Pulp mills in British Columbia and the Western United States paid a pretty penny for wood fibre in the first quarter of 2018, according to the North American Wood Fiber Review.
B.C. and the Western U.S. saw the largest jump in prices quarter over quarter, compared with Eastern Canada and the US South. Prices for wood chips increased by 12 per cent in B.C., which the North American Wood Fiber Review says resulted in the highest price levels in the region for six years.
West Fraser Mills vice president of Canadian woodlands Larry Gardner says there are two things that affect fibre costs for pulp mills.
“One is the shortage of residual chips from sawmills. Because of the shortage of chips, the pulp mills are needing to whole-log chip, meaning they have to take in whole logs and chip them, which is more expensive.”
Gardner says that in B.C., the shortage of residual sawmill chips extends back to the wildfires of 2017.
“There are some chips we can’t utilize because they have charcoal in them.”
He says sawmill closures are also affecting the flow of chips. Tolko’s Lakeview Mill in Williams Lake has been closed since last fall due to a mill fire, and other sawmills in the area have seen temporary shut downs due to economic factors and fibre availability.
The other factor is that the price of fibre is calculated by a formula that takes into account the sale price of the end product, which is at an all time high, says West Fraser’s vice president of pulp and energy operations Keith Carter.
This means that much of the high cost of the chips can be offset by the high sale price, but there are other factors at play.
The increased cost of whole-log chips isn’t reflected in the end-product price, so the pulp mills must absorb that cost.
“We see fewer sawmill chips and have to go further afield to get pulp wood to bring to town to chip up, so there’s the cost of freight and the actual chipping process, which is more expensive. It will be challenging for us to manage those costs moving forward,” says Carter.
“It’s a cyclical business, of course, so there will be a time when the prices fall back again and we’ll probably more readily feel the impact of the expensive whole-log chips. It means we have to tighten our belts anywhere we can.”
Carter says his data shows the pulp fibre price may reduce a bit in 2019, but that the cost will remain near today’s levels for the next two or three years.