MONTREAL – Fortress Paper will lay off more than half the staff at its plant in Thurso, Que., some 200 people, just days before Christmas as the company takes a 10-week shutdown because of weak market conditions and the recent imposition of interim dumping duties by China.
The Vancouver-based company said the duty on so-called dissolving pulp used primarily to make clothing makes it “uneconomical” for the plant to operate and producing paper pulp isn’t currently viable because of low prices.
Chief executive Chadwick Wasilenkoff said the company will use the 10 weeks to reduce the cost structure of the mill so it can absorb the Chinese duty, which currently stands at 13 per cent. The amount of the duty is based on calculations of operating costs.
He said Fortress is stuck because Chinese customers want to pay the price excluding the duty but lowering the price would constitute dumping under World Trade Organization rules.
“We are working on all sides to get our cost structure down so that we could be able to absorb a 13 per cent discount below current trough pricing in order to not be dumping,” Wasilenkoff told The Canadian Press from Vancouver.
He said the conversion to dissolving pulp was rushed. While costs have occasionally been good, they have averaged high because of ongoing inefficiencies.
“It’s time to take a large step back, a couple of large deep breaths, really put the proper procedures and process in play and when we restart the mill we expect to have a step change from all sides to ensure that we improve the reliability of the mill,” he said after markets closed.
About 200 employees will be off work after completing their shifts on Friday. Another 150 will remain on the job to work on various cost initiatives and to run the plant’s co-generation facility that will heat the plant during the shutdown.
Fortress (TSX:FTP) expects the shutdown will last 10 weeks but may be shortened or lengthened as required. Employees are encouraged to take holidays during the closure, which will reduce or eliminate the scheduled one-week maintenance shutdown in June.
The cost-reduction efforts are not expected to result in permanent workforce reductions.
The CEO lamented the timing of the shutdown but said the company had no choice but to reduce its spending.
“While business is business, I have to admit that Christmas and the timing weighed quite heavily on us,” he said.
Fortress announced the temporary closure on Tuesday, about a month after it warned that dumping duties imposed by China would pose serious long-term problems for the sector.
Wasilenkoff said he remains confident that a final dumping duty — expected to be announced in February or even before Chinese New Year at the end of January — will recognize the error in calculating Fortress’ costs, including the temporary impact from starting the cogen operations.
“We remain confident that it will be reduced but to what extent or would it fully get eliminated — obviously too early to tell. We feel there should be no duty.”
The temporary shutdown of Thurso’s operations is just the latest challenge facing the company, which has struggled with the startup of the cogen facility.
“No one is looking forward to getting this year behind us more than myself,” said Wasilenkoff. “It has been a very challenging, frustrating.”
On the Toronto Stock Exchange, Fortress Paper’s shares closed up 15 cents, or 3.7 per cent, at $4.20 on Tuesday.