Natural Resource Resurgence in the Northwest

There has been good news when it comes to the forest sector in northwestern Ontario in the wake of nearly a decade of doom and gloom.  Softwood lumber prices have rebounded and there is expanded production underway at sawmills in Ear Falls and Kenora with the two plants now providing about 250 jobs.    In White River, the previously closed sawmill has now been operating for about five years.  Resolute Forest Products just announced its third quarter profits were up and  it would pay a special dividend and its optimism for the future recently translated into an announcement that it would invest $53.5 million on its northwestern mill operations. 

According to the MNR, in 2006, there were 40 large active sawmills in Ontario (mills that processed more than 50,000 cubic metres annually) of which 34 were in northern Ontario.  There were 58 medium size mills (processing 5,000 to 50,000 cubic metres annually) in Ontario of which 14 were in northern Ontario. There were nearly 60 small sawmills in Ontario (less than 5,000 cubic metres in production annually) of which 19 were in northern Ontario.  The sawmill industry was distributed throughout the province, but large employment intensive mills were concentrated in the north.  By 2012, Ontario was down to about 97 mills – a 40 percent reduction from 158 to 97 sawmills. 

As for the pulp and paper mills, Canada as a whole saw a decline from 50 to 30 pulp mills between 2000 and 2014 – a reduction again of 40 percent.  Approximately over the same period, total employment in logging, paper and wood products in Canada fell from 308,664 to 190,651 – a loss of 118,000 jobs or a drop of about 38 percent.  As for northern Ontario, in 2003 there were 12 large pulp and paper mills in northern Ontario while by 2012 the number had gone down to 7 – a drop of 42 percent.  Since then, the mill in Iroquois Falls has also shut down and while there were plans for redevelopment it has since suffered an unfortunate fire.

The forest sector crisis in northern Ontario saw the loss of over 20,000 jobs in the northwest part of the province alone.  It was not just a downturn but in many respects the end of an entire way of life.  Well-paying industrial jobs in many small communities that supported a small-town friends and family oriented lifestyle vanished. After the destruction of the forest sector crisis that saw pulp and sawmills shuttered and significant employment losses, we are now seeing new investment and some employment recovery.  However, despite this recovery in investment and employment, it is unlikely that the size of the industry well ever again return to its former glory.

The following figures present an overview of the evolution of employment in northwestern Ontario’s resource sector.  Figure 1 plots the number of resource occupations defined by Statistics Canada as production, supervisors, technical, laborers and harvesting in natural resource, agriculture and related activities.  Note that these numbers include all resource activities and not just forest sector ones.  Still, the good news is that the number employed in resource occupations bottomed out in 2012 and has since been on an upward trend with the last few months of 2018 showing a distinct surge. In 2012, monthly resource employment in NW Ontario averaged 5600 whereas in 2018 to date it has been 7270 – an increase of almost 30 percent.  Much of this has been due to the mining sector but forestry has also played a role.

Figure 2 shows a similar trend, but it is annual resource employment by industry rather than occupation with resource industries defined as forestry, fishing, mining, quarrying, oil and gas.  Needless to say, for northwestern Ontario this would mainly be forestry and mining.  Here, the rebound seems to date from 2014 with annual employment going from 3000 in 2014 to 5100 in 2017 – an increase of 70 percent.  However, from 2002 to 2009 total employment plummeted from 9000 to just under 3000 - a drop of about 67 percent.

So resource employment is on the rebound, but we are nowhere near the peaks reached in the period from 2000 to 2003 just before the forest sector crisis took hold.  The remaining firms are more efficient and capital and technology intensive and therefore will not employ as many people for similar levels of output as produced a decade ago.  Still, the sector has survived and in some respects is even thriving which is good news.

Economic News Around Northern Ontario: March 19th Edition

Well, another week has come and gone and there are many economic stories bubbling around northern Ontario and even farther afield with implications for northern Ontario.  For example, this morning's Thunder Bay Chronicle-Journal reported on upcoming talks between the forest sector and the federal government on preparing for the upcoming Canada-US softwood lumber negotiations.  However, little information was provided in the story as to what strategy options are being explored as Canada moves into negotiations with the Trump administration on this file.

Stakes high for forestry sector, Chronicle-Journal March 19th, 2017.

The policies of the Trump administration will soon also be front and center with respect to environmental funding dealing with the Great Lakes.  The budget proposed in the United States has put forth rather large cuts to program spending and one area that will have a direct impact on northern Ontario is what seems to be the complete elimination of $300 million dollars annually for the Great Lakes Restoration Initiative with plans shifting the responsibility onto state and local governments.  See:

Canadian politicians outraged at Trump Great Lakes funding cuts.  The Globe and Mail, March 17th, 2017.

In brighter news, while northern Ontario reports the lowest optimism when it comes to construction activity in the Ontario Construction Secretariat 2017 Construction confidence Indicator, it is nevertheless up from 2016 and part of that optimism is due to a number of post-secondary construction projects in Sudbury and North Bay at Laurentian University and Canadore College.  However, the Trump effect is again rearing its head here as: "Despite the boost in overall confidence, nearly half of the 500 contractors surveyed report they expect the Donald Trump presidency to have a negative or harmful effect on Ontario’s economy and construction industry. This sentiment is most acute in Windsor-Sarnia where 59 per cent of respondents believe Trump’s government will harm Ontario’s economy." See:

Post-secondary projects generate optimism in North Bay, Sudbury-survey. North Bay Nugget, March 16th, 2017.

In business activity and expansion news:

Explor Resources starts drilling program on Timmins-area property. Northern Ontario Business. March 16th, 2017.

Prime Gelato makes the leap to grocery stores and restaurant menus in Thunder Bay. CBC News. March 17th, 2017.

U.S. Coast Guard ready to break ice from Duluth to Thunder Bay. CBC News. March 15th, 2017.

Seminar offered to help local firms export to the U.S. Saultonline. March 14th, 2017.

When it comes to civic issues and municipal government, a couple of items.  The urban renewal legacy of the 1970s haunts us still.  In Thunder Bay, they are revisiting the future of Victoriaville Mall.  In the 1970s, both the north and south downtowns in Thunder Bay (corresponding to the old cities of Port Arthur and Fort William) received urban renewal makeovers that in the long run were less than successful.  The Keskus Mall in downtown Port Arthur was eventually demolished to make way for the Casino but Victoriaville which was built right on the main downtown intersection and permanently affected traffic patterns lingers on and apparently costs the City of Thunder Bay $500,000 annually.  Victoriaville hit tough sledding right off the bat in the recession of the early 1980s as its anchor store -the Chapples family store - went under.  Keskus did not lose its major retail anchor until the late1990s when Eaton's went under. 

Thunder Bay city council considers step towards Victoriaville mall demolition. CBC News. March 15th, 2017.

And in Sudbury, the big municipal fiscal issue is the contentious reorganization of its fire and paramedic services with a big meeting slated for March 21st.  For my take on the issue and links to some of the news stories, see my earlier blog post here.

In Sudbury mining news, see:

Vale to mothball century-old Ontario nickel mine. Mining.com. March 13th, 2017.

It is also Federal budget week with the budget coming down March 22nd and we will have to see what emerges specifically geared towards northern Ontario.  For my contribution to federal budget debate this week, see here. Have a great week. 

Resolute Responds

Today’s Chronicle Journal had a one-page ad by Resolute Forest Products written in response to a Chronicle Journal editorial on July 18^th entitled “Innovation But When”.   In the response, Resolute maintains that the editorial implies that there has been no capital investment or pro-active action taken by any Canadian or North American company relative to the forest products industry.  Resolute then proceeds to list the major capital projects it has recently announced: a 54 million dollar investment for improvements to a wood waste boiler and steam turbine installation at the Resolute Thunder Bay mill, an 8 million dollar upgrade of its sawmill complex, a 30 million dollar investment in the idled Ignace mill and another 20 million dollars at the newsprint mill in Iroquois Falls.

Resolute is justifiably miffed at being lumped in with a large chunk of the forest industry that did not invest sufficiently in its mills and met the perfect economic forestry storm of the early 21^st century with aging infrastructure and equipment. Resolute is indeed an example of a proactive and engaged forest products company and its investments are key to the survival and prosperity of the forest products industry in Thunder Bay and the Northwest.  There is also its relationship with CRIBE (Centre for Research and Innovation in the Bio-Economy) and FP Innovations, which will look at innovative ways of using forest biomass.

In Thunder Bay, Resolute is the only survivor of that economic storm with a mill complex that dates back to the 1920s.  The Resolute mill is the latest corporate incarnation of the Great Lakes Paper Company, which over time has been Great Lakes Forest Products, Canadian Pacific Forest Products, Avenor, and Abitibi-Bowater. A hallmark of the original Great Lakes Paper was that it was locally owned and an example of local Lakehead entrepreneurship.  Having our own locally owned head office meant substantial control over investment decisions and white-collar employment that deepened our local labour and professional opportunities.  Indeed, the fact that this is the only pulp mill that ultimately survived out of the four mills in Thunder Bay is a testament to the original good decision making in plant and equipment that made the company viable for resale and continued production in the long run.

Resolute is also correct in maintaining that it had to deal with economic events largely out of its control such as the appreciation of the Canadian dollar or the decline in demand for newsprint driven by the technological change of the computer age.  Indeed, taking out a one-page newspaper ad is a wonderful example of supplier- induced demand. However, Resolute has developed a selective historical memory and conveniently omits the effect of provincial government policies on the forest sector crisis.  Indeed, it was not too long ago that the North cried out in protest against provincial wood allocation and electricity price policies.  Moreover, there was the exceedingly slow response of the provincial government in realizing the extent of the crisis and finally offering some relief in areas such as electricity prices. 

Finally, it should be noted that even active management and being proactive cannot always save you from the realities of the market especially when combined with slow or ineffective government policy assistance or indeed detrimental trade policies such as the softwood lumber dispute.  Witness what has happened to the Buchanan mills even with all their energetic responses and efforts.  It is an important lesson we should not forget.