Stumpage Rates Squeeze Forest Firms
10/7/99
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Title: Stumpage rates squeeze forest firms
Source: Vancouver Sun, www.VancouverSun.com
Status: Copyright 1999, contact source for permission to reprint
Date: October 7, 1999
Byline: Gordon Hamilton, Sun Forestry Reporter
Lumber prices are falling, but provincial stumpage rates in some
areas of British Columbia have climbed more than 30 per cent.
Rising provincial stumpage rates and falling lumber prices are again
putting the squeeze on British Columbia forest companies.
Stumpage, the fees charged by the provincial government for the right
to harvest timber on Crown land, have climbed almost 30 per cent in
some regions of the province, pushing up logging and lumber costs.
At the same time, lumber prices, which peaked at $440 US a thousand
board feet in late spring, have slipped to $300 US a thousand board
feet. At that price, mills are marginally profitable.
As a result, some companies say they expect to be laying off logging
crews until stumpage rates come down again.
"Any cost increase right now is going to hurt," said Les Kiss, of the
Coast Forest & Lumber Association.
"We still have a long way to go to bring our cost structure in line
in British Columbia."
Stumpage rates are based on lumber prices from the previous quarter.
Coastal stumpage rates rose modestly this quarter -- from $24.20 to
$25 a cubic metre, mainly because the coast's main export market,
Japan, has yet to recover.
But in the Interior, where two-thirds of the province's logging
occurs, stumpage rates reflect the short-term spike in U.S. lumber
prices during the early summer. Stumpage rose 29 per cent, from
$26.94 to $34.90.
An increase of that magnitude means many companies will "manage"
their production, said Gord Rattray of the Cariboo Lumber
Manufacturers Association.
Companies will reduce timber harvests and possibly cut back lumber
production if they do not have a large inventory of logs, he said.
It's the only way to survive the swings in stumpage, he said.
At Tolko Industries, which operates throughout the central Interior,
Don Banks, general manager of harvesting, said the stumpage increase
has put the company in a "very difficult position."
"We may look at some curtailments of logging operations; we don't
know for sure yet."
The stumpage problem is high on the industry agenda for the coming
provincial forest policy review, which starts this month with a
series of workshops in communities around the province.
The extreme swing in the stumpage rate was caused by a six-month run-
up in U.S. lumber prices that collapsed in August.
Stumpage rates are adjusted quarterly and are based mainly on lumber
prices during the previous quarter.
The province collected the data in May, June and July for the rates
it set Oct. 1.
It just so happened that those three months were when U.S. prices
peaked at the near-record level of $440 US.
"That's one of the problems of having a lag in the system," said Don
Fraser, of the Interior Lumber Manufacturers Association.
"That three-month window perfectly hit the upswing in the lumber
market."
Companies expect they will get relief in January, when the ministry
of forests next set rates, which will be based on the lower lumber
prices of August, September and October.