VANCOUVER — High log prices and dwindling timber supply are driving the crisis in British Columbia‘s forestry industry that has devastated communities and kneecapped the provincial economy, observers say.
Companies have announced shutdowns or curtailments in more than two dozen mills in the province, putting hundreds out of work and slashing economic growth predictions. Advocates are calling for urgent government action to stem the bleeding.
“Something needs to change immediately or these small communities that don’t have other employers are going to wither and die,” said Marty Gibbons, president of United Steelworkers Local 1-417, based in Kamloops, B.C.
The local represents hundreds of forestry workers who have lost jobs in Interior communities including Merritt, Clearwater, Vavenby and Clinton.
The largest driving factor is the province’s complex stumpage system that results in high fees, he said.
“These are private businesses. If they can’t turn a profit, there’s no reason for them to run. Right now, it’s not the markets that are the issue. It’s the cost of the logs,” he said.
Stumpage is a fee businesses pay when they harvest timber from Crown land. The B.C. government calculates stumpage annually, so the system is less responsive than in Alberta, where monthly adjustments are made, Gibbons said.
The Forests Ministry said stumpage fees are based on market demand and the current rates reflect the scarcity of timber supply that has resulted from the mountain pine beetle outbreak and been exacerbated by several severe fire seasons.
Intervention in the stumpage system would weaken the legal case in the appeals of the duties imposed by the United States on softwood lumber from Canada, the ministry said in a statement.
“It is well-known that any interference in B.C.’s market-based timber pricing system would lead to an increase in softwood lumber duties levied by the U.S.,” it said.
Most of B.C.’s forest land is publicly owned, so companies have long-term tenure rights and the government charges them stumpage to harvest trees. In contrast, most land in the U.S. is private and companies face costs associated with replanting.
“That’s what the stumpage fee is all about,” explained Ken Peacock, chief economist of the Business Council of B.C. “It tries to equate, if it was privately owned, what the cost would be to operate and manage and reforest the land.”
Peacock said the high cost of logs is the major cause of the industry’s decline in B.C. He also blamed the mountain pine beetle and record-breaking 2017 and 2018 fire seasons for decimating supply.
The policies of Premier John Horgan’s government are also breeding uncertainty, Peacock argued.
The government is developing a caribou habitat protection plan that the industry expects will further restrict access to northern timber, he said, and it’s promised to implement the United Nations Declaration on the Rights of Indigenous Peoples without explaining how companies are meant to fulfil its requirement of “free, prior and informed consent” from First Nations.
The NDP government has also introduced Bill 22, which would control tenure transfers. Currently, a company that is scaling back or shutting down a mill can transfer its tenure to one that is operating, but the government wants oversight over these transfers to protect the “public interest,” a term not defined in the legislation, Peacock said.
“The picture here in B.C. is we are a very high cost jurisdiction. It’s actually less costly to operate in Alberta and companies can make a profit milling lumber and producing two-by-fours in Alberta.”
On top of all that, market conditions in North America are softening, he noted.
Forestry is the no. 1 engine that drives B.C.’s economy with nearly $15 billion in annual exports, representing one-third of the province’s international merchandise exports and the largest segment by far, said Peacock.
The Business Council of B.C. just trimmed its 2019 economic forecast in part because of the forestry downturn, from 2.2 to 2 per cent growth, he said. The B.C. government also just cut its forecast to 1.7 per cent, citing mill closures in part.
The Forests Ministry said the challenges the province is facing have been in the making for many years and the previous Liberal government ignored them and failed to help the sector and communities adapt.
“We have laid out a process … to bring together industry, First Nations, labour and communities to address the challenges and build a sustainable sector to protect jobs.”
Opposition Liberal forestry critic John Rustad has blamed the current government’s policies for “killing the industry” and resulting in more layoffs and closures.
Hudson’s Bay Company agrees to taken company private
Hudson’s Bay Co. will go private in a deal valuing the Canadian retailer at $1.9 billion in a bid by a group of investors led by executive chairman Richard Baker to try their hand at reinvigorating the fading 349-year-old department-store chain.
The board of Hudson’s Bay said it entered into an agreement with investors led by Baker after the group raised its offer price to $10.30 a share, up from $9.45 a share. It approved the offer after a recommendation by a committee of independent directors.
Hudson’s Bay shares rose 7 per cent to $10.11 at 9:35 a.m. in Toronto.
Attention will now turn to minority shareholders who came out against Baker’s earlier proposal. The company needs a majority of them to approve the new deal for it to go through.
Catalyst Capital Group and other investors had said Baker’s original offer undervalued a company that’s rich in real estate holdings. Representatives for Catalyst and for Jonathan Litt, an activist investor who’s also been critical of Baker, were not immediately available for comment.
“The special committee is confident that this transaction represents the best path forward for HBC and the minority shareholders,” David Leith, head of the special committee, said in a statement.
Baker and his investment group want full control of the retailer, which also owns Sak’s Fifth Avenue, to turn the business around outside the glare of public markets. While Saks has been the group’s bright star of late, the Canada-based Hudson’s Bay chain, the oldest company in North America, is removing 300 “unproductive” brands and bringing in another 100 in a turnaround effort.
A number of traditional retailers are struggling and closing stores as consumer preferences change and shoppers increasingly migrate online to competitors like Amazon.com Inc.
Department stores in particular have struggled to attract new consumers and maintain sales.
Luxury focused chains haven’t been exempt from the fallout: Barneys New York Inc. filed for bankruptcy protection in August amid rising rent costs and a decline in visitors. A consortium led by Authentic Brands Group LLC has been selected as its initial bidder, with the group planning to open Barneys shops inside Saks Fifth Avenue stores owned by Hudson’s Bay, Bloomberg reported on Oct. 16, citing people with knowledge of the matter.
Hudson’s Bay has been trying everything to lower debt and stop its stock’s slide, most recently selling selling the operations of its Lord & Taylor department store chain to clothing rental subscription company Le Tote.
Chief executive Helena Foulkes, who was brought in last year, also sold flash-sale e-commerce site Gilt and cashed out of European operations.
The stock traded as high as $10.72 in August on expectations the bid would be raised. It was back at $9.45, the original offer price, at the end of last week. Over the last five years, the stock has lost about half of its value.
“It’s good to see that there’s a resolution with a good, formal take-private offer and a cash bid, and I think that should be a good resolution for a lot of people,” Greg Taylor, chief investment officer at Purpose Investments, said on BNN Bloomberg.
“Certainly a lot of people would have wanted a lot more from this but in the current dynamics around department stores in North America, I think this is probably as good as they could have hoped.”
Energy regulator says crude-by-rail shipments fell to 310000 bpd
The Canada Energy Regulator says exports of crude oil by rail from Canada fell slightly in August to 310,000 barrels per day from 313,000 bpd in July.
The August number is up 35 per cent from 230,000 bpd reported in August of 2018 but still well below the record high of 354,000 bpd set last December.
The small change in crude-by-rail shipments came despite a threat by Imperial Oil Ltd. CEO Rich Kruger to throttle back the company’s rail movements in August and September to protest the ongoing Alberta oil production curtailment program.
He says the program damages the economic case for crude-by-rail by artificially lowering the difference in oil prices between Alberta and the end market on the U.S. Gulf Coast.
Imperial reported moving 80,000 bpd by rail in June. It co-owns an oil shipping rail terminal at Edmonton with capacity to load 210,000 barrels of crude per day.
Alberta has gradually eased the curtailment program designed to better align production with tight pipeline capacity from an initial withholding of about 325,000 bpd last January to 125,000 bpd in September.
Hudson Bay Company agrees to pay more to shareholders for takeover bid
The retailer says the group has agreed to pay $10.30 per share in cash to take HBC private. The bid is up from an earlier offer of $9.45 per share.
The agreement values HBC at about $1.9 billion.
HBC says the price offered represents a premium of 62 per cent compared with where its shares were trading before the shareholder group’s initial privatization proposal in the summer.
The Baker-led group holds a 57 per cent stake in the retailer and includes Rhone Capital, WeWork Property Advisors, Hanover Investments (Luxembourg) and Abrams Capital Management.
The deal is subject to the approval by a majority of the minority of HBC shareholders, excluding the shareholder group and its affiliates, and approval by a 75 per cent majority vote at a special meeting of shareholders.
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