Canada's troubled forest sector is seeking $600 million in economic stimulus from Ottawa and the provinces as industry analysts predict another dire performance and thousands more job losses this year and next.

The Ottawa-based Forest Products Association of Canada (FPAC), which represents forest companies across the country, is calling for increased corporate credit, relaxed employment-insurance rules so that displaced forest workers can launch new careers, and more mergers in the lumber and paper sector.

Avrim Lazar, president and CEO of FPAC, listed credit as his group's top concern. "If there's no credit, sound businesses go under," he says.

During a recent news conference in Ottawa, Lazar issued an urgent call for action in the Jan. 27 federal budget. FPAC has proposed a five-point plan that includes refundable research and development credits; investment in market promotion; help with bio-energy development; and new employment insurance rules that allow for greater work-sharing until conditions improve.

File photo by Jack Dagley, Business Edge

Alberta Forest Products Association spokesman Parker Hogan says B.C., Quebec and Ontario are in worse shape than Alberta

The Conference Board of Canada is predicting the forest industry's job total will fall to 81,500 by 2011 from 87,500 in 2007. Production is expected to fall again from the 6.6-percent decline last year.

PricewaterhouseCoopers (PwC) reported in December that forest-sector losses totalled $552 million in the third quarter of 2008.

"We have 300,000 jobs across the country and (if) you ask any of those employees what they want, they want to keep their jobs," says Lazar.

"We have 300 communities that depend upon their mills and you ask what they want, they want to keep their mills. And you ask them: 'How do you keep the jobs in the mills?' And the answer is: Competitive businesses.

"That's mostly industry's job. Government can't make the price of lumber go up or the price of newsprint go up, but it can create world-class business conditions."

Meanwhile, the Ottawa-based Conference Board is predicting Canada's pulp and paper industry will struggle through another tough year of losses and plant closures this year.

The think-tank also estimated the sector will record its fourth consecutive negative year in 2008, with anticipated losses of $435 million.

With demand unlikely to pick up soon, 2009 will only be moderately better, with losses totalling $329 million, the report forecasts.

"The entire Canadian paper products industry is struggling as a result of stagnating North American demand and, more recently, because of the global economic slowdown," says Conference Board economist Valerie Poulin.

Montreal-based newsprint giant AbitibiBowater Inc. shut down a century-old mill in central Newfoundland in recent weeks, with the loss of 800 jobs, and cut capacity sharply to deal with a slump in North American demand.

The Newfoundland and Labrador government promptly announced proposed legislation that would expropriate all AbitibiBowater assets in the province, except the doomed mill in the central Newfoundland town of Grand Falls-Windsor.

Other companies, from diversified wood and paper producers Domtar and Tembec, both of Montreal, to Vancouver-based lumber giant Canfor Corp., have also cut production and jobs to cope with reduced demand. Canfor has also reduced executive and worker salaries and pledged to restore them when times improve.

"The rollback has an advisory: Once we get back to profitable footing, they'll get it back when we have the ability to pay," says Canfor president and CEO Jim Shepard. "It's some time out there in the future."

In Alberta, an average of almost one mill per month has shut down permanently or indefinitely since mid-2006.

Parker Hogan, a spokesman for the Edmonton-based Alberta Forest Products Association (AFPA), says 15 mills have closed in the past 16 months. The closures cover five sawmills, four panel-board mills and six secondary mills. As a result, 3,400 jobs have been lost. Hogan says oriented-strand board production has declined 60 percent within the past two years. The value of Alberta's lumber output has nosedived 51 percent to an estimated $2.2 billion in 2008 from $4.3 billion in 2006.

"We've never seen this level (of downturn) before," says Hogan. But, he adds, Alberta's problems pale in comparison to those of B.C., Ontario and Quebec because producers in the Wild Rose province invested in the sector during previous downturns.

Lazar told the FPAC news conference that the federal and provincial governments need to eliminate policies that have prevented consolidation in the sector and put a "chill" on mergers. But, "we're not calling for more mergers," Lazar says in an interview. "We're calling for less restraints to mergers. We don't think big is necessarily better, but we think government deciding the structure is almost inevitably a mistake."

Forest firms stress that they do not want subsidies, which would result in severe financial penalties under the controversial Canada-U.S. softwood lumber agreement.

"It definitely puts a fence around the sort of things we can ask for," says Lazar.

Federal subsidies similar to those sought by the auto sector would trigger extra export duties that forest companies can not afford. According to the deal signed in 2006, the U.S. is entitled to export taxes if Ottawa or the provinces underwrite company expenses.

Other forestry groups also stress they do not want subsidies. The AFPA's Hogan says his group is very cognizant that any federal and provincial support for the industry "must be viewed with that good ol' softwood-lumber-agreement filter on it."

Rick Jeffery, president and CEO of the Vancouver-based Coast Forest Products Association, which represents companies along the B.C. coastline, issued a news release saying that a government bailout would be "entirely unhelpful."

The decline in the U.S. housing market, along with the continuing credit crunch, asset-backed commercial paper crisis and worsening recession have all been blamed for the Canadian forest sector's woes.

"It's probably going to be a very challenging year in 2009 for most forest products companies," says Patricia Mohr, vice-president of economics for Toronto-based Scotiabank.

Canada's building products industry is geared mostly to selling south of the border, but with U.S. housing starts way down, most lumber and oriented-strand board producers are selling their products at or below cash cost value. Typically, builders stock up their wood inventory early in the New Year for the upcoming building season, but that trend could change or be adjusted this year.

Mohr says new-home construction "is really at the epicentre, of course, of the difficulties in the U.S. economy now. It's quite true that the industry could do with a hand - that's for sure - because probably about 85 percent of Canadian sales of building materials would flow into the U.S. market, and housing activity is going to be very low in 2009," says Mohr, a commodities-price specialist.

While some analysts are optimistic that the falling Canadian dollar will help ease some of the financial pressures, the AFPA's Hogan expects the lower loonie will lead to only modest gains for the forestry industry.

"It's been helpful, but it certainly hasn't saved the day," he says.