Lumber News Archives: Aug 2012

Lumber News Archives: Aug 2012

Lumber Tax Proposal ; Madison’s Timber Preview ; Railroad Investment, More Rail Cars ; Western Forest Products Mill Fire, Land Transfer ; US Wildfires ; Financial Results
Design Values ; Eacom to Rebuilt Timmins Mill ; More Wildfires ; Financial Results ; NB Mill to Reopen ; Sawmill Fire Glossy Magazine Sales ; Madison’s Timber Preview ; Second Quarter Financial Reports ; US Home Sales ; Forest Fires: Russia, US, and Canada Québec Forest Sector Transformation Policy ; Madison’s Investment Rx ; Tribunal Dimisses Softwood Lumber Arbitration ; US Housing Starts ; Forest Fires ; Chetwynd to Close ; West Fraser Reports ; Sierra Pacific Settles

August 22, 2012

Lumber Tax Proposal

A wide-ranging forestry package that has drawn mixed reviews from environmentalists was amended Tuesday into California Assembly Bill 1492.

California Governor Jerry Brown’s proposal to reform the timber harvest plan creates a lumber retail sales tax to be collected on the purchase of any lumber product in that state. The funds from this tax would be used to support the Department of Fish and Game, Department of Conservation, State Water Resources Board, and the Department of Forestry. These organizations are responsible for ensuring that the timber industry complies with an enormous amount of state regulation.

In the run-up to the budget vote in June, many Capitol watchers breathed a small sigh of relief when the new 1 per cent tax on wood products miraculously vanished from the list of budget bills awaiting legislative votes. That feeling of relief, however, was short-lived. The bill is expected to be heard next week in the Senate Budget and Fiscal Review committee.

California

The Lumber Association of California and Nevada (LACN) lobbied hard against the tax, citing the additional cost and complexity of setting up a new tax collection system. It was also unclear exactly which wood products would be subject to the tax, the LACN pointed out. LACN disagreed with that proposal and advocated that the fees should remain as they are and not be an additional cost to consumers.

The timber industry wanted the fees to be passed on to the end user to lessen the competition they face from timber produced outside California and thus not subject to California regulations.

California timber firms support the tax because it relieves them of regulatory fees they must currently pay – and additional fees that Democrats have long wanted to impose on them to fund state forestry oversight. Shifting the tax to consumers means that wood from outside California would also face the new 1 per cent charge.

As a tax it requires a two-thirds vote of the California Legislature. Republicans were opposed to the bill earlier this year, but they are facing new pressure from high-powered lobbyists in the Capitol representing forestry interests.

Forest Landowners of California issued an “action alert” last week asking its members to specifically call Republican Senators Ted Gaines and Doug LaMalfa, whose regions represent large swaths of forestland. According to the alert, the coalition supporting the measure includes forestry groups and the California Farm Bureau Federation. California timber companies say they need the changes to overcome a market disadvantage against competitors in the Pacific Northwest and overseas who now supply most wood sold in the state.

AB 1492 would require retailers to impose a 1 per cent tax on lumber sold in California to raise an estimated US$30 million annually.

A Daily Pilot editorial published Monday says, “This new tax, if passed, will deal a blow to our state’s struggling housing industry and make an untold number of wood products — anything from furniture to tools with wooden handles — more expensive. The tax is meant to cover the costs of California’s timber regulations, the most restrictive in the nation. It will allow the government to avoid the much-needed reform of our burdensome regulatory environment,” according to the Costa Mesa, CA, newspaper.

“Worse, the wood products tax could open the door to a whole range of new taxes to pay for the regulatory costs of countless individual industries. This new tax is a sign of how far politicians are willing to go to take more of our money and spend it on increased government control of our lives.”

A July 30 post on PublicCEO stated, “This tax may very well force small businesses and consumers to look outside the state to purchase lumber products, further weakening the California economy. Industries like construction and agriculture rely heavily on lumber and cannot afford an increase in expenses, especially when many, like home builders, cannot find regular employment. The consumers would be paying yet another tax [ . . .] We can’t simply tax away our problems,” said the California government legislation watchdog out of Sacramento, CA.

Earlier this year, the Sacramento-based US attorney’s office and Obama administration officials lobbied legislative leaders to douse the bill, which Brown initially wanted as part of the budget he signed in June. They specifically opposed the limit on wildfire liability damages after winning a string of awards against timber companies for past fires.

California’s private forest lands are some of the most productive in the world. But industry and landowners say state regulation of timber harvesting practices have become so overbearing and complex that the industry is losing lumber manufacturers by the droves, production has been drastically reduced, and nearly 10,000 jobs have been lost.

California’s forest land permit fees are 10 times more expensive than the permits of land owners in neighboring states.

California produces a fraction of the wood products consumed by the state. The timber industry was forced into a compromise by the state and is actually asking for a 1 per cent assessment to pay for a review of the process and to provide funds to help reduce the cost of forest restoration and fire protection.

The costs of regulatory compliance have skyrocketed in the last few decades. According to a 2005 study by Cal Poly San Luis Obispo, the cost for a timber harvest plan, the equivalent of an environmental impact report, has increased by more than 1,200 per cent since 1974. This increase is related to the complex requirements of the California Environmental Quality Act.

“Instead of increasing costs on consumers to fund an oppressive regulatory regime, we should work toward reforming our regulatory system to lower costs on California’s lumber industry and make it competitive in the global economy, while preserving important environmental rules,” says the Daily Pilot.

“This new tax won’t do it. Creating a new tax to fund a failed regulatory system will make the problem worse instead of fixing it. Moreover, it could open the door for legislators to push for similar taxes to fund the regulatory regimes of different industries.”

Madison’s Timber Preview

Data out Thursday from several US western states shows an improving picture for timber harvests, log sales, and log prices. The latest financial results for Boise Cascade and Weyerhaeuser are also examined.

Contact us any time to receive this valuable, timely information.

Railroad Investment, More Rail Cars

Burlington Northern Santa Fe says it’s spending a total of US$106 million this year to replace 56 miles of track and improve more than 1,000 other miles of track in Washington State.

Improved rail access to the Port of Longview is one of the biggest construction projects this year on lines in Washington State.
Union Pacific is pulling railcars from storage for the first time in four years to haul lumber for home builders, a welcome source of strength for an industry that’s bucking the effects of a slowing economy.

Union Pacific, Canadian National Railway, and CSX are among companies benefiting from new-home construction, which climbed in June to the highest in almost four years. Sustained gains in sales of cars and trucks, which are transported — along with parts — by rail, and the ability to raise prices also provide a boost for railroads.

Western Forest Products Mill Fire, Land Transfer

Fire crews rushed to a sawdust fire at Western Forest Products late Tuesday evening. According to Ron Lepchuk, the assistant of operations with the Nanaimo Fire Department, the fire appeared to originate on the conveyor belt outside and spread down to a shavings pile.
The sawmill was closed at the time. The fire was successfully contained and no one was taken to the hospital.

WFP Land

The fire sent a massive column of black smoke over Nanaimo harbour and set piles of wood chips ablaze at the mill at Duke Point. Much of the heavy black smoke came from the 30-metre-long conveyor belt that caught fire.

Employees returned to work Wednesday.

Western Forest Products is transferring 250 hectares of land adjacent to the Sooke Potholes Regional Park to the Capital Regional District parkland. The land is valued at $1.3 million.

The transfer by WFP of another parcel of land, 60.5 hectares valued at$4.5 million near Jordan River, will take place in December, says the Times Colonist.

The transfers are the final pieces of a larger deal between the CRD and WFP involving 2,350 hectares of park and watershed lands at a cost of $18.8 million, paid in three annual installments since the deal was solidified in 2010.

The bulk of the money is coming from the CRD Regional Parks Land Acquisition Fund.

The province is kicking in $2 million, private partners $265,000, while the The Land Conservancy contributed $250,000.

TLC initially promised to try to raise funds to contribute about $3 million — including $1,870,138 toward the Sooke and Jordan River parcels — but advised the CRD it was unable to follow through.

The non-profit land trust is going through financial difficulties, and this week its creditors accepted an offer to receive interest-only payments on loans.

The CRD will borrow the funds to cover the payment.
In total, 1,500 hectares valued at $15.6 million will go to CRD Parks. The balance will be watershed lands.

US Wildfires

Multiple wildfires have closed a Texas wildlife refuge on the Gulf coast. Park Ranger Tami Schutter on Friday said four separate fires have started at the McFaddin National Wildlife Refuge in the past 12 days with two beginning in the past 48 hours.

Schutter says a lightning strike sparked the initial wildfire August 8. While firefighters battled to suppress it another wildfire ignited after a series of storms passed through the area the next day.

Officials say about 15 firefighters from the wildlife agency and National Park Service are battling the active wildfires.

Forest Fires, US

Several wildfires raging in parched Oklahoma countryside prompted more evacuations early Sunday as emergency workers sought to shelter those forced out by the flames that destroyed dozens of homes and threatened others in the drought-stricken region.

One roaring fire near Luther, about 40 kilometres northeast of Oklahoma City, destroyed nearly five dozen homes and other buildings before firefighters gained a measure of control Saturday.

Three dozen wildfires have scorched portions of Oklahoma since last Friday, leaving only ashes in some spots. Emergency officials said Monday that Cleveland County firefighters recovered a body from a home that had been subject to an evacuation order as a wind-whipped fire roared near Norman on Friday. Emergency managers say dozens of homes are among the 120 structures statewide that burned to the ground.

The Mannford-area fire covered nearly 100 square miles in northern Creek County, about 20 miles west of Tulsa. Fires elsewhere in the state consumed thousands of acres — though in some areas it appeared fires hopscotched across the landscape, damaging one home but not its neighbor, much like a tornado.
Authorities said fires were under control or in “mop-up” stages Monday. Most fires since Friday were small and quickly brought under control, and the Mannford fire at nearly 100 square miles was the largest in recent state history, said Michelle Finch-Walker, an agency spokeswoman.

Statewide, wildfires over the past week have destroyed 380 homes and burned more than 171 square miles.

A wildfire ignited by lightning continues to burn out of control in northern San Diego County Friday morning.

State fire Battalion Chief Nick Schuler says the 900-acre fire in the highlands northeast of Warner Springs was active overnight and was only 5 percent contained early Friday.

Residents of the Chihuahua Valley Road area were advised to evacuate but so far no buildings have burned.

The blaze was ignited Thursday by lightning strikes as thunderstorms hit the region Thursday, dumping heavy rain and even some hail in some areas.

Financial Results

Fortress Paper reported Wednesday a net income of $12.5 million in 2Q 2012. This can be compared to a net loss of $10.5 million in 1Q, and a net income of $2.9 million in 2Q 2011.

Cascades Thursday reported a net income of $7 million in 2Q 2012 on sales of $944 million. This can be compared to a net loss of $9 million for the same period last year.

Taiga Building reported Friday net earnings of $5.9 million for its latest quarter, compared to $3.6 million in the same period last year, an increase of 62 per cent.

Consolidated net sales for the quarter ended June 30, 2012 were $309.5 million compared to $263.6 million in the same period last year. The 17 per cent increase in sales was largely due to improved commodity prices and stronger demand.

Gross margin increased to $30.8 million from $26.7 million in the previous year. Gross margin percentage for the quarter declined slightly to 9.9 per cent compared to 10.1 per cent in the same period last year.

EBITDA for the quarter ended June 30, 2012 was $15.4 million compared to $12.2 million last year.

August 15, 2012

Design Values

In 2010, two US lumber grading agencies, the Southern Pine Inspection Bureau (SPIB) and Timber Products Inspection, agreed to work collaboratively to perform stiffness and bending, and tension strength, tests on #2&Btr southern yellow pine KD 2×4’s. These design values are the properties that builders can count on southern pine delivering in construction–including the wood’s load values, or its ability to resist bending, tension, and compression–as well as the product’s general stiffness. It seems that overall trends illuminating a shift in the resource mix have occurred over the past seventeen years, prompting the SPIB Board of Governors to direct additional testing last year.

Due to changes in forest management regimes in the South—the planting of fast-growing or genetically altered species, the application of herbicides to reduce competition or fertilizer to spur tree growth, to list a few—pine trees grow more quickly than ever, leaving wider spaces between growth rings.

The proposed change caused controversy, with some critics saying at the time that the timber would not meet standards for some building codes.

Please refer to the November 04, 2011 issue of your Madison’s Lumber Reporter for background details.

Southern Yellow Pine Update

The SPIB Technical Committee met in Pensacola, FL, in mid-July to make recommendations on design values for Southern Pine dimension lumber, explains an SPIB release dated July 19.

“Though the analysis is still ongoing, it appears that the wider widths and higher grades of lumber will not see the same depth of reduction in design values as the #2-2×4,” says the SPIB. “Some of the higher grades maintained the stiffness values and showed a possible increase in tension values of 3 per cent. All of the grades and sizes tested indicate a reduction in bending values of 15 to 25 per cent. Compression parallel to grain may be reduced by 10 per cent.”

In a two-step process, more than 7,400 full-size samples of commercially-produced Southern Pine were destructively tested, explains a Woodworking Network July 23 release. As the first step, #2-2x4s were tested which resulted in new design values for Southern Pine sized 2 to 4 inches wide and 2 to 4 inches thick in #2-Dense and lower grades on an interim basis. New design values for only those sizes and grades became effective June 1, 2012, pending the potential for slight adjustments based on results from additional testing in step two, says Woodworking Network.

As the second step, Select Structural (SS) 2x4s, #2 and SS 2x8s, and #2 and SS 2x10s were tested to complete the full In-Grade Testing matrix. Destructive tests in bending, tension and compression were then conducted while gathering stiffness and other property data, all in accordance with ASTM International standards. Throughout the entire process, technical oversight was provided by the USDA Forest Products Laboratory.

The SPIB Technical Committee is recommending that the complete design value matrix be moved to the Board of Governors for action. The next milestone will be a review of design values by the SPIB Board of Governors in late August. If the Board of Governors approve new design values, the changes will be sent to the American Lumber Standard Committee Board of Review. That group meets next in October 2012.

Forest industry analysts Forest Economic Advisors (FEA), out of Westford, MA, this week released an Update on Southern Pine Design Value Reductions.
Based on the most recent mill survey data available, grades #1, #2, and #3 typically represent the lion’s share, approximately 75 per cent, of southern pine dimension lumber production, says FEA. The high grades typically represent less than 5 per cent of total so are not included in the FEA analysis.

According to FEA, most of the 2×6 dimension goes into rafters and trusses, particularly girder trusses. Designers have a slew of “work-arounds” such as the addition of struts for rafters and web members for trusses that will mitigate the impact of the lower design values. However, FEA expects that some substitution – with higher grades, MSR, or alternative species – will take place at the margins.

Analysts at FEA found that most of the 2×8 and wider goes into floor joist applications. Using 2×10 as an example, the chart below shows that the proposed Design Value changes will have an impact on maximum allowable spans for southern pine floor joists – particularly for #2-2x10s – which would see a 13 per cent reduction.

FEA goes on to explain that for the majority of applications, the new design values will still be sufficient for the task. When they fall short, builders could reduce joist spacing, substitute #1 grade for #2, or substitute Select Structural grades for #1. FEA analysts do not expect that the new design values will have a major impact on southern pine lumber demand or prices. If adopted, the changes will result in an improved competitive position for I-joists, floor trusses, and visually graded lumber of other species in longer span applications. To the extent that this leads to higher consumption of I-joist and floor trusses, demand for 2×3 and 2×4 MSR as well as LVL and LSL will increase, says FEA.

Pressure-treated wood producer Cox Industries, based in Orangeburg, SC, posted on their website June 22, “Although only Southern Yellow Pine and specifically #2-2×4 values are being examined and changed, the design value review will ultimately reach other species of wood. Changes will affect not only conventional framing but wood truss design for both floor and roofs and wall panel design. Many organizations are weighing in on both the design and financial impact of the decisions. Industry associations and trade groups argued such changes could cause a drop in demand and would devalue whole inventories. In December, the National Association of Home Builders (NAHB) released the following statement: ‘NAHB is deeply concerned about the impact that immediate approval of the SPIB proposal would have on the home building industry. Chaos in the marketplace and a spike in lumber prices would likely result. Dimensional lumber is a major component of home construction, with Southern Pine being the species of choice in many markets, so the SPIB proposal would directly and significantly impact many of NAHB’s members.’ The industry remains positive on the use of southern yellow pine.”

The SPIB Board of Governors meets next in October 2012.

Eacom to Rebuilt Timmins Mill

Work is beginning to rebuild a Timmins, ON, sawmill destroyed by fire this past winter. About 120 people were put out of work in January when the Eacom Timber mill was shutdown after the blaze.

Company vice-president Mel Lemky told the CBC he’s ordering new machinery.

In the meantime, some of the Timmins employees have been working in Eacom’s sawmill in Nairn Centre, just west of Sudbury, ON. Lemky said an extra shift was added at the Nairn mill, to keep up with rising demand for lumber.

“We’ve tried to ramp up here a little bit to hold market value, hold forestry value, to try to hang on to business, as a whole, as much as we can,” he said.

Lemky noted the Timmins mill is scheduled to be sawing logs again by April.

“We’re going ahead with the building of Timmins [and] ordering machinery, probably within a week.”

More Wildfires

A BC forestry official said Wednesday the evacuation alert that went into effect Monday for 70 properties on the western hillside above Okanagan Lake had been lifted after a crew doused the blaze, according to The Province. The lightning-caused fire near Wilsons Landing began last weekend and grew to 30 hectares at its peak.

Forest Fires

It charred about 27 hectares and burned to within a kilometre of homes north of West Kelowna.

Since April 1st, British Columbia has spent $57 million fighting 670 fires. This is considerably more than last year.

Dozens of homes and other structures are threatened by two Northern California wildfires, one near Lake Shasta and the other in the Plumas National Forest.

The 500-acre Salt Creek fire forced the closure of Interstate 5 in both directions shortly after it began on Wednesday afternoon near the Lake Shasta community of Lakehead.

An evacuation order remained in effect through the night as the fire threatened about 100 structures. More than 300 firefighters were working to control the blaze.

Firefighters in rural Riverside County said they don’t know when they’ll be able to fully contain a 355-acre wildfire that has been burning since Wednesday and has destroyed one home.

Officials said the fire was still only 75 per cent contained Thursday night — the same percentage as the night before — and they’ll reassess the situation Friday morning.

The National Weather Service reported winds may gust to 20 mph Thursday night.

Overnight winds Thursday forced firefighters to retreat at a wildfire in central Washington that has grown to 10,000 acres – more than 15 square miles.
Firefighters are concerned about the hot weather forecast through the weekend so they’re pushing Friday to get a handle on it. It’s about 50 per cent contained.

About 240 firefighters are on the scene, assisted by a helicopter and air tankers dropping water and fire retardant.

Financial Results

According to 2Q financial statements released this week, Western Forest Products netted $12 million from the sale of TFL 60 to Taan Forest Limited Partnership while improved volumes of lumber and log shipments also helped increase total revenue to $253.1 million. That total sales figure is the company’s highest quarterly figure since 2Q 2007.

The company reported EBITDA of $20.4 million for 2Q, up from $9.3 million in 1Q 2012, though slightly down from the $21.2 million in 2Q 2011.

More Earning Reports

Catalyst Paper Wednesday reported a net loss of $11.7 million in 2Q 2012, in comparison to a net loss of $25.6 million the quarter before.

Ainsworth Lumber Thursday announced 2Q 2012 sales of $90.5 million, an increase of $10 million from 2Q 2011 due to an improvement in market prices, most notably in Western Canada, partially offset by a decrease in sales volumes. Adjusted EBITDA for the second quarter of 2012 was $17.1 million compared to adjusted EBITDA of $2.7 million in the same quarter last year.

Ainsworth recorded a net loss from continuing operations of $11.3 million in 2Q 2012, compared to a loss of $12.9 million in 2Q 2011.

Acadian Timber Friday reported a net income of $575,000 in 2Q 2012.

For 2Q 2012, Acadian generated net sales of $14.3 million on sales volume of 306 thousand cubic metres, which represents a $2.5 million, or 22 per cent, increase in net sales compared to the same period in 2011.

Adjusted EBITDA of $2.2 million for the second quarter of 2012 was $1.6 million higher than in the second quarter of 2011, while Adjusted EBITDA margin increased to 15 per cent from 5 per cent in the same period of last year.

NB Mill to Reopen

The Ligni Bel sawmill in Scotsburn, NB, which shut down in November, could be back in business after Northern Resources acquired $5 million in secured debt of the company.

The move means Northern Resources, an affiliate of Northern Resources Nova Scotia Corporation, would take over the mill “with the intention of reopening (it) and creating at least 70 jobs in Scotsburn,” says Bob Bagdon, vice-president human resources at the company to the Truro Daily News.

Sawmill Fire

A blaze broke out in a warehouse at an Australian timber mill in Deanmill, near Manjimup in the State’s South West, 300km south of Perth, Thursday, says PerthNow.

Fire and Emergency Services Authority spokesman Allen Gale said the cause of the fire was accidental, sparked by a welder working inside the building.

Officers from the volunteer fire and rescue services at Manjimup and Pemberton were alerted to the blaze by an emergency call.

August 09, 2012

Glossy Magazine Sales

News of the demise of the pulp and paper industry may have been premature. At least as far as coated freesheet is concerned.

Late last year, Cosmopolitan editors in China started splitting that magazine’s monthly into two issues because it was too thick to print. Elle now publishes twice a month because issues had grown to 700 pages. Vogue added four more issues each year to keep up with advertising demand. Hearst is even designing plastic and cloth bags for women to easily carry these heavy magazines home.

According to a 2011 study conducted by Bain & Company, out of Boston, MA, mainland China ranked sixth in the world for spending on luxury goods ranked by country. In 2010, it was a US$17.7 billion market. Louis Vuitton, Chanel, and Gucci remain the most desired luxury brands. China is expected to become the world’s largest luxury consumer by 2015.

Framingham, MA’s, International Data Group, which works with more than 40 magazines in China, said that advertising spending for women’s consumer magazines jumped 16.9 per cent through June 1 compared to one year ago, even as demand to advertise in technology and business magazines slowed.

Emerging Markets

At the end of June, the Chinese Academy of Forestry (CAF), with partners, hosted the ‘Responsible Procurement in China’s Forest Products (Pulp and Paper), Certification Workshop 2012’ in Shenzhen. At the event, representatives from the State Forestry Administration stressed that the nation’s forest certification standard (CFCC) must adhere to the highest standards of sustainable forest management, and called on countries worldwide to adopt CFCC-certified products in their national procurement policies.

APP-China, a subsidiary of Asia Pulp and Paper, one of the world’s largest pulp and paper producers which has been making pulp mill acquisitions in Canada for the past few years, was an important participant in the event. A self-proclaimed staunch advocate of forest certification, the company was joined by more than 100 prominent sourcing and sustainability professionals from over ten industries, including wood and paper product manufacturers, printers, and consumer enterprises. Attendees enthusiastically discussed the current status of forest certification domestically and abroad, as well as China’s latest policies on paper and forestry product sourcing, according to an APP press release.

China’s 12th Five-Year Plan for the domestic paper industry says that the country has become the world’s number one nation in terms of paper manufacturing and consumption, yet in the past few years, the absence of a recognized forest certification scheme in the country posed severe challenges to the trade of its forestry products overseas. The Chinese government is in the process of establishing a series of related regulatory schemes comprised of policies for government procurement activities and financial subsidies to encourage more enterprises to recognize CFCC certification. The goal is to provide collective support for China to develop its forestry industry responsibly.

According to figures from the Zhonglin Tianhe Forest Certification Center, there are currently eight forestry enterprises and two forestry product processing companies that have been granted CFCC certification, which includes APP-China, says the release.

Global paper and pulp is a large worldwide industry, taking in US$575.4 billion in revenue during 2012 and showing annualized growth of 4.2 per cent over the past five years, says a new report by IBISWorld. Some 4,007 pulp and paper mills operate globally, employing approximately 428,757 people. According to IBISWorld analyst Teruni Nugawila, in 2012, the industry is expected to continue recovering from 2009, the worst year in the past decade. A global drop in demand caused revenue to contract in 2009, with major adjustments to capacity and employment. This indicated tough operating conditions for most companies, and the inability to cut costs and capacity at a fast enough rate to match a drop in demand, says IBISWorld. Production is expected to increase during 2012, while the world price of pulp is forecasted to grow by 4.3 per cent. As a result, industry revenue is forecast to grow by 6 per cent in 2012, the IBISWorld report says.

Elsewhere, the American Forest & Paper Association released data Tuesday which showed that US printing and writing paper shipments decreased 8 per cent in June 2012 against June 2011. US shipments of coated free sheet and uncoated mechanical grades posted double-digit decreases, year over year, compared to last June. US purchases of printing and writing papers also decreased 8 per cent in June. Total printing-writing paper inventory levels decreased 4 per cent from last month, primarily due to double-digit decreases among the mechanical grade papers. US shipments of coated free sheet are at the highest level since November 2011, but still decreased year-over-year.

China’s publishing and distribution sector’s total profit was US$2.9 billion last year, down 11.7 per cent year-on-year, according to an annual press and publishing industry report issued July 10 by the General Administration of Press and Publication. The publishing industry still faces a large “cultural deficit”, as copyrights are still imported at double the rate they are exported, although that gap narrowed last year.

Chinese publishing houses are to receive at least 20 billion yuan (US$3.17 billion) in loans over the next five years for business projects abroad, the national government announced July 3. The Export-Import Bank of China signed an agreement with the General Administration of Press and Publication (GAPP) to provide financial support for publishers’ attempts to explore international markets, according to a GAPP statement.

Under the condition that State-owned capital accounts for more than 51 per cent of the total share, authorities will encourage private funds to invest in marketing and advertising businesses of official newspapers and magazines, the statement said.

Private firms now make up more than 80 per cent of the total entities in the country’s press and publication industry, outperforming their State-owned counterparts, an official report suggested, amid an ongoing campaign to reform China’s cultural landscape. Of the 153,113 enterprises in the industry last year, 124,340 were privately owned, a 24.3 percent year-on-year increase from 2010, according to a report released by the General Administration of Press and Publication (GAPP) July 10. The total income of the industry in 2011 stood at 1.4 trillion yuan (US$219.9 billion), a 17.7 per cent increase from 2010, the report said.

Private enterprises accounted for 85 per cent of the total number of printing and reproduction enterprises in 2011, contributing 86.3 per cent of the revenues in this sector.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the latest US and Canadian railcar loading statistics, as well as truck transportation data in the US, and Canada’s trucking index.

Contact us to receive this vital and timely information regularly.

Second Quarter Financial Reports

More 2Q financial results have come in for several North American forest products companies.

Domtar Corporation has reported net earnings of $59 million in 2Q 2012 on sales of $1.4 billion. In comparison, Domtar reported net earnings of $28 million for 1Q 2012, and net earnings of $54 million for 2Q 2011. Operating income before items was $106 million in 2Q 2012 compared to an operating income before items of $113 million in 1Q 2012. Depreciation and amortization totalled $96 million in 2Q 2012.

Canfor Corporation is reporting an operating income of $26 million in 2Q 2012 on sales of $700.9 million. This can be compared to an operating loss of $21.5 million for 1Q 2012. The positive variance primarily reflected improved results in the lumber segment, where stronger markets supported higher prices.

Financial Reports, 2Q

In 2Q, Canfor shipped almost 1.2 billion board feet of lumber, up 16 per cent from the previous quarter. The 2Q profit helped narrow Canfor’s overall net loss attributable to shareholders at six months to $12 million on $1.3 billion in revenue, compared with a $9.1 million net profit on $1.2 billion in revenue over the first six-months of 2011.

Canfor Pulp Products, meanwhile, is reporting a net income of $3.3 million in 2Q 2012. In comparison, net income for 1Q 2012 was $10.3 million, and $48.2 million in 2Q 2011.

Norbord Inc is reporting earnings of $6 million in 2Q 2012, compared to earnings of $1 million in the same quarter last year, and break-even earnings in 1Q 2012.EBITDA was $31 million in 2Q compared to $10 million in the same quarter last year and $21 million in 1Q 2012. North American operations generated EBITDA of $26 million in the quarter versus break-even last year, and $14 million in the prior quarter.

Tembec has posted a net loss of $5 million on consolidated sales of $415 million in 3Q 2012. In the same quarter last year, Tembec posted net earnings of $17 million. Operating earnings before depreciation, amortization and other items was $27 million for the three-month period ended June 23, 2012, as compared to adjusted EBITDA of $33 million a year ago and adjusted EBITDA of $2 million in the prior quarter.

US Home Sales

New US home sales recorded their biggest drop in more than a year in June while prices resumed their downward trend. Single family home sales tumbled 8.4 per cent to a seasonally adjusted 350,000-unit annual rate, the lowest rate in five months, the US Commerce Department said Wednesday.

The per cent decline was the largest since February 2011 and much of the drop in sales last month reflected a record 60 per cent plunge in the Northeast, which had enjoyed hefty gains since December last year.

May’s sales pace was revised to show 13,000 more units sold than previously reported. New home sales were up 15.1 per cent, compared to June last year.

Home Sales, US

Sales in the South fell 8.6 per cent. In the West, sales rose 2.1 per cent and were up 14.6 per cent in the Midwest.

The median price of a new home fell 3.2 per cent from a year ago, after rising strongly in May. The home price decline had appeared to have bottomed, with other measures of home values trending higher in recent months.

The inventory of new homes on the market increased 0.7 per cent to 144,000 in June, but remained near record lows. At June’s sales pace it would take 4.9 months to clear the houses from the market, up from 4.5 months in May.

The US home-vacancy rate fell to the lowest level since 2006 as demand for housing improved and lenders slowed property repossessions.

The rate declined to 2.1 per cent in 2Q from 2.2 per cent in the previous three months and 2.5 per cent a year earlier, the Census Bureau said Friday. A gauge that measures the share of Americans who own their homes rose to 65.5 per cent from a 15-year low of 65.4 per cent in the prior quarter.

Pending home sales in the US unexpectedly showed a notable decrease in the month of June, according to a report released by the National Association of Realtors on Thursday.

NAR said its pending home sales Index fell by 1.4 per cent to 99.3 in June after jumping 5.4 per cent to a downwardly revised 100.7 in May.

Forest Fires: Russia, US, and Canada

Abnormal heat and strong winds have firefighters working overtime in Tomsk, Siberia, this week where they are still battling blazes that have now spread over 15,000 hectares of Russian forests in a season that broke 170 year old records for heat and dryness. Some 3,000 people, 412 units of fire-fighting equipment, and 24 aircrafts have been mobilized to fight the blazes. Reports said the wildfires posed no threat to populated areas or industry.

New Wildfires

Summer 2012 is setting a record pace for Missouri wildfires, and the forecast is for more through autumn.

Mark Twain National Forest wild land firefighters responded to more than 50 wildfires in June and July, that burned more than 4,000 acres of public and private lands. Mark Twain National Forest’s 20-year annual average is 174 wildfires, burning about 5,145 acres annually.

Across the US West, major wildfires are wreaking havoc this summer on the region’s economically fragile livestock industry. In areas such as remote Powder River County, MT, ranchers said they could be grappling with the devastation for years to come.

Hay is in short supply. Hundreds of miles of fence and numerous corrals and water tanks must be rebuilt. Thousands of head of displaced livestock are being shipped to temporary pastures.

Similar scenes are playing out in Oregon, New Mexico, Colorado, Wyoming, and Idaho. Including Montana, the value of the six states’ cattle industries approaches US$9 billion annually.

Hundreds of thousands of acres of grazing land have burned so far — with months to go in the annual fire season.

Firefighters, meanwhile, continued to battle blazes in Nebraska, where three fires that have ripped across more than 72,400 acres were 50 per cent contained, officials said Thursday. The largest is called the Fairfield Creek Fire. There were 560 people working to fight the Nebraska fires, officials said Thursday.

Officials said the wildfire that prompted Wednesday’s evacuation of Ola, AR, had consumed about 1,400 acres before it could be contained.
The US Forest Service is spending more on fire prevention, an approach that should help reduce the number and severity of future forest fires, Agriculture Secretary Tom Vilsack said Thursday.

Vilsack said the agency is making up for past practices in which money that was meant for forest maintenance was instead used for more immediate needs, like fighting active fires.

In Canada, Manitoba Conservation reported there is a forest fire in the north of the province but there are no plans Tuesday to use water bombers to fight it.

August 01, 2012

Québec Forest Sector Transformation Policy

Québec’s new forestry program was released this week in French only so Madison’s is providing an English translation of that plan:
“A Modern Forest Industry, Diversified AND Adapted to Changing Markets Québec is the one of the largest suppliers of forest products in North America. Forests cover 44 per cent of its territory, Québecers collectively own 90 per cent of that forest. Logging is present in virtually all regions of Québec. The availability of significant forest resources has lead to the development of powerful manufacturing activity in the production wood products, and pulp and paper.

With the 2012-2017 strategy to transform the industry in Québec forest products, the government vision is to stimulate and motivate efforts to commit to the future. Significant resources will be implemented over the next five years to help the industry to diversify, to innovate, and adapt.

2012 – 2017

This is the vision proposed by the government to achieve the transformation necessary to the forest products industry. The strategy rests on the mobilization of all players in the forest industry to take advantage of the many strengths Quebec has.

It also relies on a will, confirmed by a majority of players, to further continue a major technological shift in the solid wood, pulp and paper, and biomass fuel industries:

  • Diversifying manufactured wood products so there is less dependence
    on economic cycles;
  • Developing new products and new markets in the pulp and paper sector;
  • Exploiting the opportunities associated energy recovery of forest biomass.

Further detail follows below.

Wood Products:

  • Opening future markets for existing products;
  • Matching plants to available resources and new needs;
  • Implementing advanced technologies to minimize operating costs;
  • Training the workforce and ensuring its renewal;
  • Investing in the development of innovative products.
    Pulp and Paper:
  • Continuing the development of smart paper and paperboard ultra- resistant;
  • Targeting new products compatible with existing technologies to use existing infrastructure;
  • Optimizing transportation logistics to minimize operating costs;
  • Innovating through the creation and marketing of high value added (nanocrystalline cellulose, fibre composites, extracting, jet fuel);
  • Preparing labour to highly skilled jobs for the development of bioproducts.

Bioenergy:

  • Supporting the development of markets for energy from forest biomass;
  • Investing in the use of forest biomass for fuel switching fuels (pyrolysis, liquid transport, pellets, torrified pellets);
  • Encouraging the use of forest biomass for energy production;
  • Investing in the equipment and facilities for profitable harvesting of forest biomass for the manufacture and transport of pellets.

With its 52,000 direct manufacturing jobs and a trade surplus of $5.6 billion at a time of crisis in 2011, the forest industry remains a pillar of eco-Quebec economy.

Yet in the past few years there have been profound changes due to:

  • The rising Canadian dollar against the US dollar;
  • The prolonged crisis of the US home building sector;
  • The rapid penetration of electronic media that irreversibly
    disrupted the newsprint and printing and writing paper markets;
  • The aging workforce and worker migration to other sectors as a result of permanent or temporary plant closures;
  • Strong competition from both of our traditional partners and emerging countries.

The Government of Québec is providing the following funds to support the implementation of the present strategy:

  • The Fund for Wood Valuation. Corporate finance obtained from Investissement Québec, $95 million, and the Fonds de solidarité de la FTQ, $75 million;
  • The Action Plan on Climate Change 2013-2020. Represents a source of financing to contribute to the reduction of greenhouse gas emissions. The components applicable to forestry amount to $447 million, but it is not reserved solely for the forest estate;
  • Wood Construction Working Group: A budget of $28.9 million was allocated to implement the recommendations presented in the report of the Group, whose aim was to encourage greater use wood in construction;
  • RISE and Export Export Quebec. Funds under the responsibility of the Department of Economic Development, Innovation and Export, are also utilized.”

Madison’s Investment Rx

This month’s issue of Madison’s Investment Rx examines the latest dimension lumber production data for Canada and the US, and looks at business reactions and strategies across North American regions for the rest of this summer.

Contact us to receive this vital and timely information regularly.

Tribunal Dimisses Softwood Lumber Arbitration

In a move that can only be described as stunning, the LCIA Wednesday summarily dismissed the latest US claim against Canada under the 2006 Softwood Lumber Agreement. The panel gave itself ten days to release its reasons. At that time, the final submissions by Canada and the US, filed May 24, are also expected to be released.

The decision is final, there is no opportunity for appeal.

Housing Starts, US

The Commerce Department said on Wednesday that housing starts in June rose 6.9 per cent last month to a seasonally adjusted annual rate of 760,000 units. That was the highest rate since October 2008.

The Commerce Department’s revisions to data on housing starts from prior months were also upbeat. Groundbreaking during May was revised up to a 711,000-unit pace from a previously reported 708,000 unit rate. April’s reading was revised slightly higher.

On Wednesday, applications for US home mortgages jumped last week on a surge in demand for refinancings, though purchase activity edged down. In recent weeks, other private groups have said signed contracts for home purchases rose sharply in May and home prices rose that month.

US Housing Starts, Home Sales

The Commerce Department’s report showed the increase in housing starts in June was spread broadly throughout the sector, with groundbreaking for single-family homes up 4.7 per cent. This segment accounts for most of the market. Starts for multi-family homes – one of the report’s more volatile readings – rose 12.8 per cent.

New permits for building homes dropped 3.7 per cent in June to a 755,000 unit pace.

The National Association of Realtors said Thursday that sales of previously occupied homes fell 5.4 per cent in June to a seasonally adjusted annual rate of 4.37 million homes.

That’s the fewest since October.

Sales are up 4.5 per cent from a year ago, evidence that the market is still recovering. But the annual sales pace is below the six million that economists consider healthy. The June drop in completed re-sales contrasts with more encouraging data that show gains in new residential construction, higher builder confidence and more signed contracts to buy previously owned homes.

The number of first-time buyers, critical to a housing recovery, made up just 32 per cent of sales. That’s down from 34 per cent in May. In healthy markets, first-time buyers make up more than 40 per cent of the market.

The median home price rose five per cent to $189,400. That’s mostly because sales of more expensive homes rose, while sales of cheaper homes fell, the Realtors group said.

Prices are also rising because there are fewer homes for sale. The inventory of unsold homes fell to 2.39 million. It would take six and a half months to exhaust the supply at the current sales pace.

Forest Fires

Wildfires continued this week in Alberta, British Columbia, and Wyoming, as well as in Greece and Portugal. The Wyoming Military Department claims that the Colorado National Guard caused the Sawmill Canyon fire.

Wildfire Season

A wildfire in northeast BC has triggered an evacuation alert for a natural gas plant in the mostly-rural region of Suhm Creek, about 120 kilometres northeast of Fort Nelson.

The Northern Rockies Regional Municipality has issued the alert, which covers the natural gas plant and another commercial facility. The fire was sparked by lighting last week and covers about 48 square kilometres.

Meanwhile, firefighters and equipment from outside the province were used this week in northern Alberta as crews continue to battle 17 out-of-control wildfires.

There are currently 54 fire burning in Alberta,the largest of which is the out-of-control blaze burning outside Zama City, 140 km north of High Level.
Firefighters gained ground on a wildfire in southeast Wyoming. The Sawmill fire has burned about 22 square miles of trees and grass southeast of Glendo State Park since it started Saturday on nearby Wyoming National Guard training grounds.

That fire was at 12,000 estimated burned acres with 40 per cent containment as of Friday morning.

Wildfires across parts of southern Europe are forcing hundreds of people to leave their homes. The flames have been spreading across Greece, Spain and Portugal.

Winds have made the problem worse in Greece – fires have spread to the town of Keratea south of Athens. Firefighters, helicopters and planes carrying water are trying to put the flames out. Many houses have been destroyed by the fires in Greece but no-one has been hurt.

Chetwynd to Close

Tembec has announced the shutdown of its high-yield pulp mill in Chetwynd, BC, which the company bought in 2002. Employing 115 people, the mill will be indefinitely idled as of September 16 due to softness in the market for its product.

Tembec says at today’s price levels “it is virtually impossible to maintain viable operations given the current cost structure of the Chetwynd mill.”
The high-yield pulp produced at the mill is used in printing and writing papers, paperboard as well as tissue and towelling. The pulp produced at the Chetwynd mill, which has an annual production capacity of 240,000 tonnes, is shipped primarily to Asia.

West Fraser Reports

West Fraser Timber Friday reported earnings of $27 million in 2Q 2012 on sales of $775 million. For the first half of 2012, earnings were $10 million on sales of $1.5 billion.

West Fraser Timber expects results from their lumber and panels businesses to improve if US new home construction continues to recover. Despite some encouraging signs, the current recovery still appears to be fragile and could be set back by adverse global economic events.

The company said the immediate outlook for their NBSK pulp business is negative as additional supply coming onstream will require market adjustments before prices will recover.

Sierra Pacific Settles

Sierra Pacific Industries, out of Redding, CA, agreed to pay US$47 million and convey 22,500 acres of land worth US$67.5 million to the US to resolve a lawsuit claiming it was responsible for a 2007 wildfire.

The fire in Plumas County in northern California damaged 46,000 acres of national forest. It started when a bulldozer working on a Sierra Pacific timber project caused a spark, the US government said in a 2009 complaint filed in federal court in Sacramento, CA.

The blaze was among the most devastating forest fires in California history, US Attorney Benjamin Wagner said in an e- mailed statement. About 15 million trees, some of them more than 400 years old, were killed and thousands of acres of wildlife habitat was destroyed.

The US sought as much as US$791 million in damages, said William Warne, Sierra Pacific’s attorney. The government’s investigation of the fire “was seriously off the rails” and sought to hold the company liable for the conduct of the independent contractor running the bulldozer, he said in a conference call.

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