Catalyst Paper to be hit by new American duties

Canadian newsprint exports to U.S. to be hit with 6% duties
Canadian newsprint producers will suffer, but American newspapers will suffer more, says Forest Products Association of Canada.

Richmond-headquartered Catalyst Paper is among the Canadian companies that will be hit by new American duties of 6%.

The U.S. Commerce Department on January 9 announced preliminary countervailing duties against Canadian newsprint of 6% to 6.5%.

The Forest Products Association of Canada (FPAC) said the duties could be in effect as early as next week.

There are a number of pulp and paper producers in B.C., but some of them will escape the duties. Paper Excellence, for example, no longer makes newsprint, following the closure of its Howe Sound paper mill.

West Fraser Timber (TSX:WFT) is not likely to be directly affected, a company spokesperson said. Although it has some ownership of a newsprint mill in Alberta, it has no mills in B.C. that produce newsprint.

In B.C., Catalyst Paper appears to be the biggest target for the new duties. The companies being hit hardest by the new preliminary duties are based in Eastern Canada.

About 72% of the newsprint produced in Canada is sold into the U.S., according to FPAC. All sales of newsprint into the U.S. will cost American newspapers 6% to 6.5% more.

Unlike the lumber industry, which is facing even higher duties, the pulp and paper sector may be less insulated from American duties.

Canadian lumber producers are insulated somewhat by the fact that the demand and prices for lumber in the U.S. are at record highs. Also, three of B.C.’s biggest lumber companies are hedged somewhat by the fact that they have been buying up American lumber mills in the U.S.

Canadian newsprint producers have lower profit margins and is an industry has been hit hard in the last decade by falling demand for newsprint.

If the duties become permanent, it could cost 4,500 jobs in Canada, said FPAC CEO Joel Neuheimer.

But they are likely to cost even more jobs in the U.S., since there are thousands of small weekly and daily newspapers that are barely holding on as it stands.

“Our sense is that this is going to increase prices in the U.S., which is basically going to accelerate the decline of that industry there and make it harder for community, small, medium-sized newspapers to continue to exist,” Neuheimer said.

“This is the case that over 1,000 newspaper publishers are trying to make to the U.S. – that this is not helpful. The estimate we have seen is that this could threaten up to 600,000 jobs in the U.S. (in the newspaper business).”

The same argument used against Canadian softwood lumber is being used in the U.S. to justify duties against Canadian newsprint: i.e. that Canada’s Crown forest tenures are, in essence, a form of public subsidy.

But other Canadian exporters have also become the target of countervailing and anti-dumping duties, and the Canadian government announced today that it is now taking it fight against American duties to the World Trade Organization in a kind of omnibus complaint over American duties on both Canadian products, as well as products in other countries.

“B.C. lumber producers welcome the Government of Canada’s efforts to vigorously defend Canada’s interests in trade relations with the U.S.," Susan Yurkovich, president of the BC Lumber Trade Council, said in a press release.

"In particular, the Government of Canada has requested that the WTO examine the use of certain systemic trade practices that violate international trade law"

nbennett@biv.com

@nbennett_biv

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