Canadian Wood Chip Cost Discrepancies Level Out

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The wood chip cost discrepancy between pulp mills in Western and Eastern Canada was the lowest it has been in 10 years in the fourth quarter of 2010, according to the North American Wood Fiber Review (NAWFR), Seattle, Wash., USA. During the past 20 years, pulp mills in Eastern Canada have consistently had higher wood fiber costs than mills in the Western provinces, with the exception of a short period in 1995, NAWFR notes.

One year ago, it adds, pulp manufacturers in British Columbia paid almost C$60/odmt less for softwood chips than did pulp mills in Ontario and Quebec, and five years ago the difference was almost C$100/odmt. Because wood costs account for almost 50% of the production costs for Canadian pulp mills, companies in Eastern Canada have been at a competitive disadvantage to many other mills, not only in other regions of Canada, but throughout North America, NAWFR explains.

During the past 12 months, softwood chip prices to mills in Ontario and Quebec declined 10%, and were 25% lower in the 4Q/10 than five years ago. In U.S. dollar terms, wood costs in Eastern Canada are now lower than most countries in Europe, as reported by the Wood Resource Quarterly, also based in Seattle. In the 3Q, wood chip prices in Western Canada increased again due to their formulaic tie to market pulp prices. However, they did not go up as dramatically on a quarter-by quarter basis as they did from 1Q to 2Q earlier this year. The latest uptick resulted in prices at levels not seen since 2001.

Pulp mills in the region currently have some of the highest chip prices in North America. With NBSK pulp prices now beginning their descent, softwood chip prices will follow downward in the coming quarters, NAWFR predicts. Despite a price decline in Eastern Canada and an increase of almost 40% in one year in the West, pulp mills in British Columbia continue to have lower wood fiber costs than mills in the eastern provinces of the country. More information is available online.