June 12, 2009 / 1:49 PM / in 8 years

UPDATE 1-Tembec to temporarily idle sawmills in Ontario, BC

* To temporarily idle operations at six sawmills

* Shutdowns due to weak lumber demand, strong C$

By Euan Rocha

TORONTO, June 12 (Reuters) - Canadian forest products company Tembec (TMB.TO) said on Friday it will temporarily halt operations at all four of its sawmills in Northern Ontario due to the rapid appreciation of the Canadian dollar and weak lumber demand.

The temporary shutdowns will affect the jobs of about 500 employees both at the sawmills and in allied forestry operations.

The affected operations include the Kapuskasing sawmill, which will shut down for a period of one week beginning July 6; the Chapleau sawmill for three weeks beginning June 29; and the Cochrane and Hearst sawmills, which will each go down for six weeks beginning June 22 and July 6 respectively.

“These shutdowns are a consequence to the rapid and significant appreciation in the value of Canadian dollar, continued weak markets for lumber, and the related need to manage inventories and working capital,” said Dennis Rounsville, the head of Tembec’s forest products group, in a statement.

The company also said employees at its sawmills in Elko and Canal Flats, British Columbia, have been advised that those sites would be idled effective June 15 for a minimum of three weeks for similar reasons.

The Canadian forest products industry has been reeling from a huge slump in lumber demand due to the collapse of the U.S. housing sector. Moreover, North American demand for paper and newsprint has been falling off a cliff because of the economic slowdown.

In April, AbitibiBowater Inc ABWTQ.PK, the largest North American newsprint maker, crumpled under its overwhelming debt-load and filed for bankruptcy protection.

Newspapers, which account for the bulk of newsprint demand, have been hurt badly by lower advertising revenues and the growing use of the Internet. Many newspaper publishers have themselves been forced to seek bankruptcy protection.

The recent surge in the Canadian dollar against its U.S. counterpart has also hurt Canadian manufacturers as it has raised priced making their products less competitive.

Tembec has also recently announced temporary shutdowns of certain pulp and newsprint operations.

Tembec said the affected Northern Ontario sawmills have a total annual capacity of 550 million board feet and the British Columbia mills a combined annual capacity of 450 million board feet.

Tembec shares have fallen almost 40 percent year-to-date and closed on Thursday at 60 Canadian cents a share, on the Toronto Stock Exchange. (Reporting by Euan Rocha; editing by Peter Galloway)

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