Lumber News Archives: Dec 2009

Lumber News Archives: Dec 2009

Politics and the Forest Industry ; Madison’s Holiday Break ; US Housing and Real Estate ; Chetwynd Sawmill and Pulp Mill Restarts ; Wood Products 2010 ; Weyerhaeuser Converts ;Ainsworth’s Non-Core Sale Forestry Fourth Quarter Forecast ; Madison’s Mill Watch ; Canadian Housing Starts ; Japan Housing Starts ; Canadian Trade Figures ; Labour Progress Structural Panel Made From Wheat ; Madison’s Timber Preview ; Canfor’s Possible Reopening of Chetwynd Mill ; Restructuring, Upgrades, Buyouts ; Labour Disagreements Carbon Credits Market; US New Home Sales ; Mill Purchases, Sales and Closures ; Russian Timber in Japan ; Welco SPF into Japan ; Taiga Board Changes

December 28, 2009

Politics and the Forest Industry

 

Recent announcements of forestry stimulus packages and land management legislation out of Montana and Oregon have the support of both conservation group and the Pacific Northwest forest industry.
The US Congress has voted to extend the Highway Bill, with its extremely controversial “Black Liquor” clause. Whether that loophole used by US pulp and paper companies to receive substantial tax credits in 2009 will be closed is currently unknown.

Legislation, Debates, Arguments

A little known bill was about to squeak through the US Congress quietly when conservation groups, wildlife enthusiasts and the Pacific Northwest forest industry alike suddenly caught on to it. Montana Senator Jon Tester’s “Forest Jobs and Recreation Act” would designate about 600,000 acres of new wilderness in Montana, and mandate logging in the Beaverhead-Deerlodge National Forest. In an analysis of potential wilderness areas in the Beaverhead-Deerlodge National Forest, a working group of conservationists and loggers determined the area to be a prime candidate for designation.

“Developed through extensive collaborative efforts, the bill would protect wild places, restore miles of currently impaired fish habitat and improve thousands of acres of habitat to support a rich diversity of wildlife species,” said Tim Aldrich, president of the Montana Wildlife Federation. “This is all good for hunters, anglers and wildlife enthusiasts, and it also provides a lifeline for struggling forest products businesses that are important in Montana.”

The first reading of this bill is scheduled for Thursday. In an unfortunate coincidence of timing, Stone Container’s announcement Monday of a permanent closure of its Frenchtown Mill will cut 417 good paying jobs, and create a hole in what’s left of the logging industry in western Montana.

Meanwhile, Oregon Senator Ron Wyden unveiled legislation Wednesday to revamp management of 8.3 million acres in six national forests in eastern Oregon with the backing of both timber and conservation groups. That bill would affect forests east of the Cascades, ban cutting of trees more than 21 inches in diameter, and protect delicate watershed areas. The Forest Service would have two years to perform an assessment of forests and watersheds in eastern Oregon, resulting in a 10-year plan to restore their health, and another year to begin restoration projects. The bill would direct the Forest Service to focus on landscape-scale projects of at least 25,000 acres in each national forest.

Speaking of US legislation, the construction industry south of the border has been lobbying long and loudly for an extension to a surface infrastructure bill meant to create new jobs, which was set to expire December 18, 2009. The Surface Transportation Extension Act of 2009, more commonly known as the “Highway Bill”, passed a vote in Congress Thursday. The program would be funded with $53.5 billion until September 2010, allowing the government time to craft new long-term legislation.

This is the same bill, incidentally, which was commonly referred to as the “Black Liquor” tax credit by Canadian mainstream press when it came to light that US pulp mills were turning one clause on its head. That tactic resulted in multi-million dollar tax credits to US pulp and paper companies in 2009, giving them a significant financial advantage over their Canadian competition. Canada responded with its own Green Energy tax credit in late 2009. Whether those unintended consequences of the Highway Bill will remain in place for US pulp and paper companies through 2010 is currently unknown, however there are a few — admittedly weak — US lobby groups trying to get the “Black Liquor” hole in that legislation patched.

Probably the most significant development this week in forestry’s political landscape in North America is an itemized campaign by the Coalition for Fair Lumber Imports. In the face of the above list of stimulus packages, some may consider it hypocritical of the powerful US lumber lobby to accuse Canada of subsidies. The catch is that the US is not directly contravening any international trade agreements with these government-sponsored business activities. Such legislation is strictly a domestic issue. However, due to the wording of the 2006 Softwood Lumber Agreement, Canada could conceivably be called to task for such federal and provincial government efforts as: reduced stumpage costs to encourage harvesting of beetle kill in BC; hundreds of millions of dollars in grants to lumber producers offered by the governments of Ontario and Quebec; Quebec’s $100 million financing guarantee to Abitibi-Bowater; New Brunswick’s $3 million loan guarantee to Newcastle Lumber Company; plus more. The entire list, with explanations, can be found here http://www.uslumbercoalition.org/general.cfm?page=37 .

Meanwhile, Canada’s Department of Foreign Affairs and International Trade has posted 2010 Export Allocation Methodologies for Canadian softwood lumber going into the US. Madison’s enlisted the help of customs broker Michael Jones, at Jones & Jones Customs Brokers and Trade Consultants, to decipher the document.
Jones wrote in an email, “The Notice is pretty much administrative, and the only thing I feel that is significant about it is that the Provinces (Manitoba, Saskatchewan, Ontario and Quebec) who had originally chosen Option B (5 per cent Export Tax and Quota), had their first opportunity this year, and didn’t elect Option A this time around. [ . . . ] No one can possibly know what the US production is going to be from year to year. The quota allowance is derived from the allowed percentage of the US’s previous year’s production. [ . . . ] At the end of the year the US goes back and sees if the imports from the captured Canadian provinces exceeded the allowed percentage of that figure. [ . . .] This, as you know, is what caused the 2007 Surcharge to Manitoba and the more recent 10 per cent Surcharge assessed against all four Option B Provinces.”

As a follow-up to Jones’ excellent points, Madison’s got in touch with the Quebec Forest Industry Council. Jacques Robitaille, former Deputy Minister of Forests in Quebec and currently working with the QFIC, explained to Madison’s that his province’s lumber manufacturers, “chose in 2006 Option B because they could not afford to pay the high tax like BC because delivered log costs are higher, and the value of the product is lower.”

Robitaille went on to say, “When the additional 10 per cent surcharge was imposed, shipments from Quebec went down by more than 30 per cent. This reduction was a combination of the export surcharge and market conditions. [ . . . ] If prices and demand remain the same as in 2009, it could be 30 months before the penalty is paid off. For six months of 2009, all four affected provinces together have managed to pay of fC$12 million.”

Robitaille confirmed Madison’s assertion, that this additional surcharge is being collected by the US. He stated that, “Canada is still negotiating with the US to collect the money in Canada.” (as it is meant to be, according to the 2006 SLA – ed.) With his decades of experience in the Quebec lumber industry, Robitaille said candidly that, “Canada is dragging its feet in allowing the bureaucracy to change its practices in collecting the surcharge in Canada. I don’t think Canada will ever get that money back because it is in the US treasury and would require a vote in Congress to be transferred back to Canada.”

Madison’s is once again appalled at this frankly irresponsible lapse on the part of the Canadian government. The Coalition’s list of grievances mentioned above charges that, “Canada refused to implement the prescribed remedy” in February 2009. This is not entirely accurate, as at that time Canada was waiting for the LCIA panel to reconvene in order to launch an appeal. However, that appeal was rejected in September, and Canada has still made no move to collect the surcharge.

Canadian lumber producers lost out on a full US$1 billion upon the signing of the 2006 SLA, when the US$5 billion in duties collected during the previous softwood lumber dispute were returned, and that the 2006 SLA was expressly intended to keep any and all duties in Canada. Given that background, this total inaction by Canada’s federal government is puzzling at best.

Madison’s Holiday Break

Farewell to 2009; Onward to 2010.

This has been a year for the record books. Never have so many been so disappointed by numbers so low. Through constriction of output, the principles of a supply side market were learned and optimized. Each day of the first half of this year was like trudging through treacle. Those that didn’t succumb to the sucking underfoot, that made it to July and beyond, should pat themselves on the back. Thanks to our loyal subscribers and expert sources, Madison’s has turned another corner in both its reporting and supporting the industry. With your help, Madison’s tree of informational products now includes this weekly newsletter that started us on this 60-year journey, our searchable Online Lumber Listings, Madison’s bi-weekly Timber Preview, and Madison’s monthly Mill Watch.

We thank you and wish you each a peaceful holiday season and prosperous 2010.

US Housing and Real Estate

November US housing starts reported at 574,000 units, up 8.9 per cent from October 2009, and down 12.4 per cent compared to November 2008. Single family starts were up 2 per cent, while the volatile multi family sector rebounded sharply, gaining 67 per cent compared to October 2009.

Building permits rose 6 per cent to 584,000 units compared to October, while single family authorizations rose 5.3 per cent to 473,000. Total permits were down 7.3 per cent compared to November 2008.
Housing completions in November rose 8.7 per cent over the previous month to a seasonally adjusted annual rate of 810,000. That was a 25.3 per cent decline from November 2008.

Chetwynd Sawmill and Pulp Mill Restarts

In a coincidence that can only be termed remarkable, both Canfor and Tembec have made side deals with two separate unions to restart a sawmill and a pulp mill, respectively, in Chetwynd, BC.

Tembec announced Monday that negotiations for a new collective agreement with CEP local 448 have been successfully concluded.

Canfor employees voted 73 per cent in favour of the new cost structure the company negotiated with the United Steelworkers. Canfor declined to specify exactly what the wage decrease amounts to, though Chetwynd’s Peace FM is reporting it to be around $5.40 per hour.

Chetwynd, BC

Tembec’s Chetwynd mill, which produces high yield pulp and has an annual capacity of 240,000 tonnes, has been shutdown since February of this year due to market conditions. It employs roughly 160 people, of whom 115 are covered by the new collective agreement. The mill also provides employment for 35 First Nation workers through their company, Three Nation Ventures.

Canfor said pending the board’s decision, the sawmill will be re-opened in late May of 2010. The plan calls for the mill to be restarted in the spring with one shift to start, employing about 65 people. The restart would pump nearly $15 million back into the mill for retooling.

The mill closure in early 2008 affected 188 employees, who were laid off.

Wood Products 2010

The very week following Madison’s 4Q 2009 lumber industry forecast brings a new report out of the Conference Board of Canada echoing that recovery is on the way.

Canada’s wood products industry will return to profitability in 2010 after losing a quarter of a billion dollars this year, the Conference Board of Canada predicted Thursday.

US new home starts in January reached their lowest level since data collection began 50 years ago, and since then have shown signs of steady recovery, increasing demand for Canadian exports.

After more than three years of declining production, output in the Canadian industry grew in the last three months of 2009. The board expects US housing starts to grow by 28.8 per cent in 2010 compared to this year.
The Canadian housing market has also picked up. The board expects starts to grow by double digits, in percentage terms, in both 2010 and 2011.

Weyerhaeuser Converts

Weyerhaeuser said on Tuesday it would convert into a Real Estate Investment Trust, likely in 2010, and pay a special dividend, bowing to pressure from shareholders who have been seeking the new financial structure for years.

The conversion to a REIT will slash Weyerhaeuser’s tax burden, though the company would be required to pay 90 per cent of profit to shareholders.

This will make its ability to deleverage reliant on additional equity issuance rather than earnings power.
The move by the company, which recently sold its packaging business, comes amid slack demand for wood products and paper in the face of the real estate slowdown and worldwide recession.

Ainsworth’s Non-Core Sale

Ainsworth Lumber Co. Ltd. announced Monday that it has completed the divestiture of the company’s portfolio of non-core assets. Collectively, the asset sales support the company’s strategic focus on optimizing its portfolio and allocating resources to its best performing OSB assets.

On December 11, 2009, the company completed the sale of its specialty plywood business unit. This includes the Savona specialty plywood mill and the Lillooet veneer mill, both of which are located in southwestern British Columbia.

December 21, 2009

Forestry Fourth Quarter Forecast

Fast on the heels of PricewaterhouseCoopers’ 3Q 2009 “Global Forest and Paper Industry: Net Earnings Summary”, Madison’s makes a forecast for 4Q and year end 2009. Sources in the solid wood industry have reported increased activty in November and so far in December, very unusual timing for business to pick up in the forest industry. Coupled with the recent increases in commodity cash prices, returns for 4Q 2009 will exceed 3Q 2009 significantly, and surpass 3Q 2008 by an even greater proportion.

Mills and wholesalers alike will start 2010 with a zero inventory base, a complete departure from the beginning of 2009 when the entire supply chain was overstocked.

Fourth Quarter 2009

PricewaterhouseCoopers’ 3Q 2009 “Global Forest and Paper Industry: Net Earnings Summary”, summarizes gloomy results. The report, released December 8, states, “during 2009’s third quarter, Canada’s forest and paper sector reported losses of $632 million, which exceeded losses of $552 million reported in the same quarter of 2008. Ten of the US’s largest public forest and paper businesses posted earnings of US$1.2 billion in the third quarter of 2009, up almost US $500 million from earnings of US $733 million during the same period of 2008, [ . . . ] and reflecting almost US$1.1 billion in tax credits.” And, continues the PwC report “ten of the largest European-based forest and paper companies incurred overall losses of €469 million in the third quarter of 2009, comparable to losses of €486 million reported in the third quarter of 2008.”

Based on market surveys, Madison’s projects 4Q 2009 will be an improvement, not just over 4Q 2008, a singularly miserable quarter, but on 3Q 2009. Figures are preliminary, but mills and wholesalers report that sales volumes in November alone were enough for them to call a significant improvement over 3Q. Some sources ventured a guess of a 30 per cent increase in sales, pointing out that this is at both the mill and wholesaler level. Commodity cash prices are up as well, meaning a greater return on the higher volume of sales.

Citing a bottom to the current lumber market down cycle, the Western Wood Products Association, out of Portland, OR, forecasts modest improvement for 2010. “For next year, WWPA predicts lumber demand to rise 11 per cent to 34.5 billion board feet. Housing starts will increase 21 per cent to 668,000. While this increase will be a substantial improvement compared to 2009, it represents only half the total constructed in 2007,” says the report, released on November 05. The WWPA report goes on to say, “Lumber production in the US will move higher as demand improves [ . . . ] mills are expected to produce 23.6 billion board feet, up 8 per cent (over 2009). Imports from Canada are expected to rise 18.8 per cent in 2010 to 9.4 billion board feet. Volumes from Europe and Latin America will also increase to just over 1 billion board feet.”

In its own report, the Engineered Wood Association, based in Tacoma, WA, forecast on December 4 that, “Plywood production will increase 4 per cent in 2010. OSB production is forecast to increase 14 per cent, glulam timbers 8 per cent, wood I-joists 35 per cent, and LVL 25 per cent. US and Canadian structural wood panel exports are expected to finish 2009 down 45 per cent from 2008. Demand for structural panels from the residential construction, remodeling, and industrial markets are expected to see 2010 increases of 24 per cent, 7 per cent, and 5 per cent, respectively. APA forecasts US housing starts to reach 665,000 units in 2010.”

Both agencies predict US housing starts for 2010 to be between 665,000 and 700,000, still far below the 2005 high of over two million starts, but an improvement over the 2009 average of just over 500,000. Most analysts agree that even this improved level of US home building is not sustainable, given immigration levels and a shift in the demographic. Children of baby boomers are entering their mid-20s and will soon be looking to establish households of their own. It is important to remember that the supply of existing homes for sale is based on current real estate activity, which is very low. Since mid-2009, the supply of existing homes for sale has dropped from 11 months to just six. A small increase in real estate buying activity will burn through those homes quickly.

Deutsche Bank analysts on December 7 explained changes in dimension lumber and panel commodity prices: “The increase was largely supply driven, with inventory restocking over fears of tightening supplies before year-end.” Based on usual 4Q seasonal slowdowns, Deutsche Bank forecasts a cyclical downturn for the solid wood industry to the end of 2009.

Madison’s, however, has a different perspective. Traders and other sources inside the industry say that current prices, both for finished lumber products and for logs, are the highest they have been in 18 months. If producers can prevent a price dip next week, the year will end on a positive note. Mills are not taking counter offers. Sources say prices will stick if traders remain firm through next week. After seasonal maintenance curtailments and holiday shutdowns of the final two weeks of the year, mills will be able to start 2010 with bidding up.

Benchmark Spruce 2×4’s held firm this week at US$232 mfbm. 2010 will start with a zero inventory base, a polar opposite of January 2009. All levels of the market, from mills to reloads to stocking wholesalers, are selling off their inventories before year end. Due to this depleted inventory, mills will be in a position to firm up prices in the first two weeks of January. Sources close to the action say that regardless of what happens from mid January through February, March will be a good month.

Refer to Page 1 of this week’s Madison’s Reporter for further comment on lumber commodity increase in demand this month and price expectations for early 2010, and Page 8 for comment on premium lumber products. Cedar producers are quoted as saying they “are doing better in December than even the optimists expected.”

The Deutsche Bank note, despite its gloomy predictions for 4Q 2009, also forecasts lumber and panel commodity price increases in 2010 and 2011. Deutsche Bank analysts expect the composite framing lumber price to increase by US$38 mfbm in 2010 and a furtherUS$30 mfbm in 2011, a total increase of almost 30 per cent over 2009 prices. OSB prices are expected to rise by US$33 per sq. ft. in 2010 and US$25 per sq. ft. in 2011, also an increase of 30 per cent over 2009. Madison’s considers the Deutsche Bank numbers to be conservative, as it is based on an expectation of 2011 prices to be $50 mfbm below the norm.

Given the profound shift in the industry since 2005, with numerous producers bankrupt, restructuring, floundering, being taken over by non-lumber savvy bondholders, and currently unable to invest even in basic logging operations, it’s apparent that a modest, steady increase in demand will result in a more marked uptick in commodity prices. While it is true that operations are curtailed and many could come back online on relatively short notice, it is also true that a significant proportion of sawmills and panel mills will not reopen into the long term. Several have already been dismantled, with the equipment sold overseas, while others have been for sale for years with few interested buyers.

Madison’s Mill Watch

Get immediate information on major Canadian sawmill and pulp mill curtailments and restarts at your fingertips every month. This week’s issue of Madison’s Mill Watch includes updates of operations for Canfor, Ainsworth and West Fraser, among others.

Contact us any time for a subscription.

Canadian Housing Starts and Home Prices

Housing starts in Canada hit their highest level this year in November, more proof that Canada’s real estate market has clawed out of recession. Starts rose 0.7 per cent to 158,500 units on a seasonally adjusted basis, as single-home construction outweighed a drop in multiple home activity, Canada Mortgage and Housing Corp. said Tuesday. Multiple starts eased 1.7 per cent in November, CMHC said, to 71,300 units. Single starts rose 3.4 per cent to 69,800 units.

More builders have plans in the works, the report showed. Building permits jumped 18 per cent in October to the highest value in 13 months, Statistics Canada said.
New home prices in Canada rose 0.3 per cent in October from September, the fourth consecutive gain, as record low interest rates and a recovering economy spurred demand, according to Statistics Canada data on Friday.

Canada Real Estate

On a monthly basis, the housing only component of the new housing price index rose 0.4 per cent while the cost of land only slid by 0.1 per cent.

Analysts surveyed by Reuters had forecast, on average, an increase of 0.4 per cent in the new housing price index. Prices were down 2.1 per cent compared with a year earlier.

Japan Housing Starts

October housing starts in Japan were down 27 per cent over the same month in 2008, at 67,120 units. Expectations are taht total housing starts for the year in Japan will be less than 900,000 units. Seasonally adjusted annual stars were 762,000, up 9 per cent from September.

While new units for owners recovered somewhat, rental units and units built for sale were down nearly 40 per cent over October 2008.

The share of wood framed units fell slightly to 58 per cent. Total floor space was 21 per cent less than October 2008.

Building permits, however, were up from September 2009. 47,227 total building permit applications were made in October, 6 per cent less than October 2008 but up almost 6 per cent from September 2009. There is improvement in home building in Japan, however total levels remain low.

Canadian Trade Figures

Canada’s merchandise exports rose 3.4 per cent in October, led by a strong gain in exports to the United States which accounted for three-quarters of the increase.

Imports decreased 0.8 per cent for the month, pushing Canada’s trade surplus with the world to $428 million. That compared with a deficit of $850 million in September.

Exports increased by $1 billion to $31.1 billion on the back of a 2.6 per cent rise in volumes and a 0.8 per cent increase in prices, the federal statistical agency said. It was the second consecutive monthly increase in the value of exports and the fourth advance in five months.

Imports declined to $30.7 billion, as prices decreased 1.2 per cent while volumes inched up 0.3 per cent. It was the third consecutive monthly decrease.

Industrial goods and materials led the growth, representing more than half of the increase in exports.
Exports to the United States grew 3.6 per cent while imports fell 3.1.

As a result, Canada’s trade surplus with the United States expanded to $3.4 billion in October from $2 billion in September.

Canada’s trade deficit with countries other than the United States was $3 billion in October compared with $2.9 billion in September, as exports grew 2.9 per cent and imports rose 3.2.

The Canadian dollar strengthened to close at 94.83 cents (US) Tuesday, regaining half of its previous day losses.

“We seem to be getting a better tone in Canadian economic data in the fourth quarter,” said Douglas Porter, an economist in Toronto at the Bank of Montreal. “Currency markets are starting to pay a more attention to underlying economic performance. Canada is seen as a bit of a safe harbour.”

Labour Progress

West Fraser has approached the United Steelworkers in an effort to get the labour bargaining process back on track after negotiations with the CONFIER employer group stalled in October.

Bob Matters of the Steelworkers told Madison’s on Friday that the USW is pleased to be dealing with an industry member that is “willing to conclude bargaining.”

“West Fraser indicated that they are not interested in taking money out of the pockets of employees to start bargaining, they are looking at structural changes to the contract,” said Matters.

West Fraser’s new proposal will be examined by USW committee members December 17. The union needs to “do its homework on West Fraser because it has been geared up for the last six months to deal with CONIFER,” said Matters.

While the union is unlikely to see West Fraser before the Christmas break, Matters told Madison’s that talks will resume immediately in the New Year.

December 14, 2009

Structural Panel Made From Wheat

New technology developed a decade ago by the Alberta Research Council out of Edmonton was shelved due to lack of demand. Now, with China rebuilding large numbers of homes devastated by the 2008 earthquake, ARC and the Netherland’s Panel Board Holdings have created a partnership to make OSB out of wheat straw.

Oriented Split Straw Board, or OSSB, has great potential for use in wood homes in China. Panel Board Holdings opened its first plant in China in October and plans two more. There are few trees in China but a lot of agriculture residue currently going to waste.

Oriented Split Straw Board

Further encouragement of wood framed home building in China is coming out of Edmonton’s Alberta Research Council (ARC). A new technology to make a version of OSB out of wheat straw, Oriented Split Straw Board (OSSB), has been developed by ARC and is being put to use in China by Panel Board Holdings, based in the Netherlands.
China has a deficit in wood resources for its population of 1.34 billion people, according to an ARC backgrounder. Demand for housing material has led that country to strip-mine some arable lands for underlying clay in order to make bricks. At the same time, massive volumes of excess agricultural straw is burned by rural Chinese farmers, which adds up to a large volume of available feedstock for OSSB.

For ARC, the ultimate challenge was to create a structural panel from straw with all the attributes of a wood based OSB. The major hurdle was in converting a straw tube into two straw strands of substantial length, which is important for two reasons. First, opening up the tube allows resins to coat all surfaces resulting in proper straw bonding, and second, maintaining adequate straw length allows the panels to be made with the typical strength to weight ratios found in OSB.

During forming the straw is aligned in a specific pattern to create maximum strength and stiffness when pressed. During pressing, the resinated mat is compressed under the influence of heat to bind the matrix into a structural board. This board from straw is used in construction of structural walls, floors, and roof sheathing. There has also been interest in China in using OSSB as a decorative finish for walls and floors due to the luminescent sheen from the wheat stalks and the random pattern revealed when etching past the surface of the board.

Panel Board Holding is using this technology at its new plant which went into production October 18, 2009 in Yangling, a city with a large agricultural and bio-tech industry base in the Shaanxi province about 1,000 km southwest of Beijing. The plant can produce up to 5,000 four-by-eight-foot-foot panels a day, enough to build between 30 and 35 houses. China has few trees but plenty of wheat straw, and will need 200 million new houses in the next 20 years.

China, the world’s fastest-growing major economy, plans to invest 900 billion yuan (US$132 billion) in affordable housing, the state-run Xinhua News Agency reported on November 12. Shanghai will increase the supply of land for property development and speed up construction of housing for low-income families, Mayor Han Zheng said in an interview with Bloomberg.

Indications are that a growing proportion of these new homes will be built using wood-based materials.

North American forest products companies should view this new development as complimentary to traditional wood products. Everyone involved in the industry knows by now that China, and indeed India, is not a “wood culture”. People there are not used to seeing buildings made of wood, and the turn-of-the-century wood framed buildings previously built are rickety-looking, shoddy constructions. The new generation of Chinese consumer wants good products at a reasonable price, but is willing to pay more for a something at the outset if it means lower costs in the long run (see the November 20, 2009 issue of your Madison’s Reporter). In that regard, Chinese home buyers will pay more for a wood framed home if it means energy and upkeep costs in the future will be less than traditional concrete or steel homes. Interestingly, they also prefer not to take out mortgages. Most homes in China are bought with an all cash payment up front.

Following the pattern set by British Columbia’s Minister of Forest and Range, and Canada’s Minister of Natural Resources, a Chinese school that collapsed in a 2008 earthquake will be among the buildings to be constructed using ARC-patented technology now being manufactured in China. Panel Board Holdings is also constructing low-cost housing on contract in rural China, using the OSSB created from local straw supplies. Structures built using this material are considered about 10 times more resistant to earthquakes than brick due to its flexibility, according to a Panel Board Holdings statement.

“The circumstances in China lend themselves perfectly to this technology, turning a regional waste stream into building supplies while reducing their carbon footprint and providing much-needed housing,” says Wayne Wasylciw, ARC’s project lead in Edmonton.

There are numerous financial benefits for Canada from the promotion of this new product. If the OSSB technology becomes in high demand in China, then Canada will have more trade relations with China, enabling the importing/exporting of goods at a lower cost. The continual trade and exchange of goods between the two countries would result in lower costs of production for the Canadian companies, hence increased profits, therefore benefitting the Canadian economy. That means more customers and more business for Canadian companies.

As we learned from the current recession, Canada’s reliance on the US as the major destination for exported goods, approximately 85 per cent of all Canadian manufactured products for the past 10 years, was the main cause of Canada’s financial downturn. Had Canada spread its consumer base further afield globally, the economic downturn would not have hit this country as hard.

Expanding Canada’s export customers by promoting the use of new industry and new technologies can only help us all.

Madison’s Timber Preview

More economic indicators are starting to point toward a recovery of the North American lumber industry. Recent changes to the Shanghai Local Code, a surge of interest and investment in commodities, climbing copper list prices — a leading indicator to new US home building, and shares of several of Canada’s largest lumber exporters have been rising sharply in the past two months. All are examined in the latest issue.

Contact us any time for a subscription.

Canfor’s Possible Reopening of Chetwynd Mill

Canfor Corp. is examining a plan that could result in its Chetwynd sawmill in northeastern BC re-opening on one shift next May. No decision has been made, but one is expected in mid-December, Canfor spokesperson Dave Lefevbre told the Prince George Citizen. If the mill does start, it would put about 65 workers back on the job, less than the 188 workers the mill employed before the shut down.

The sawmill was closed in 2008, shuttered now for 20 months, a victim of a forestry downturn led by a collapse in US housing.

Workers at the Chetwynd mill recently voted on a different compensation model that includes profit sharing, said Lefebvre, who would not reveal any more details.

Workers at the sawmill are represented by the United Steelworkers, who are in the midst of negotiations in the Interior for a new contract. Lefebvre stressed that the deal with the workers at Chetwynd was not part of union negotiations, according to the Prince George Citizen.

Restructuring, Upgrades, Buyouts

Toronto’s Fraser Papers Inc., which is operating under court protection from creditors, filed a restructuring plan Thursday that would see the company focus its business on its specialty papers business and sell off its other assets.

Bankrupt corrugated packaging maker Smurfit-Stone Container Corp, out of Chicago, filed a Chapter 11 plan and disclosure statement in a Delaware bankruptcy court early on Tuesday, court papers showed. The plan calls for the company to form a new Canadian subsidiary which will acquire all of the assets and certain liabilities of Smurfit’s current Canadian units. This will allow the company to merge all the Canadian operations into one new entity, which will then become a subsidiary of Smurfit.

Unionized workers at West Fraser’s Eurocan, BC, pulp and kraft paper mill are supporting the idea of buying the operation the company wants to close down the end of next month. First results from voting earlier this week indicate 91 per cent of the members of the Communications, Energy and Paperworkers Union of Canada Local 298 support of the idea, according to a union spokesperson. At press time, results were not yet available for the decision of Local 1127.

Restructuring, Changes

Fraser Papers produces specialty packaging and printing papers with operations in New Brunswick, Maine, New Hampshire and Quebec.

“The new paper company will be significantly smaller but will be viable and more competitive in fewer market segments,” chief executive Peter Gordon said in a statement.

The plan calls for a two-stage process including the sale of the company’s specialty paper assets in Madawaska, ME, and Edmundston, NB, as well as the two New Brunswick lumber mills located in Plaster Rock and Juniper, to a new company.

The second stage will involve the sale of the company’s remaining assets including the Gorham paper mill in New Hampshire, two lumber mills in Maine the Thurso pulp mill in Quebec, that is currently shutdown.

Smurfit-Stone said its total assets had a net book value of about $5.28 billion and total debt of about $6.6 billion as of September 30, 2009. The company, which makes pizza boxes, “clamshell” packages for the food industry and pulp for shopping bags, is one of the largest US corrugated packaging makers.

Kitimat councillors were informed of the idea of a union purchase at their November 23 council meeting by Local 298 president Mary Murphy.

Kitimat mayor Joanne Monaghan said that a group was formed in-camera at the November 30 council committee of the whole meeting. The group’s members, from both the union and council, will work together to decide the feasibility of a union buyout of Eurocan.

Provincial forest minister Pat Bell has also told reporters that a company with “fairly large interests in China” is looking at the mill’s financial records, according to the Terrace Standard.

Labour Disagreements

Vernon, BC-based Tolko Industries announced the indefinite closure of its High Level, AB, sawmill on Thursday, the deadline they gave United Steelworkers Local 1-207 to respond to their final contract offer. It will operate until December 18, when the current log inventory is expected to run out. The planer will run until mid-January. The plant employs 290 workers directly, and 300 woodland contractors and their employees.

270 unionized workers at Tembec’s Pine Falls, MN, sawmill locked out by the company August 31 after they overwhelmingly rejected a proposal that union officials said called for wage and benefits concessions totalling about 35 per cent.

Workers said Thursday that giving up is not an option, adding it won’t be at the hands of an arbitrator under the province’s Labour Relations Act. Under the act, either side in a strike or lockout can apply after 60 days for binding arbitration to settle the dispute.

Observers say at this pace the dispute may never get resolved: either the union will give up or Tembec will close the plant.

December 06, 2009

Carbon Credits Market

A market that is currently being developed could well serve British Columbia’s beetle kill problem, regardless of which proposed system is eventually implemented. In the US, industry’s first year of compliance for reducing carbon emissions is 2012, with a 17 per cent reduction required by 2020. In the EU, a 20 per cent reduction in carbon emissions by industry is required for the same year.

As BC embarks on large scale salvage of beetle kill, and silviculture, there is potential for significant revenue while the newly planted trees grow, before they mature and are ready for harvest.

Carbon Credits; Reforesting BC’s Beetle Kill

As subscribers are aware, Madison’s brings you news of developments and changes in the forestry industry as it happens. We were the first forestry publisher to inform our readers and the public about the growing market in China for wood products (covered in the November 21, 2008 issue of your Madison’s Reporter). This topic is now all over the mainstream news. We have been updating subscribers on the biofuel industry, providing hard information on new technologies, and on projected demand from the US and Europe.

The next new source of potential revenue from the forest land base is carbon credits.

The US American Clean Energy and Security Act of 2009 passed in Congress on June 26, 2009 by a mere seven votes. This comprehensive national climate and energy legislation will establish an economy-wide, greenhouse gas cap-and-trade system, and critical complementary measures to help address climate change and build a clean energy economy. The bill was placed on calendar in the Senate under general orders on July 6, 2009.

The portion of this legislation relevant to carbon trading states that US industry must, “Reduce carbon emissions from major US sources by 17 per cent by 2020 and over 80 per cent by 2050 compared to 2005 levels.” This is much less than the EU’s pledge of a 20 per cent cut over the same period, or a 30 per cent cut if there is a global deal; and much less than the 25-40 per cent figure that developing countries are demanding.

In a nutshell, the concept is simple. A total cap has been placed on industrial carbon emissions/greenhouse gases annually. Under the program, as the plan progresses fewer credits are to be issued each year until the final goal is reached. 2012 is the first compliance year. There is a possibility that the remaining available carbon credits will become more valuable each year as companies that are still working to reduce their emissions need them. The EU is formulating a similar system, with an even shorter time frame for rollout.

British Columbia could benefit by providing carbon offsets for the duration of replanting the beetle kill as industry upgrades infrastructure and/or transfers to green energy. Trading credits operates like any other commodity market, and BC could sell credits to the highest bidder. This revenue would help fill the two-generation gap between the salvage of beetle kill and silviculture, and eventual harvesting of new timber, probably a time frame of about 80 years.

The big issue right now being debated in the US is the value of the initial carbon credits. Industry wants a handout, while President Obama’s administration wants a 100 per cent auction system. Congress and other interested parties are calling for a combination of these. If the carbon credits are initially given away, there will be very little revenue at the outset and the average American citizen will be forced to cover the costs, either through higher energy bills or taxation.

In practical terms, BC is in a unique position to service this carbon trading market due to the beetle kill. According to the US’s Voluntary Carbon Standard methodology, a given “forest management project must not lead to a decrease in total volume harvested of more than 25 per cent over the life of the project relative to the baseline”. Details available here http://v-c-s.org/methodology_eifmm.html . BC will be an exception to this restriction because removal of the beetle kill is salvage, rather than harvest.

Madison’s spoke to Greg Arnold, managing partner of CE2 Capital Partners out of San Diego, CA, while at the 6th Timberland Investment World Summit in New York City in October. Arnold explained that “cap and trade is a tool, one tool, to achieve a policy outcome.” In this case the outcome is a reduction in total emissions. As legislation is currently being drafted, in the US and in Europe, it is not yet known which markets will be the most lucrative for trading. “International credits are not eligible in the US,” said Arnold. “In the end the US may not be part of an international carbon treaty. Canada may be able to have individual deals with the US and with Europe.”

The most important thing to understand about the carbon trading market, explained Arnold, is that there must be “additionality. The system is geared to payment for something that would not normally be done.” BC’s recovery from the mountain pine beetle infestation is precisely the type of situation that would fit this additionality criteria.

Compliance details for carbon trading can be found in the American Carbon Registry’s March 2009 publication, “Forest Carbon Project Standard” here http://americancarbonregistry.org/carbonaccounting/
ACR%20Forest%20Carbon%20Project%20Standard%20v1%20
March%202009%20FINAL.pdf.

In a follow-up interview, Laurie Fitzmaurice, Director of Investments and Acquisitions for CE2 Capital Partners, explained to Madison’s that in there will be a delay in getting revenue from selling carbon credits because when young trees are planted “there is not a meaningful amount of carbon absorbed in the first few years.” However that changes soon, as the trees get beyond the sapling stage and this is where “there is potential revenue growth in terms of carbon offset accounting.” Fitzmaurice pointed out that under the projected carbon trading market system, “the party that controls the land has to sign up for 100 years. There is a permanence commitment, the system is based on the long term.”

Another important point to note is that it is critical to get a baseline of the BC land base prior to taking any action on the beetle kill. Fitzmaurice explained that “no matter what the rate of tree growth, the baseline is zero.” The Voluntary Carbon Standard’s condition for forest management methodology is “Forest management in both baseline and project cases involving clear cut or patch cut practices.” Details on how to assess the baseline for US standards are available here http://v-c-s.org/docs/Ecotrust%20IFM%2010-15-09.pdf . European baseline standards can be found on the United Nations Framework Convention on Climate Change website http://cdm.unfccc.int/methodologies/index.html .

Between the rapidly growing technologies and markets for biomass fuel, specifically from forest residue, and this new carbon trading market, BC could turn the devastation of the beetle kill into a lucrative source of revenue while the local lumber industry waits for the newly-planted trees to grow.

US New Home Sales

The US Commerce Department released October new home sales Wednesday at 430,000, up 6.2 per cent over September and well above pre-report estimates for 410,000 units sold. September sales were upwardly revised to 405,000 from 402,000. October 2009 sales were up 5.1 per cent compared to October 2008. Median home prices rose 0.7 per cent against September levels, to $212,200.

Unsold inventories continue to fall and were off 4.4 per cent to 239,000 units. Outright inventory levels were the lowest since May 1971. Months supply eased to 6.7 months, from 7.4 months in September.

Mill Purchases, Sales and Closures

British Columbia’s Dunkley Lumber has purchased Stuart Lake Lumber in the Fort St. James, BC, area, a mill that has been closed since 2007.

Tolko Industries, based in Vernon, BC, has announced that its lumber division in High Level, AB, is closing. The mill initially closed in February 2009, but reopened later in the year. There are enough logs to allow the sawmill to operate until December 18, though some employees will be able to stay on until mid-January.
A judge has approved the sale of bankrupt AbitibiBowater’s Belgo pulp and paper mill in Shawinigan, QC, to Recyclabe Arctic Beluga Inc.

Mill Sales, Closures

AbitibiBowater figures it will save nearly $2.3 million annually after the sale of the Belgo mill.
Dunkley said Tuesday there are no plans to re-start the Stuart Lake sawmill or begin logging in the near future. The mill holds 202,000 cubic metres of annual long-term timber rights, about 4,500 logging truck loads of timber.
In 2005, the amount of timber that can be harvested on the tree farm licence was significantly increased so Dunkley Lumber could salvage mountain pine beetle-killed pine before it decays.

Access to timber is expected to become a critical issue in the next several decades as the beetle epidemic is forecast to result in a 40 per cent decrease in the timber supply in the Interior.

Russian Timber in Japan

At the October 21, 2009 Japan Russian Wood Products Conference in Tokyo, Russian timber exporting firms indicated that the proposed 80 per cent Russian tax on raw log exports will be postponed for another year, leaving Russian log taxes at 25 per cent for 2010, according to the Japan Lumber Journal
Russian log imports into Japan declined by as much as 40 per cent in 2009 compared to 2008. The Russian emphasis on processing lumber domestically for export made progress in 2009, with the start up of large scale operations in the Far East and Siberian regions, according to the Journal. There are finished goods inventories of 15,000 cubic meters, and 4,200 cubic meters of red pine logs, at the Russian port of Nakhodka.

Logging volume in Russia has dropped by 20 to 30 per cent this year and is expected to drop even more, says the Journal, as the number of logging companies operating has been reduced by half.

Russian Wood into Japan

Despite Japan’s reduced volume of log buying in 2009, that country’s buying of lumber has increased by 10 per cent, according to the Japan Lumber Journal.

In view of the uncertainty over the previously announced 80 per cent tax on Russian log exports, sawmills in Japan switched to re-sawing genban or other species, and plywood mills shifted to domestic species over Russian larch logs, according to the Japan Lumber Report.

Sawmills are looking at the European market for customers rather than within Japan, due to fussy specifications domestically, says the Report. Large volume mills particularly prefer to make standardized products for European markets.

This will increase competition for regional species, as Siberian mills are also looking to the European market, and are not generally interested in making Japanese spec. lumber, the Report says.

Welco SPF into Japan

Directors at British Columbia’s Welco Lumber announced, during a trip to Japan recently, that Conifex’s Fort Saint James, BC, mill will increase J grade export production to 56 million board feet, 20 per cent of the mill’s total capacity.

The mill uses large diameter logs, so premium grade SPF and MSR lumber is expected to have a high percentage of 2×8 and 2×10 sizes.

Welco VP Kip Fotheringham said the company will increase premium grade lumber production for Japan when other lumber producing companies in BC are focussing on the Chinese low grade market.

Taiga Board Changes

The Board of Directors of Taiga Building Products Ltd. announced today that they have appointed the next generation of Taiga’s Executive Vice Presidents, effective January 1, 2010.

Trent Balog will step into the role of Executive Vice President, Operations. Kevin Bradshaw will assume the role of Executive Vice President, Supply Management. Grant Sali will move into the role of Executive Vice President, Allied Products and Treated Wood Products.

The Board also announces that effective March 31, 2010, Jim Bradshaw, President and CEO will be retiring. He will join the Board as a non-executive director thereafter.

Cam White, currently Taiga’s Executive Vice President, Sales & Operations and COO, will be assuming the position of President and CEO.

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