AN EXAMINATION OF THE FACTORS THAT LED TO THE

PROVINCIAL WOOD SUPPLY COMPETITIVE PROCESS

AND

TENURE AND PRICING REFORM

How did we get here?

HISTORY

1993-1998 Lumber, veneer and oriented strand board are all

strong Pulp and paper are volatile in the marketplace and

mergers are rampant Sawmill and pulp mill business alignments are critical

Hardwood markets exist for lumber, pulp and paper, veneer, chipboard and OSB

ALL WOOD SUPPLIES ARE BEING TESTEDCalled it the War in the Woods

HISTORY

1998 ENGO’s are pressuring

the Conservation government for more parks and protected areas Wabakimi Provincial

Park Expansion Lands for Life

Forest sector fears the campaign will threaten current utilization levels

PAINFUL HISTORY

2000-2004Lumber, veneer, chipboard, OSB are all

experiencing steady declinesEnergy and fuel prices continue to riseDelivered wood costs become more of an issue

Past pressures on supplies limit the availability and options for inexpensive fibre

Softwood lumber trade dispute and countervailing duties

Waiting for your neighbour to fold Closer, cheaper wood

EVEN MORE PAINFUL HISTORY

2005 Banks limit financing Markets crash in

lumber, veneer, chipboard and OSB

U.S. softwood lumber quota and tariffs

New mill closure each month

Government agrees to form a Minister’s Council on Forest Sector Competitiveness

Norampac Inc.Red Rock

POSITIVE HISTORY

Minister’s Council was comprised of forest industry, government, ENGO, First Nation and municipal representatives

Provincial Roads Funding Program $75 million per year fund established in an effort to

reduce delivered wood costs

Forest Sector Competitiveness Secretariat Prosperity Fund and Loan Guarantee Program

Energy subsidies for pulp and paper mills Allow companies to convert to co-generation and get

off of the grid

LITTLE MORE HISTORY

Pulp prices suddenly improve Fourth quartile mills

all around the world start to close

World pulp supplies are shrinking

Northwest remains alive with the four

biggest pulp producers operating

Domtar Inc.Dryden

GREEN ASSISTANCE

Green Energy and Green Economy Act and Feed-in Tariff Program Pulp mills can produce their own power and sell the

excess Opportunity to sell green and buy brown

Healthy pulp mills also need to realign hardwood supplies (or any underutilized species) to meet their cogeneration needs

FIT + Black Liquor subsidies + high energy prices =

Fast movement off of the grid

GREEN ASSISTANCE CONTINUED

OPG announces plans to moves towards green energy production at their coal-fired generating stations Proposal requires wood supply Atikokan is in the lead with other plants to follow

Helps meet political platform commitment to eliminate coal utilization

OPG releases a Request for Expression of Interest to purchase wood pellets (FOB) Solicited hundreds of proposals to supply OPG at

various plants across Ontario

WOOD SUPPLY IMPLICATIONS

Reduction in lumber, veneer, chipboard and OSB manufacturing caused a surplus of available wood supply An opportunity for right wood to right mill realignments

Many closed mills maintained the authority to harvest (or not harvest) wood supplies Healthy pulp mills needed to realign their wood supplies Capture the opportunity to lower costs and remain

viable in the long term

IMPLICATIONS OF HOARDING WOOD

IMPLICATIONS OF HOARDING WOOD

WHY DID WE NEED A WSC?

1. Government needs to meet commitment to clean fuels

2. OPG now needs wood supplies and majority of wood is encumbered by current SFL-holders

3. Pulp mills need to realign their wood supplies to pacify nervous investors and reduce wood costs into the future

4. Government needs to invigorate new businesses and maintain competitive facilities

5. Revenue associated with forest industry contributions to provincial coffers are at a historical low

6. Provide hope of a new industry in Ontario and demonstrate that the Province is open for business

7. Explore and attract new technologies for the utilization of Ontario’s wood supply

WHY DID WE NEED TENURE REFORM?

1. Forest sector is inundated with bankruptcies or CCAA protection

2. Bankruptcies resulted in SFLs being returned to Crown

3. Some companies closed their mills but maintained enough money to manage the SFL

4. Unencumber wood supplies to attract new technologies

5. Current tenure system allows companies to hoard wood in anticipation of market recovery

6. Need a system that encourages the sale of all available Crown timber

7. US lumber lobbyists continually suggest that the current pricing system in Ontario subsidizes sawmill operations

THANK YOU

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