Thursday, December 6, 2007

Rising dollar and slumping resource sector

Times are going to be getting tougher for the rural communities of BC. With the suspension of the Galore Creek project last week and announcements of more layoffs in forestry Canfor and Tolko, things are not looking good.

The coastal forest industry has been in bad way for some years now - much of it self inflicted in my opinion - the interior has been doing fine. But with the dollar rising and falling lumber prices, even the state of the art mills in the interior are going to have trouble keeping in the black.

A few years ago lumber prices were in the high 300 US dollar range, now they are at $250 to $260 US. At the same time our dollar has gone from $0.65 to about parity. In Canadian dollar terms this means the price has gone from close to $600 to less than half. I know that a lot of the mills can operate at a profit at around $300 CDN, but we are under that.

The dollar has also made a lot of the new mine projects in development become unrealistic. Whereas three years ago one could have seen 20 or so mines open over the decade to come, now I suspect we will see only a handful. Galore Creek was one of the largest development projects underway anywhere in the world. NovaGold and TeckCominco sunk a lot of money into that whole. The development was core to the highway #37 electrification. I wonder now if that will be going ahead.

With the loss of more forestry jobs and no new mining jobs, the demographic trend is going to continue to be towards the cities and away from the small towns. The trend has been slowed in some areas over the last few years because the forest industry was doing well in the interior and mineral exploration was booming, but with those gone I see towns declining further.

Some things I wonder about:

If the mills slow down, what is going to happen to all the beetle wood?
What happens to land use decision making if the population falls further?
What value is the land to First Nations if there is a general rural economic collapse?

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