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by Ian D. Bird President Ontario Forest Industries Assoc. The forest industry in Ontario accounts for over $7 billion in annual sales, provides direct employ- ment for 70,000 people, mainly in the North and provides indirect employ- ment for over 70,000 peo- ple. The industry is cyclical in nature, responding to market forces on a global scale. About 40 per cent of Ontario's forest products are exported to the U.S., Canada's biggest trading partner. The industry went into 1985 with guarded op- timism for continued recovery from the bad times of 1982-83. Hind- sight tells us that the op- timism was unfounded. Newsprint producers an- nounced an overdue price increase January | of $35 US. to= $5702 U Se tper metric ton. Customer resistance forced deferral of the price increase. This scenario was repeated several times during the year with the same result. Indeed as the year pro- gressed, an increasing volume of newsprint sales was discounted under the posted price of $535 U.S. per metric ton. Market pulp, a-primary product which is an impor- tant component in secon- dary products such as fine papers, packaging and tissue, has undergone dramatic growth in recent years. Ontario producers benefitted from the 1984 strike in B.C. when com- peting mills were closed down for several weeks. The resulting tight supply situation drove the price up to $540 U.S. per metric ton. Settlement of the B.C. strike and return to full production soon oversup- plied the international marketplace resulting in a sharp decline in selling prices. Producers were hopeful that the price had bottomed around the $400 U.S. level at mid-year, but the decline continued with current sales well below $400 U.S. per metric ton. Most newsprint and | market pulp producers at- tempted to ease the world over-supply situation by closing their mills over varying periods up to several weeks. The pulp and paper industry in On- tario was not as seriously affected by mill closures as the B.C. industry with its heavier dependence on market pulp. The phenomenon we are ex- periencing in newsprint and market pulp pricing is disinflation; selling prices are declining while costs continue to escalate. The strain on corporate earn- ings is severe and is reported periodically in newspaper financial pages. Given the inability to raise prices in the oversupplied markets, the only recourse to remain competitive in the international marketplace is cost reduction. One of the principal market forces affecting our industry today is interna- tional currency exchange rates. Strength of the Cana- dian dollar against Euro- pean currencies has made our products too costly for most European customers. Strength of the U.S. dollar against our dollar and European currencies has made the U.S. market even more attractive for Cana- dian producers who sell their products in U.S. dollars to pay cost in lower valued Canadian dollars. Ontario producers have been less dependent on off- shore markets than com- petitors on the east and west coasts who enjoy the advantage of ocean shipp- ing. However, the dif- ficulties being experienced by coastal producers in European markets forces tonnage traditionally destined for Europe into the U.S. market. This has the effect of. intensifying the competition Ontario producers face in their traditional U.S. markets. This situation is com- pounded for. market pulp producers by recent addi- tions to world pulp capaci- ty reported by market analyst John Duncanson of McLeod Young Weir. World market pulp capaci- ty increased in 1984 by 1.7 million tonnes which is about one quarter of Cana- dian capacity. Most of the new capacity was in the U.S. and developing coun- tries. The trend continued in 1985 with 860,000 ton- nes of new capacity. World market pulp capacity now stands at 27 million tonnes of which Canada's share is 7 million tonnes, World demand is estimated at 22 million tonnes leaving 5 million tonnes without a home. It follows that Canada, being a high cost producer compared with the U.S. South and developing countries, will take an inordinate share of the unplaced tonnage. Much of the pulp from developing countries is made from extremely fast growing eucalyptus which is less costly than our slow growing species and is gaining acceptance by con- verting mills in the U.S. and even in Canada. The year 1985 has been characterized by weak ear- nings for most Ontario pulp Terrace Bay-Schreiber News, Wednesday, January 22, 1986, page 9 Forest industry looks for improvement in 1986 and paper products with some losses. Customers on the other hand -- newspaper publishers and converters such as manufacturers of disposable diapers -- have enjoyed strong profits. Looking at 1986, many financial analysists are forecasting continuing weakness of the Canadian dollar against its U.S. counterpart and continuing low interest rates. Both of these factors are favourable for the forest industry. Ex- ports to the U.S. will benefit from the currency exchange and low interest driven housing starts are forecase to continue at high levels -- over 1.7 million U.S. and over 170,000 Canadian. Newsprint mills will proably have to curtail pro- duction in the oversupplied market. Producers are ex- pecting the elusive price in- crease of $35 U.S. per tonne to finally take effect by mid-year as the over- supply situation starts to correct. Market pulp mills are facing further production curtailments as the over- supply situation persists. The rate of additions to world capacity appears to be declining, but strengthening demand is unlikely to stimulate price increases until late in the year. Producers are con- cerned about possible federal and Quebec government funding sup- port for re-opening of the idle pulp mill at Port Car- tier. Such a move would compound the oversupply situation and delay 'return to profitability of the beleaguered pulp producers. Groundwood specialty mills should continue to en- joy strong demand and ade- quate prices. One of the bright spots for pulp and paper has been groundwood specialty paper. It is stronger, brighter and priced higher than newsprint. This type of paper is used in phone directories, paperback books and newspaper advertising supplements. Duncanson has reported an annual increase of 18 per cent in U.S. consumption of -groundwood specialty since 1980. All in all, 1985 was not a great year for the forest industrieis. Sales and ear- nings generally failed to meet expectations. All producers will be striving to reduce costs in 1986 to maintain their competitive positions in the marketplace. Major On- Schrei Terrace Bay ber Classified Ad Policy All Classified Advertising is Pre-Paid tario forest industry labour contracts continue into 1987, so that labour costs are already programmed for 1986. The B.C. forest industry labour contracts expire in 1986 and the set- tlements reached could in- fluence eastern contract renewals in 1987. Sales and earnings are unlikely to improve in 1986 in the absence of early price increases and firming demand. Longer term, the belt- tightening that has been go- ing on in the forest industry since the difficult times of 1982 have enhanced pro- ducers' ability to compete in the marketplace and to meet customer needs. Long term optimism was recent- ly expressed by Raymond Smith, President and Chief Executive Officer of Mac- Millan Bloedel Limited at the annual meeting of the National Forest Products Association (U3S.)5 'There will be a tomor- row, there will be markets and those markets will be good. Most important, there will be a forest pro- ducts industry - a thriving, viable forest industry - despite the 'sunset' cries that are heard all too - often."' We in Ontario share this view of the future. Paid 25 words 2 weeks $4.00 .20 per word after 25 Household items, pets, sports equipment, appliances, clothing, wanted to buy. 25 words 2 weeks $5.00 .20 per word after 25 Automobiles, trucks, boats, motors, recreational vehicles, proper- ty, for rent, motorcycles, child care services, musical equipment, wanted to buy, each item. Schreiber Jan. 21-25, 1986 Ladies winter coats Selected styles up to 50% off regular price Ladies tops and sweaters Selected styles 50% off regular price Ladies pants Selected styles 50% off regular price Children's winter coats Selected styles up to 50% off regular price Children's tops and pants Selected styles 50% off regular price Men's shirts and sweaters Selected styles 50% off regular price Winter Boots Selected styles - Men's, Ladies, Childrens up to 50% off regular price Stereos Selected styles in AM/FM/Cassettes up to 50% off regular price Recliners Assorted styles Cancellations - Corrections Please check your advertisement for corrections. No Credit will be issued for any cancellations, once an ad is ordered, it is con- sidered to have been published. : Deadline Deadline for all classified word ads is 12:00 noon Friday preceding publication. Classified ads are paid in advance or mailed to Box 579, Terrace Bay, Ont. POT 2WO or dropped off at the News Office in Terrace Bay or at Fig's Texaco in Schreiber. Mail Order Form Today Mail Cheque or Money Order to: The Terrace Bay-Schreiber News P.O. Box 579 Terrace Bay, Ontario, POT 2W0 1/3 Off regular price Sofa suites Selected styles up to 50% off regular price PHONE Category: Men's winter coats Selected styles Selected styles up to 50% Off regular price up to 50% Off regular price Store Hours: tTves.-Thurs. 9:30-5:30, Friday 9:30-5:30 & 7-9 p.m., Saturday 9:30-5:30 Lamps "Yay Customer satisfaction, we guarantee it at the Bay ria S28 SS == Fudsons Bay Company