After posting record shipments in 1997, the Province's newsprint sector is expected to record a decline this year. Shipments will fall below the Spring forecast primarily due to the recently resolved labour dispute at Abitibi-Consolidated Inc., one of the Province's two newsprint producers.
The strike by 4,500 Communication Energy and Paper Workers at 10 Abitibi-Consolidated mills in eastern Canada, idled almost 50% of the Province's newsprint capacity for just over five months beginning in mid-June. Many communities were adversely affected as the strike involved over 800 local mill workers, idled close to 500 company employees such as loggers, and as many as 700 independent loggers and forestry workers. Provincial GDP was negatively impacted by as much as $100 million or 1% of total GDP.
Also, as a result of the strike, the volume of newsprint shipped from the Province during the first nine months fell on a year-over-year basis by 16.6% to 451,224 tonnes. Value performed much better than volume thanks to higher average prices and a favourable Canada/US exchange rate: the estimated value of shipments was $393 million, down only 3% from 1997.
Newsprint prices have increased steadily since early 1997, resulting in the average price for the first nine months of 1998 being 9.3% higher than the comparable period in 1997. Price increases have slowed considerably this year, however, as the impact of the loss of supply from labour disputes was diminished by lower demand in some global markets, in particular Asia.
Higher newsprint imports by North American buyers also made the implementation of price increases by producers more difficult than anticipated--weak market conditions in Asia caused producers in that region to sell product more aggressively into the North American market. While some upward movement in prices did occur, the effect fell short of that required to support a US$40 per tonne increase sought early in the year. By the fourth quarter, newsprint was purported to be trading for US$605 per tonne, up from US$590 in December 1997. Additional support for prices may come from a seasonal upswing in demand by US daily newspapers that is characteristic of the fourth quarter. However, newsprint prices may come under pressure from increased supply as the Abitibi-Consolidated mills come back on stream.
By virtue of their investment and planning decisions, both of the Province's newsprint manufacturers continue to affirm their commitment to their operations on the Island. Abitibi-Consolidated has completed recent upgrades and has ongoing investments aimed at increasing productivity, capacity and quality. Corner Brook Pulp and Paper Ltd. has announced plans to spend $20 million upgrading its No. 2 newsprint machine. The upgrade is intended to improve quality and speed and increase overall capacity. The additional capacity will require more inputs which are expected to come from recycled material from the mill's market areas and from the island portion of the Province.
In recent years, the provincial sawmill industry has experienced significant growth and has become more efficient in the process. Lumber production for the fiscal year ending March 1998 is estimated to have topped 90 million board feet and is expected to reach over 100 million in 1998/99. However, weakening demand around the Pacific Rim is adversely affecting prices. Despite a recent rally, lumber prices are expected to fluctuate at low levels as markets have been generally characterized as oversupplied.
Proper resource management practices have become an integral part of the local forest products industry. In addition to maximizing the resource, these initiatives have also had the desirable effect of providing about 2,200 jobs last year in many rural areas of the Province. Silviculture, for example, is very labour intensive with wages comprising three-quarters of every dollar spent. Other forest management practices are being employed to alleviate a wood supply deficit on the Island, helping to ensure fuller, more efficient use of the resource. Exchanges of sawlogs for pulp chips (between sawmills and paper mills) are indicative of how the industry is co-operating to achieve this end.
With a key labour dispute behind it, the local forest products industry is well positioned to recoup losses incurred during the past two quarters. A commitment to efficient resource management will ensure that the industry maintains its role as a significant contributor to the provincial economy.