Realizing the Potential: Canadas Forest Products Industry

1
Realizing the Potential Canadas Forest
Products Industry

• November 15, 2005
• By Avrim Lazar
• President and C.E.O.
• Forest Products Association of Canada

2
Leading contributor to GDP
Industrial Contribution to GDP (2004)
3.5
3.0
3.0
2.2
2.5
2.0
1.7
2.0
1.5
1.0
1.0
1.0
0.5
0.5
0.0
Mining
Forest
Industry
Oil and Gas
Rubber
Plastics and
Manufacturing
Chemical
Manufacturing
Rail Transport
Motor Vehicle
3
Worlds Leading Forest Products Exporterby a
Wide Margin
Forest Products Exports 2004 (US Billions)
Source FAO September 2005
4
Greater expenditures than most resource and
manufacturing sectors on RD
Source Statscan March 2005
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Huge Opportunities in a Growing Global Market
Average Annual Growth in Paper and
Paperboard Consumption 1984-2004
Source FAO September 2005
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Despite its many strengths, the forest industry
faces serious challenges

• A number of Pressing Problems are Creating a
  Perfect Storm for Canadas Forest Products
  Industry

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High Exposure to C and Energy Costs

• While all manufacturers are adversely effected by
  high C and energy prices, the forest products
  industry is especially vulnerable.
• C has risen by 34 or 23 cents since Jan. 03.
  PricewaterhouseCoopers has estimated that each 1
  cent rise in the C costs the Canadian industry
  over 500 million in gross sales.
• Rapid increases in energy prices, particularly in
  Ontario, combined with eastern Canadian wood
  costs that are now among the highest in the
  world, are provoking crisis in many communities

Source CIBC World Markets.
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Softwood Lumber Dispute

• The Canadian industry has paid 5 billion in
  deposits to the US Treasury
• These funds could otherwise have been invested
  where they are urgently needed in renewing the
  Canadian forest industry
• Canadian producers continue to pay average
  tariffs of 20 on US exports
• US refusal to implement the August 10th unanimous
  decision of the NAFTA Extraordinary Challenge
  Committee leaves timing and nature of an ultimate
  resolution in doubt

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Canadian Firms are Small by Global Standards
Canadian Companies vs. US Companies Market Cap
35
30
25
20
Market Cap (US billions)
15
10
5
0
Abitibi
Canfor
Domtar
Cascades
Weyerhaeuser
MeadWestvaco
Kimberly Clark
Georgia Pacific
International Paper
West Fraser Timber
Source NYSE, TSX April 4/5, 2005
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Small Size Slows Capital Investments Bleached
Softwood Kraft PulpQ3 2004
Canada has 37 of global capacity but its mills
are older and smaller than many competitors,
including Europe, the US, and newer producers in
Latin America.
Source Yaakko Pöyry, 2005
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New competitors are threatening Canadas
traditional markets
United States Forest Products Imports
Between 2000-2004, Canadas market share in the
U.S. dropped from 69 to 62
Source StatsCan March 2005
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The Net Result Too Many Communities Under
Pressure

• Since 2003, almost 6,000 direct jobs have been
  lost in 25 communities across Canada 3,000 jobs
  in 2005 alone due to capacity closures
• Almost equal job loss in Ontario, Quebec and the
  Maritimes
• 941 in BC
• 1070 in New Brunswick
• 1731 in Ontario
• 1668 in Quebec
• 156 Alberta
• 375 Newfoundland
• Plus 700 in Saskatchewan (announced)

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Industry has responded aggressively to these
challenges
Market Diversification Canada leading exporter
to emerging markets like China, India and
South Korea Reducing Dependence on Fossil
Fuel Generator of 1500 MW of green energy,
enough to power Vancouver Sustainability Contin
uous improvement on environmental performance
and world leader in sustainable forest
management.

• Productivity Improvement
• Over the last 6 years, both the wood
• and paper sectors have out preformed
• the Canadian economy on productivity
• growth, with wood products being the
• leader among all Canadian
• manufacturing Industries.
• Capital Investment
• Investments of 3 billion/ year in capital
• improvements
• Research and Development
• 350 million in annual RD
• investments

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Committed to Action

• Excellent Environmental Track Record
• 28 reduction in GHGs since 1990
• 50 reduction in particulate matter
• Virtual elimination of dioxins/furans
• Doubling of recycling
• 100 voluntary elimination of a suspected
  endocrine disruptor (NPEs)
• Largest area of 3rd-party independently certified
  forests in the world (113 million hectares) 70
  of this area is boreal forest.
• Only country in the world whose national trade
  association (FPAC) has made 3rd-party verified
  SFM certification a condition of membership.

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Accelerating Renewal How do we get there?

• Reasserting Canadian leadership in
• global markets requires
• Shared vision
• Action by all stakeholders
• Strong partnerships

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Pulp and Paper Air Quality Forum

• Unique and innovative approach to air quality
  yielding creative solutions
• Key recommendations to support industrial renewal
• Builds on industrys progress to date
• Promotes early action
• Excellent example of smart, effective regulation
  that will address air quality goals and ensure
  industrys sustainability
• Strong and diverse partnership is key to success

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Forest Sector Sustainability Table

• Measurements of Success
• Long term approach that maximizes synergies
• Integrates capital renewal cycles
• Maximizes flexibility and ensures no duplication
• Challenges our creativity in seeking solutions
• Links environmental improvement initiatives with
  sector competitiveness
• Identifies and provides incentives for early
  action
• Supports overall sectoral renewal
• Establishes strong dialogue and partnerships