The newsprint industry returned to profitability last year as prices increased dramatically. Newsprint shipments remained high and mills operated near full capacity. The lumber industry did not fare as well as the year before because of poor housing markets and lower prices, however, production volumes remained high.

Newsprint

Newsprint market conditions were tight in 1995. U.S. demand declined slightly, but strong demand offshore kept prices rising. In December 1995, newsprint in the eastern U.S. was selling for US$750 per tonne, up almost 80 percent since the last low point in February 1994.

Strong price growth helped the Canadian pulp and paper industry return to profitability in 1995. Earnings in the industry were estimated at $4 billion, compared to a loss of $372 million in 1994.

Newfoundland's newsprint mills shipped about 733,400 tonnes of newsprint in 1995, slightly lower than the record 736,600 tonnes set in 1994. Shipments were valued at $673 million, up a whopping 43 percent from 1994. This increase was mainly due to higher newsprint prices, although a weaker Canadian dollar relative to the U.S. currency also played a minor role. Over 70 percent of the newsprint shipped from local mills filled market orders from either the United States, Europe or South America.

Lumber

Lumber production in the Province has risen dramatically in the last couple of years. From the mid-1980s onward production averaged 46 million board feet per year. In 1993 production shot up to 53.1 million and in 1994, a record of 72 million board feet of lumber was attained. Much of the growth has been attributed to capital improvements, increased focus on value-added production, and renewed interest in exporting to central Canada, the U.S. and the United Kingdom. Lumber production fell last year by an estimated six percent to 68 million board feet. The setback was caused by declines in housing construction at home and abroad. Reduced demand in Canada and the U.S. saw average lumber prices drop by 20-25 percent for the year.

Forest Management

The Province allocated $10 million in 1995 to forest management activities to replace the long standing Federal/Provincial cost-shared agreement on forestry renewal which expired in March of last year. The bulk of this expenditure went to support silviculture activity. In addition, the paper companies agreed to increase their share of the Provincial/Industry cost-shared silviculture program. In 1995, industry's share of this annual $6 million program rose from 33 to 50 percent. This year, as a result of a new $32 million five year agreement, this share will rise to 65 percent. Other successful partnerships by industry and Government last year included spray programs and resource road construction.

Outlook

The outlook for the Provincial forest industry in 1996 remains positive. Provincial mills are expected to perform well although they will feel the effects of an inventory adjustment currently taking place across North America. An oversupply of newsprint, particularly in the U.S., is causing production cutbacks and removing the fuel necessary to sustain price growth. Prices dropped to US$725 per tonne in April, and some further slippage is anticipated.

Market conditions in the U.S. are mainly the result of paper conservation measures by publishers and weaker economic growth overall in 1995. Demand is expected to pick up later this year when inventories are drawn down and paper consumption gets a boost from publishing activity related to the Olympic Games and U.S. Presidential election.

Both Abitibi-Price mills in the Province have taken about a week of market related downtime so far this year as part of a corporate plan to balance production and sales. Further downtime is expected later in the year. Corner Brook Pulp and Paper Limited also shut down one of its paper machines for two weeks, although most of the downtime was related to productivity improvements.

Notwithstanding current market adjustments, the mills should have a good year in 1996. Strong offshore demand, together with an improved U.S. market later in the year, should keep shipments on par with 1995 and prices reasonably high.

The performance of the lumber industry in the Province is expected to improve this year. Lumber demand in mainland Canada and the U.S. should increase slightly, however, the local new housing market is expected to remain weak. A return to peak levels (1994) is expected for lumber production given an output forecast of 70 million board feet.