abitibi, it makes little financial sense to keep running sawmills when there's no demand.

"For the moment it's damage control.As Abitibi is facing a high cost structure, it means for them they would be better off if they shut down plants in order to reduce the offer of softwood lumber on the U.S. market,"he said.

The mills targeted for closure happen to be the most expensive to operate, because their wood supply is remote and it incurs high transportation and logging costs, Bouthillier said. The setup is common among several forest products companies.

If prices stay low then more Abitibi mills could be threatened, he said. "Its debt is one of the heaviest in North America. So each little bump could mean catastrophe."

Several other Quebec forestry companies face a similar predicament, Bouthillier said. In early October, Tembec announced it was cutting 400 jobs, and Krueger announced 200 people temporarily laid off would not return to work.