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VANCOUVER, B.C. - The head of West Fraser Timber Co. Ltd. (TSX:WFT) said the recently announced closure of its paper mill in Kitimat, B.C. is a "grim reminder" of what happens to high-cost producers in a depressed industry.
West Fraser chairman, president and chief executive Hank Ketcham also apologized Tuesday to investors who have seen the mill lose money for several years.
Ketcham also said he was "deeply sorry" for the impact the closure will have on the lives 535 employees at the mill, the town of Kitimat and the surrounding northwest region of the province.
"This action is a grim reminder that in an intensively competitive global environment all stakeholders must be cognisant of the fact that higher cost producers in our industry will not survive over the long run," Fraser told analysts during a conference call Tuesday.
He also said that's why West Fraser has invested money to upgrade its mills to ensure they operate as efficiently as possible, and cut production as needed.
"Our strong balance sheet, conservative business philosophy and long-standing emphasis on controlling costs will serve us well as we work through this difficult time in our industry's history", Ketcham said.
Ketcham made the comments after the company reported a third-quarter loss of $198 million, which includes a $138 million charge related to the closure of Eurocan.
West Fraser announced last week that it was closing Eurocan on Jan. 31. The 40-year-old mill, located about 640 kilometres north of Vancouver, produces linerboard and kraft paper.
West Fraser blamed the move on the recession's impact on the forestry sector and the rising Canadian dollar, noting that prices for the mill's products have fallen by 40 per cent.
West Fraser also cited sawmill curtailments in the region, as a result of a slump in demand for lumber, for reducing the supply of lower-cost wood chips to Eurocan. That left it to rely on more expensive whole log chips.
The Canadian lumber industry has been hammered by the U.S. housing crisis, since the majority of its product is used in that market. To cope with a drop in supply, forestry firms have cut capacity by as much as 50 per cent, which means closing mills and laying off thousands of workers to try to stave off deeper losses.
Other factors impacting the industry include the higher Canadian dollar versus the U.S. dollar, U.S. taxes on imports, and the mountain pine beetle that is chewing its way through forests in Western Canada.
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