Softwood sawmills around the globe incur EBITDA losses averaging US$-12/m3 in 2008 - worsening in Q1 2009



    Biggest losses seen in Canada -- especially in Eastern Canada

    TORONTO, June 23 /CNW/ - Sawmills around the world experienced some of
the worst losses in recent history during 2008 and early 2009. The global
average losses (on an EBITDA basis) were US$-12/m(3) (net lumber basis) in
2008 and fell even further in Q1 2009 to US$-14/m(3). By comparison in 2006,
the global industry showed a profit of US$8/m(3). These and other figures were
released today in the comprehensive Global Lumber/Sawn Wood Cost Benchmarking
Report-2008 & Q1/2009, a biannual study jointly prepared by International WOOD
Markets Group, PricewaterhouseCoopers (PwC), and The Beck Group.
    This report benchmarks timber and sawmilling costs in all major producing
regions in the world and shows that the region with lowest EBITDA global
earnings in 2008 for "average" sawmills was Canada. This poor performance was
the result of the collapsing US market, the strength of the Canada dollar
against the US dollar and the impact of Canadian export taxes on U.S.
shipments. Average sawmills in Eastern Canada had horrific annual losses of
US$-37/m(3) (US$-58/Mbf - nominal count) in 2008 which dropped even further in
the first quarter of 2009.
    The regions with the highest EBITDA earnings for average mills in 2008
were in niche markets such as South Africa, China and Northwest Russia. While
these regions were the most profitable, they were only marginally so at
US$3-$4/m(3).
    There were several regional trends that emerged from the timber and
sawmilling cost data that was compiled and analyzed on an apples-to-apples
basis.

    
    -   During 2009-Q1, the returns on timber stumpage (or receipts to timber
        owners) were highest in Europe and the Southern Hemisphere and lowest
        in Russia and Canada.

    -   During 2009 Q1, delivered log costs were lowest in Western Canada and
        Russia and highest in Europe.

    -   For the full year 2008, average mills in the Baltics, Central Europe,
        Chile and Brazil had the lowest sawmilling costs when compared to the
        other regions. During the same time period, the highest sawmill costs
        were incurred in Australia, South Africa, New Zealand, Russia, and
        Eastern Canada.

    -   From a profitability perspective (EBITDA basis), the region with the
        best earnings during 2008 were the countries in the Southern
        Hemisphere. During 2009 Q1, Russia joined the Southern Hemisphere as
        a top performing region - both regions benefited from weak currency
        exchange rates.

    -   From a profitability perspective (EBITDA basis), the regions with the
        worst earnings during 2008 and 2009 Q1 were Europe and Canada.
    

    "It is clear from the survey results that much of Canada and Europe were
the big financial losers in 2008 and so far in 2009, mainly from weak markets,
over-capacity and cost structure issues," explained Russell Taylor of the WOOD
Markets Group. "Despite being more-or-less off the radar screen, the best
earnings results from the survey were again seen in the Southern Hemisphere
countries, with the major exception of Brazil." Staying in the middle of the
earnings pack were most US regions in both 2008 and Q1 2009.
    Sawmills around the world vary in scale, technology, flexibility, log
size and product/markets strategies, so it is not surprising that global
sawmilling operating costs (before considering capital costs or depreciation)
also show significant variances. From a global perspective, the costs at
average sawmills in 2008 ballooned to US$75/m(3) (US$120/Mbf - nominal count)
from a much lower level in 2006. Much lower operating rates and higher energy
costs were the main cost drivers. In the first quarter of 2009, global sawmill
costs were somewhat lower due to increased cost cutting and improved currency
exchange rates relative to the US dollar.
    Aside from China, the lowest sawmilling costs (excluding logs) at average
mills in 2008 occurred in the Baltic States, Brazil and Chile - all these
regions benefited from below-average labour costs but were disadvantaged by
currency rates.
    With respect to log costs in 2008, the global average annual delivered
log cost to sawmills was US$69/m(3). According to the study results, the
average delivered log cost to sawmills was approximately US$10/m(3) lower in
Q1 2009 as market prices for logs and lumber dropped in parallel to the
weakening market conditions. The current level is modestly lower than that
reported in the 2006 report.
    The lowest delivered log costs in 2008 occurred in Russia (for companies
with their own forest licences, where logs are "at cost") with some regions
below US$40/m(3). The next lowest-cost region in 2008 was the Canadian
Prairies followed by Chile, where logs were in the US$42 - 50/m3 range.
    The highest delivered log costs in 2008 were seen in China for mills that
used a combination of imported and domestic logs. The next highest-cost
regions were in Europe, led by Germany, Finland and Austria with log costs
ranging from US$105 to $120/m(3), or almost three times the cost of logs
available in Russia and the Canadian Prairies.
    "Of course, the more interesting results from the survey were found at
"top-quartile" or best mills," indicated Bill Mitchell of The Beck Group. "But
because of such tough business and market conditions, many countries in Europe
as well as in Eastern Canada had negative earnings even at top-quartile mills
in both 2008 and Q1 2009. It was truly a tough period to be in the sawmilling
business, but it did depend on where you were located, as the detailed survey
results clearly show."
    According to Dave Thompson a Partner with PwC's Forest, Paper and
Packaging Group, "In today's globally competitive and oversupplied market, it
is essential all parts of an organization strive to achieve best in class
performance levels and identify cost variances and market opportunities in
relation to other producing regions. Given the expectation that lumber demand
will be weaker and the market even more competitive for the rest of 2009,
using detailed cost and revenue information on an apples-to-apples basis
between competing regions is a critical part of any company's marketing,
operational and strategic plan."
    Global Lumber/Sawn Wood Cost Benchmarking Report-2008 & Q1/2009, was
produced by International WOOD Markets Group Inc. with strategic input and/or
cost data supplied by PricewaterhouseCoopers LLP (PwC), and the Beck Group
(Beck). This global benchmarking report covers more than 29 countries or
regions on six continents and is based on log and sawmilling cost data
collected from mills in all countries or regions.

    About PricewaterhouseCoopers LLP

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 155,000 people in 153 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country. "PricewaterhouseCoopers" refers to
PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as
the context requires, the PricewaterhouseCoopers global network or other
member firms of the network, each of which is a separate and independent legal
entity.

    About International WOOD Markets

    International WOOD Markets Group ( www.woodmarkets.com ) comprises wood
products industry, market and business consulting services for industry and
government clients. The firm maintains a global data-base and also offers
numerous industry or market specific multi-client reports, including its
landmark WOOD Markets Monthly International Report. Strategic business
assessments of matching the timber resource to the global commodity and
specialty wood products market coupled with our feasibility analyses of timber
processing options are trademark skills of the firm. Our ability to conduct
in-the-field investigations coupled with our global network of contacts and
comprehensive data-base delivers strategic results for clients looking to
review or expand their domestic or global business or in evaluating
investments.

    About The Beck Group

    The Beck Group is an established, highly experienced forest
products-based planning, consulting and benchmarking firm. Key personnel at
Beck have extensive forest industry experience. The firm has assisted more
than 150 forest products companies at more than 250 locations. While the
company focuses primarily on the US, it also has significant international
experience, including projects in Eastern and Western Canada, Finland, Chile,
Australia, New Zealand, Russia, Panama, Fiji, and South Africa. Beck is an
industry leader in Competitive Assessment (benchmarking) studies for the
forest products industry. The company has completed numerous studies for
various segments of the industry, including hardwood lumber, oriented-strand
board (OSB), softwood lumber, plywood, particleboard, and medium density
fiberboard (MDF). In addition, the firm is active in feasibility studies, due
diligence, cogeneration and a variety of other studies.





For further information:

For further information: Carolyn Forest, PricewaterhouseCoopers, (416)
814-5730, carolyn.forest@ca.pwc.com; Russell Taylor, International WOOD
Markets, (604) 801-5996, retaylor@woodmarkets.com; Bill Mitchell, The Beck
Group, (503) 684-3406, billm@beckgroupconsulting.com

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