Before, when a forestry company wanted to increase its profitability, it simply went out and cut more logs.
That might have been the case years ago, but now it is a completely different story, says Tembec president and CEO Frank Dottori. That is why Tembec is hoping to move forward with a plan to switch its Kenogami mill from a regular sawmill to a finger-joint mill.
That is, as soon as there is some resolution to the current softwood lumber issue - an issue that has to date cost Tembec $150 million in duties paid to the American Department of Commerce.
“We’re trying to get maximum value out of every tree because there is only a limited amount of wood that’s available,” says Dottori. “You’ve heard me say over the past 10 years there has to be a reduction in the business on the sawmill side because there are just too many sawmills and not enough logs.”
It is a simple question of mathematics, he says. While 100 per cent of the value of wood might have come strictly from milling lumber, that value is likely to drop as the amount of available wood begins to drop. As a result, the company in the future might be receiving 90 per cent or less value from lumber; the best way to make up the difference is through a “value-added” approach.
“How do you do that? You have to make new value-added products,” he says. “For instance, ‘shorts’ are sold at a discount. Well, if you can finger-joint them and put them together, you’ve created a value-added product. The problem is, in Northern Ontario, everyone wants a finger-joint plant and there’s only room for one or two. The single best place in this region to put it is in Kenogami, partly because it addresses a social issue (jobs). At the same time, the facilities are there and it is a central location to get all these ‘shorts’ from this region.”
Finger joints have the advantage in being an “engineered” product since every piece of finger-jointed lumber would have to be stress tested before it goes to market. It is also straighter and is a “better product” because the joints are often stronger, says Dottori, and the wood is less prone to bending.
“We think it’s a good project. It’s just a question of having the money to go forward,” he says.
He estimates going to finger-joint production in Kenogami would cost between $5 million and $7 million. The project has been worked on for the last three years with a business plan already developed and contracts signed with suppliers.
The plan was originally to curtail the milling operations and go into finger-joint production. The curtailment of operations in August of 2002, due in part to market restrictions brought on by the softwood lumber issue and a lack of financing to begin finger-joint production, created a “big political issue” and the milling operation has since been restructured and started up.
“There is not enough wood to maintain the mill,” says Dottori. “The long-term goal is to maintain the jobs there by moving into finger-joint or other products so we can maintain those jobs.”
He says current high lumber prices have made operating Kenogami at least a break-even operation and the goal is to try to maintain the 40 milling jobs there for at least another year.
But the company is hoping to move into the value-added sector as soon as possible, which would employ about 50 or 60 people at the mill.
Dottori says the company would also like to make an investment in modernizing its Chapleau operation to increase its productivity and decrease its costs. The company has some strategic meetings planned for the second week of May that should result in some decisions by the fall. Of course, the industry would like to see resolution of the softwood lumber dispute first.
“If this thing (softwood lumber issue) would disappear and we could get an agreement, then we could start making plans for the future,” says Dottori. “In the meantime, we’re being very cautious and not doing very much.”
