US Housing Starts Forecast ; Madison’s Timber Preview; US South Fibre Costs; BC Forest Fires ; Timber Demand in Japan ; Madison’s Announces . . . ; US Housing Starts; Canadian Non-Residential Construction ; Japan Housing Starts; BC Labour Negotiations ; The State of Forestry ; Madison’s Live Online Lumber Producers’ Listings ; Canadian Housing Starts ; BC Labour Issues ; Biofuels from Plant Cellulose ; Genome Research into Forestry Biofuels ; BC Wood Exports to China Continue Growing ; New Canadian Export Figures ; Recent US Economic Indicators ; Kimberly-Clark to cut 1,600 jobs ; Quebec Forest Fires ; British Columbia Labour Issues ; Grant Forest Products Restructures ;
July 26, 2009
US Housing Starts Forecast
In a departure from our customary habit of sticking to the facts, Madison’s is venturing this week into the usually avoided territory of making predictions.
Armed with hard data displayed clearly in graph form, Madison’s looks at US home building trends from 1965 to date to make an assessment of when a recovery of the US housing market can reasonably to expected to occur, and to what degree that recovery will be.
44 Year Trend Line
At Madison’s we are not generally prone to making predictions. We may talk among ourselves, and with some of our sources, about our professional opinions or about what our gut is telling us about the lumber and panel market. But what we print is strictly based on the facts of that week, and the expert opinions of the buyers and sellers on the firing line.
At this time the entire forest industry, and indeed various tangential facets of the US economic structure, have their attention directly on US home building, which is vital to lumber and panel producers in North America. Since early 2008, analysts and industry watchers who normally focus elsewhere have been making predictions, of varying accuracy, on the future trend for US home building. Very few have, to this date, been proven correct. Since late 1Q 2009, those analysts have adjusted their earlier predictions of a resurgence in US home building from late 2008 to late 2011 or even 2012. Madison’s considers these predictions to be veering too far in the opposite direction; where previous analyses were too bullish, these more recent ones are too bearish.
The graph below shows the line of seasonally-adjusted annualized housing starts in the US from 1965 to 2009. Using hard data, the graph also shows the mathematical trend line in housing starts for the same time period, at 1.55 million, as well as the projection into 1Q 2013 (dotted green line). The bars at the bottom of the graph show real US population figures.
What is interesting about the first graph is that the peak of US housing starts in 2005 is actually not a historical high. In 1971 annualized actual starts in the US were 2.36 million, while at the end of 2005 the number was 2.07 million. In fact there are several peaks in the past 44 years that match or exceed the most recent one. The thought that immediately springs to mind is: if US housing starts hit a historical high in November 1972, yet the population was just over 209 million, the most recent high of 2005, with a population of 300 million, is not really out of line.
The fact that the trend line is flat is very odd, and seems to indicate that the actual inventory of homes in the US is not increasing. Particularly in view of the fact that the population has gone up 68 per cent since 1972. Given these figures, 1.7 or 1.8 million new homes built in the US annually would be normal in order to keep up with the growing population. Due to upcoming mountain pine beetle kill harvest reductions in BC, there is going to be a problem with lumber production from that region. Where is the necessary lumber going to come from when US housing starts hit the trend line?
Please watch for more information in an upcoming issue of Madison’s Reporter.
The inference to be drawn from this information is that there is more than one family living under one roof.
Further analysis renders even more interesting results. The graph below shows the cumulative of actual starts minus the trend, which signals excess housing supply.
When actual US housing starts drop below the trend line, it means the inventory of homes in the US has been decumulating, that house inventory goes into shortage mode. By accumulating ‘actuals minus trend’, it can be inferred that there was excess home supply in the 1970’s and 1980’s in the US. It appears that an extended period of supply shortage occurred in the 1990’s, and that this shortage likely contributed to the growth of US housing starts from 2000 to 2006. In light of the history and the trend line, the recent run-up of starts is not extraordinary. Since the drop in starts was so material, a recovery back to trend in 2010 is in order. In the absence of a 2010 recovery, the forecast cummulative drop (green dotted line) gets excessive. The trend line at 1.55 million new homes a year is very conservative. If the trend line were set at 1.7 million new homes, the drop after 2009 becomes even more excessive.
A house then becomes more than just a place to live, it becomes an attractive investment. Indeed a very attractive investment when the alternatives continue to be uncertain or even risky. With house prices depressed, there is no incentive to build. As the cummulative housing shortage grows, rental rates rise, which causes a return to buying then renting-out. Investors switch from gold, stocks, and bonds to housing. In addition, buying versus renting becomes more attractive.
When analysts predict US home building will not recover until 2011 or even 2012 they point to the current inventory of unsold existing homes, currently at 4.89 million annualized existing homes, down to 9.4 months supply from 12 months at the beginning of this year. New home inventories, currently at 342,000, are declining at an even faster rate, and are expected to continue falling. However this figure is based on home sale activity at the time, which until very recently was extremely low. All that needs to happen is a small spurt of home buying and that seemingly huge inventory will be burned up very quickly.
This could all happen quickly, and in the near future. Meanwhile the rapidly growing population in the US needs a place to live. New US home building will come back with a roar starting in 2010, and climb slowly until reaching the trend line before 2013. The reduction of timber supply several years after denuding BC’s beetle infested Interior will likely cause a shortfall in the very lumber production that would normally serve US home builders. The trend number for US housing starts should be 1.55 million annualized, thus Madison’s anticipates that starts in the US will begin to rise to this number as early as mid 2010. According to the historical numbers and the plunge in starts recently, US home building could be as high as 1.8 million annualized by 2012.
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Fibre Costs to Pulp Mills in the US South
The US South has the largest pulp industry in the world and this industry has enjoyed low wood raw-material costs for a very long time. This trend continued in 2009, with wood chip and pulpwood costs that were substantially lower than global average costs, according to the Wood Resource Quarterly.
Weak pulp markets and reduced demand for wood fibre resulted in lower costs for wood chips and pulpwood in practically all regions of North America in the 2Q/09. This is the fourth consecutive quarter that wood fibre prices have fallen, with the biggest reductions occurring in Western US and Western Canada. In the US South, which is the biggest wood fibre consumer in the world, pulpmills have only experienced minor downward price adjustments in recent months.
Softwood fibre prices in Southern US are currently almost 20 per cent lower than the Global Average Softwood Price Index , according to the Wood Resource Quarterly, while hardwood fibre prices are nearly 30 per cent below the Global Average Hardwood Price Index. With no signs of a imminent improvement in the markets for lumber, pulp or paper, it is not expected that wood fibre costs will increase much, if at all, during the remainder of this year.
BC Forest Fires
As expected for this year’s fire season on the west coast, the worst is beginning to unfold. Forest fires currently burning in the Okanagan region are threatenining thousands of homes. As of Friday morning two stubborn fires on the west side of Okanagan Lake have been contained but one, the Terrace Mountain fire, is raging out of control. Crews were able to establish fire breaks around the other two fires. Estimates late Thursday were that the Terrace Mountain fire was growing by 30 meters a minute. The Ministry of Forests reported early Friday morning that this fire is 4,400 hectares in size and is only 20 per cent contained.
Lightening strikes in the area on Thursday night set 30 more fires, all of which were quickly contained.
Forest Fire Season
In addition to the threat to homes, significant amounts of timber have burned with the expectation of more losses. The Terrace Mountaing fire is ravaging timber lands owned by Tolko Industries and BC Timber Sales, which have both suffered significant financial losses, according to fire information officer Grace Pickell.
The two other fires in the area west of Kelowna that were contained earlier this week managed to do significant damage as well, threatening the Gorman Brothers sawmill at one point. Heroic efforts by mill staff and fire crews extinguished the fire, which caused some structural damage to the building but did not reach mill equipment. Some very sad news, however, for Ron Gorman and his sister Mary Tracey plus a neighbour, who lost their homes to fire. Thankfully no one was hurt as the three homes burned to the ground.
A new fire, discovered Wednesday, is burning completely out of control at Mount Mclean, 4 km west of Lillooet. As of Friday morning the 400 hectare fire is rated 0 per cent contained by the BC Ministry of Forests.
On Thursday, the Ministry of Forests reported that over 1,200 fires have started in BC since April 1, 2009, burning a total of 46,000 hectares. Thanks to a cool spring, in all 2008 there was a total of 1,975 fires, which burned 12,743 hectares.
Fire safety can not be stressed enough this year, where a combination of hot weather and low precipitation throughout the province, and indeed in Alberta, make the danger of forest fire extreme. Of the three fires in the Okanagan, only one was caused by lightening.
There is also significant fire danger on Vancouver Island, which has already been forced to issue daily water restrictions to residents and businesses in the Tofino area. Officials in the Nanaimo area are concerned about fire hazards in areas that have been logged by lumber companies and slash has been left behind to rot.
“That is just fuel for a fire and, because of the lack of precipitation this year, it is so dry a spark can set it going,” said Nanaimo fire chief Ron Lambert.
In response to this danger, the Ministry of Forests and Range is training 20 new firefighters in each of Nanaimo, Hazelton, Lillooet and Port Alberni, and 40 new firefighters in Vernon.
Elsewhere, on the Mediterranean island of Corsica, two villages near the southern city of Ajaccio were evacuated Thursday after wildfires raced through 3,000 hectares of tinder-dry forest.
Three separate forest fires are burning in Spain, at a total of 12,500 hectares. The country has asked Italy and Portugal for help with fire suppression.
In Italy, two people were killed as fires burned on the island of Sardinia Thursday, and several fires broke out in Greece, mainly in the southern Peloponnese and on the island of Evia, destroying forests and farms.
Yukon has experienced very unusual fire activity this year, with a total of 65 fires reported so far this season, burning more than 76,000 hectares of forest. Currently fire crews from Alberta are helping the region, where a large forest fire burning 60 kilometres northeast of Whitehorse grew by about 200 hectares over the past week, and is now 2,200 hectares in size.
In the US, Forest Service spokesperson Duane Lyon says a fire in the Klamath National Forest, in northern California has expanded to 3,120 acres, or nearly 5 square miles. The blaze is 10 per cent contained, with fire officials expecting firefighters to have the fire contained by Saturday.
July 26, 2009
Timber Demand in Japan
Perhaps shocked, first by Russia’s announcement of an 80 per cent tax on raw log exports in 2008, then by that country’s reversal later the same year, the Japanese wood products industry seems to be focussing on increasing domestic production.
Recent figures show that Japan’s import volumes of logs and lumber are dropping, both month on month and over the past five years. In particular imports from European suppliers dropped dramatically.
Surprisingly, wood chip and pulp imports were the only wood products segment to show an increase in import volumes.
A Growing Domestic Market
Japan continues to be Canada’s second most important customer of wood products, even in the face of China’s great leaps forward in terms of lumber imports from North America. In the past few years Canada has seen a shift in its lumber customers, most notably a large drop in demand from the US. Recent figures released by Japan’s Forestry Agency paint an interesting picture of the Japanese wood products industry.
The April 15, 2009 report found that the total value of log and lumber imports to Japan in 2008 was down 17 per cent over the previous year, which was the first decline in three years. The most drastic drop was seen in Russian log imports, down 47 per cent from one year earlier. The combined imports of Indonesia and Southsea lumber saw a 31 per cent drop from 2007. The value of Canadian imports to Japan were down 7 per cent from the previous year, while the value of US wood import dropped by 11 per cent for the same time period.
Only New Zealand and Chile saw increases in value of Japanese imports of their products, with Chile sending 13 per cent more logs and lumber while New Zealand was able to sell 4 per cent more logs into Japan in 2008 when compared to 2007.
In total, the amount of lumber imported into Japan was down 11 per cent in 2008 when compared to 2007, while the value of lumber imported was down 21 per cent. Meanwhile both the total quantity and the total value of logs imported were down 31 per cent. The decrease of import value is largely due to the appreciation of the yen against the US dollar.
Canada and the US saw a 7 per cent increase, to 2.9 million cubic meters, in lumber product imports by Japan in 2008 when compared to 2007. European lumber imports into Japan were down 24 per cent, to 2.0 million cubic meters, for the same time period.
From 2007 to 2008, the import amounts of plywood and laminated lumber were down, 11 per cent or 3.0 million cubic meters and 34 per cent or 534,000 cubic meters, respectively. Only wood chip import amounts rose, by 3 per cent or 14.7 million tons, for the same time period.
It appears that the wood products industry in Japan is working hard to focus on domestic production. A separate report, this time by the Japanese Ministry of Agriculture, Forestry and Fisheries, found that in 2008 a full 70 per cent of log supply in Japan was domestic. The overall demand for logs saw a drop of 9.6 per cent, or 26 million cubic meters, in 2008 when compared to 2007. While the supply volume of domestic logs to the Japanese market remained static in 2008, at 17.7 million cubic meters, the volume of imported logs saw a drop of more than 25 per cent, to 8.3 million cubic meters, from the previous year.
In the five years from 2004 to 2008, the total log supply in Japan fell from 30.8 million to 26 million cubic meters. Of that total, domestic log supply rose from 15.6 million to 17.7 million cubic meters, while import of logs into Japan fell from 15.2 million to 8.3 million cubic meters. The share of domestic log supply in Japan rose from 50.6 per cent to 68 per cent from 2004 to 2008.
Demand for logs in Japan for lumber and plywood fell for the same time period, from 21.7 to 17.6 million cubic meters and from 5.4 million to 4.0 million cubic meters respectively. Only the pulp and chip market saw an increase in demand for the five year period, from 3.8 million cubic meters to 4.5 million cubic meters.
As long as there continues to be reduced construction in Japan, all indications are that its wood products industry is going to rely on the domestic market as much as possible. An examination of the latest import figures seems to indicate that, once building resumes in Japan and demand exceeds what the domestic market can produce, North America – in particular Canada – is well positioned to return to the former level of export into that country.
When a resurgence in building will happen in Japan is, of course, the burning question. A forecast for 2Q and 3Q timber demand released by Japan’s Forestry Agency on March 23, 2009 shows a slight drop over 1Q 2009. Due to the decreasing gross demand in the Japanese economy, declining new housing starts, and shrinking demand for timber, the Forestry Agency expects a 10 to 20 per cent decline in timber demand in 2Q and 3Q 2009 when compared to 2008. Indeed the Agency expects total Japanese housing starts to be just over one million units for all of 2009.
The latest issue of the Japan Lumber Report, July 17, 2009, points to shrinking inventories of North American lumber products. Inquiries, especially for small orders, are starting to rise but are not enough yet to firm very weak lumber prices. Some lumber importers have started to consult with Canadian suppliers of Douglas Fir on items not produced domestically in Japan, while inquiries have been spotty for SPF 2×4’s, according to the Report. None of the volumes discussed are enough to bring lumber prices back up yet. Expectations are, however, that extended mill closures by major producers in BC will soon cause a rebound in prices.
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US Housing Starts
Home construction in America unexpectedly rose in June, building permits surged, and single-family starts made their biggest climb in four years, according to data that adds to evidence the housing sector is beginning to heal.
Housing starts increased 3.6 per cent to a seasonally adjusted 582,000 annual rate compared with the prior month, the Commerce Department said Friday. Housing starts were 46 per cent lower than the pace of construction in June 2008.
While the report suggests things seem to be getting better for the housing sector, conditions are still rough.
Meanwhile building permits in June climbed 8.7 per cent to a 563,000 annual rate. Economists had expected permits to rise by 2 per cent. May permits rose 4 per cent to 518,000.
Home Building in the US
The June building numbers were led by a 14.4 per cent jump in single family starts, after rising 6 per cent in May. It was the fourth climb in a row, and the biggest increase since 17.6 per cent in December 2004.
Regionally, starts rose 33.3 per cent in the Midwest and 28.6 per cent Northeast but fell 1.4 per cent in the South and 14.8 per cent in the West.
Nationwide, an estimated 58,300 houses were actually started in June, based on figures not seasonally adjusted. An estimated 58,400 building permits were issued last month, also based on unadjusted figures.
The National Association of Home Builders released its housing market index Thursday for July; the gauge measures confidence of builders in the housing market. It rose to 17, from 15 in June.
Lumber futures firmed on the housing starts news released Friday morning, and are currently higher with September +$3.50 to $189.90 and November +$2.80 to $193.90.
Oil prices gained US$1 per barrel Friday after a rise in US housing starts in June bolstered prospects for economic recovery.
Canadian Non-Residential Construction
Investment in non-residential building construction in Canada amounted to C$10.6 billion (in current dollars) in the second quarter of 2009, a 2.8 per cent drop from the first quarter and the second consective quarterly decrease, according to a report by Statistics Canada released Tuesday. This was the result of declines in commercial and industrial building construction.
Non-Residential Building in Canada
Investors spent C$6.3 billion on commercial projects, down 4 per cent, while in the industrial component, investment fell 8 per cent to C$1.2 billion. Spending in the institutional component continued to rise, up 2 per cent to C$3.1 billion.
Provincially, the largest contributions to the quarterly decrease (in dollars) occurred in Alberta, down 7.4 per cent to C$2.5 billion, and British Columbia, down 5.2 per cent to C$1.3 billion. In both provinces, the decline was mainly due to lower spending on commercial projects.
Japan Housing Starts
Japanese new home building in May showed a 2.7 per cent decline from April and a 31 per cent drop from May 2008, according to Japan’s Ministry of Land, Infrastructure, Transport and Tourism. This is the lowest monthly starts since 1967.
Building permit applications were down 26 per cent in May when compared to the previous month. According to a Ministry statement, housing starts in Japan “show no signs of bottoming out at all.”
While starts of all types decreased in all regions, condominiums in Tokyo took a particularly large hit with a decrease of 66 per cent, and units built for sale also in Tokyo were down 56 per cent.
Analysts polled by Dow Jones Newswires had predicted a 22 per cent decline.
Wood based units were down for the first time in a year, by 22 per cent with 33,285 units. Wood based unit share of total new building was at 53 per cent.
Japan’s Ministry of Land, Infrastructure, Transport and Tourism stated that “housing starts will remain depressed for some time as the employment situation has not improved and wage increases are unlikely.”
April construction orders from Japan’s 50 leading domestic builders sank by 26 per cent to 563 billion yen (US$5.8 billion).
BC Labour Negotiations
The latest word from the United Steelworkers is that negotiations with the Conifer employer group are progressing. Bob Matters, Chair of the Wood Council, told Madison’s on Friday morning that the Steelworkers had a “reasonably good meeting” with employers this week.
There are more meetings planned for next week, and Matters expects to have some news by Friday, July 24.
On this round of labour negotiations, the Steelworkers are going to try to settle on a contract with Conifer that will work for all four employer groups.
Matters explained to Madison’s that the union is “not going to bounce between employer groups.” When pressed for details Matters would only say that the Steelworkers will “concentrate on one employer first, and work from there.”
July 19, 2009
The State of Forestry
In late June PricewaterhouseCoopers released its annual survey of the global forest industry. Madison’s examines the results against PwC’s 2008 report and draws conclusions about the state of the industry for the near future.
When put together with Export Development Canada’s revised global economic figures released this week, and news about the US housing industry, PwC’s report helps demonstrate where the forest industry is going in 2010 and beyond.
Global Forestry Survey 2009
On June 24, 2009 PwC released its annual forest industry survey for 2008. Madison’s examined the findings closely, against the same report for 2007, to find where the industry has been and to determine where it is going. According to the most recent report, “the top 100 forest, paper and packaging companies from around the world saw net income tumble from positive $14 billion in 2007 to record losses of $8 billion in 2008 [ . . . ].
This year’s survey shows that:
- Total sales were $357 billion in 2008, up from $333 billion in 2007,
- Cash flow from operations totaled $26 billion in 2008, down from $31 billion in 2007,
- Operating income of $21 billion represented a decrease of 19 per cent compared to 2007, and
- Average ROCE (return on capital employed) dropped from 5 per cent in 2007 to 2.4 per cent in 2008. Only six companies earned a return of 10 per cent or more in 2008, compared to 14 in 2007.”
The increase in total sales was mostly due to the strengthening Euro against the US dollar.
The sharp decline of net income is “a result of goodwill and fixed asset impairments, restructuring, severance and high operating costs.” However, cash flow only dropped 16 per cent, due mostly to companies’ focus on conserving cash. Much of the impact on the bottom lines was a result of non-cash or long-term items, according to the PwC report.
In contrast to the first half 2007, which showed strong global economic growth lead by emerging markets, the second half of 2007 was marked by a global economic slowdown mostly due to the credit crisis in the US. In 2008, global growth predictions were revised downward. Moving into the second half of 2009, there are indications that the US economy, as well as major economies globally, have stopped shrinking. The question that remains is when will actual growth begin once more, and by what scale?
Even those not involved in the forest industry realize by now that the complete stall of home building in the US in the middle of 2006 is a core cause of the current troubles for the forestry sector. Today there remains a sizable glut of unsold new homes in key markets like Phoenix, AR and Las Vegas, NV. There have been indications of late that even in these hard-hit areas new home sales are improving, although at great discounts and usually at auction. In other regions of the US, home building has restarted, although full recovery is still a way off. In fact, 73 per cent of all existing houses and condos sold in the Las Vegas area in June were foreclosures, up from 56 per cent a year earlier, according to MDA DataQuick. Foreclosures accounted for 51 per cent all existing-home transactions in California. Meanwhile, the median price for an existing, single-family detached house in California plummeted 30 per cent to US$267,570. Many analysts agree that until US home prices stabilize it will be very difficult to make accurate predictions about new home building.
About 20 million of the 93 million houses, condos and co-ops in the US were worth less than their loans as of March 31, 2009, according to Seattle-based real estate data service Zillow.com. The decline in the housing market has slashed more than 55 per cent of total homeowner equity since 2005, diminishing the ‘wealth factor” for many homeowners, and forcing them to curtail spending.
As for Canada, most analysts have been predicting since early 2009 that Canadian home building, and indeed a strengthening of the Canadian economy, would come sooner than in the US. Thursday’s release of Canadian housing starts seems to confirm this prediction. Canadian housing starts rose in June for a second consecutive month, adding further proof that the sector was on the mend after building activity fell to a nine-year low earlier this year. New home construction rose 8 per cent last month to a seasonally adjusted rate of 140,700 units, encompassing both single and multiple segments, Canada Mortgage and Housing Corp said.
Of interest is a separate report from Scotia Capital, which said new immigrants were driving housing demand and narrowing the home ownership gap with their Canadian-born counterparts. Madison’s was told earlier this year by seasoned analysts that this same situation would unfold in the US, that the steady influx of immigrants would bring a unexpected rise in US home building. While employment, interest rates and GDP are closely watched by financial analysts, immigration figures are often ignored. New home building has stalled for three years, but the number of new citizens naturalized in the United States increased 58 per cent from 660,477 in 2007 to an all-time record of 1,046,539 in 2008, according to the US Office of Immigration Statistics “Annual Flow Report”.
New immigrants tend to rent upon arriving in Canada or the US, but eventually make the move to home ownership. There is a reversal looming, where suddenly there will be a lack of homes, and building will start up at a frenzied pace.
A report released Thursday by Export Development Canada contains revised figures for Canadian exports. The global economy is now forecast to contract by 1.7 per cent in 2009, followed by modest 2.7 per cent growth in 2010. Driving the contraction in exports are plummeting export prices and sharply weaker physical shipments. Commodities will see the biggest drop in export sales, with energy, fertilizers and base metals sustaining an average decline of 38 per cent.
Global recovery is not likely to begin until the latter part of 2010, according to EDC. Growth will return next year, and at first blush, the 2.7 per cent increase looks respectable. However, it is barely above a recessionary pace, and given this year’s tumble, it amounts to baby steps out of a deep valley. Moreover, it comes with heavy public assistance. Based on OECD estimates, public stimulus packages are contributing about 1 per cent to 2010 growth, without which we would still be in a protracted recession. Policy measures are already kicking in, and their effects will be more obvious this fall. But true recovery will be a 2011 thing.
For the past month, the World Bank has been calling for all nations not to embark on any new stimulus packages, in particular due to an aging population which alone will bring a sharp rise to pension and health care costs in the near future.
The Japanese economy has yet to recover in any meaningful way, June US housing starts will come out next week but are not expected to show a radical change over the previous month, and, while the emerging markets of China and some south Asian countries are the only regions showing an increase in imports of Canadian wood products, the figures themselves are so small compared to the US or even Japan that few industry observers are paying attention.
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Canadian Housing Starts
Construction of new homes in Canada surged by 8 per cent in June. The annual pace of housing starts rose to 140,700 units in June from 130,300 in May, with the increase in activity spread across single and multiunit buildings, said Canada Mortgage and Housing Corp.
It was the first back-to-back gain since August-September figures in 2008, and about 20 percent higher than the low hit in April. The May figure was upwardly revised to 130,300 units from 128,400 previously, well ahead of April’s 117,600 starts.
The seasonally adjusted annual rate of urban starts increased 9.5 per cent to 120,100 units in June, while rural starts were estimated at 20,600 units.
The surge was particularly strong in Western Canadian cities, with urban housing starts leaping almost 60 per cent in the Prairie provinces and 25 per cent in British Columbia.
Home Building in Canada
Canadian residential building permits have increased in three consecutive months and are now 26 per cent above February’s low, while starts (which naturally follow) are nearly 20 per cent above their April low.
Both single and multi-unit starts rose in June, aided by the remarkably strong spring selling season—note that they’re still 28 per cent and 41 per cent below year-ago levels, respectively. Higher affordability and improved confidence brought buyers off the sidelines this spring.
Home sales nation-wide jumped more than 40 per cent in seasonally adjusted terms between January and May, with preliminary readings from the big cities pointing to further strength in June. Given that starts follow both sales and permits, there could be some further modest upside in the coming months, according to Sherry Cooper, Chief Economist at BMO Capital Markets.
While the housing starts number have improved sharply, they are still well below year-ago levels. June starts were 34 per cent lower than in the same month of 2008, and 48 per cent below the peak reached in September, 2007.
Government incentives included in fiscal stimulus packages may have helped to prop up the numbers, said Millan Mulraine, an economics strategist at TD Securities.
“There’s evidence of some stabilization in the sector itself, not only this report but other reports have also shown some buoyancy — particularly existing home sales,” said Mulraine.
CMHC said it expects housing starts to improve throughout the rest of the year and the years to come, until the pace of activity edges back up to meet demographic demand for about 175,000 new homes a year.
Earlier this week, Statistics Canada released some other positive construction numbers, showing that building permits issued in May surpassed the $5-billion mark for the first time since October, 2008, led by construction plans for schools and hospitals.
BC Labour Issues
Next week the United Steelworkers Union, representing BC’s forest industry workers, will begin negotiations with the first of four industry bargaining groups. Madison’s has learned that the union is likely to begin with the Confier group, representing BC’s independent lumber producers. The union’s position and industry proposals already submitted are so far apart that next week’s discussions could set the stage for a protracted labour disruption in the near future.
The companies are faced with the combined challenges of record low lumber prices, a stronger Canadian dollar and pine beetle log issues. Indeed, the Coalition for Fair Lumber Imports has for several months been investigating stumpage rates and log grading in BC, going so far as to issue a press release in March detailing its concerns on this subject.
Labour Issues in BC
Of note, Canfor and West Fraser each have significant capacity in the US south, and could increase Southern Yellow Pine production in the event of a labour disruption. However, SYP is not always interchangable with Western S-P-F. Many of the other operators in BC have no alternatives for production elsewhere, so would be more affected by a full labour stoppage than the big two.
Wage reductions in the 10 to 20 per cent range, or perhaps more, have been offered by the employer groups, and lengthy contracts of up to six years, which would not be in the union’s best interest.
This is the first bargaining process since the IWA merged with the Steelworkers. The IWA was perceived as a weaker union, while the Steelworkers are a much stronger bargaining unit, and have built up reserves during the previous commodity boom. The Steelworkers collective is larger than the IWA was. In addition the bargaining committee has changed, adding to the unpredictability of future direction.
It would be unwise for the Steelworkers to take a significant roll-back because that would set a poor precedent for other industries the union represents, as well as for the forest industry nationally in future labour negotiations.
Madison’s will be keeping a close watch on any developments in order to best inform the industry about future labour and employer movements.
July 12, 2009
Biofuels from Plant Cellulose
Yet another announcement of a research project in the mad race to develop green energy from forest residue, this time from Pennsylvania State University. A team there is researching a process to break down lignocellulose, the cell wall of wood.
Progress in this area is critical to all methods of extracting energy from wood residue, because breaking the tough exterior of a wood cell has to date been prohibitively expensive.
Wood Biofuels
Jeffrey Catchmark sees the quest to unlock the mysteries of lignocellulose synthesis and assembly as one of the most important research pursuits of the next century.
And the associate professor of agricultural and biological engineering in Penn State’s College of Agricultural Sciences is on a mission to find the key. Co-director of the university’s new Center for Lignocellulose Structure and Formation, Catchmark is determined to help answer the long-standing question of how our civilization can produce food, fuel and fiber more efficiently and sustainably.
The structure of cellulose — the rigid material that makes woody plants hard and stiff and protects their sugars that scientists covet to produce biofuels — holds the answer, he believes. “Even after decades of research, cellulose synthesis is not very well understood,” Catchmark said. “We don’t know how the cells assemble this chemical barrier to weather, insects and other organisms. The cell wall is very difficult to degrade.”
Catchmark, center co-director Daniel Cosgrove, professor of biology in the Eberly College of Science, and other colleagues at the center will have substantial resources to aid their study of the molecular biology of cellulose. The U.S. Department of Energy recently awarded the center a $21 million, five-year “Energy Frontier” grant to learn more about the physical structure of the bio-polymers in plant cell walls and improve methods for converting plant biomass into fuel. The funding for this center is contained in the economic stimulus bill, the American Recovery and Reinvestment Act of 2009.
“Cellulose is the most abundant biopolymer on Earth,” Catchmark pointed out. “More wood is used than all other materials, except those mined like the ingredients in concrete. If we could more efficiently use this fiber, it would have huge impacts. The question is, how can we better use the cellulose that we get from plants?”
The Center for Lignocellulose Structure and Formation will be one of few places where research is truly focused on unraveling the secrets of lignocellulose. “We believe we can answer the basic questions that to date no one has been able to answer,” Catchmark explained. “We need to learn how cellulose is produced and how the biopolymers are assembled. If we know that, we think we can develop processes to disassemble it.”
Disassembling plant walls is crucial, of course, because improving methods for converting plant biomass into fuel depends on breaking down the cellulose.
With vast agricultural and forest-based feedstocks, the United States is uniquely and competitively poised to capitalize on technical advancements relating to lignocellulosic materials, noted Nicole Brown, associate professor of wood chemistry, who is part of the center.
But the center — which also will sponsor collaboration with researchers at North Carolina State University and Virginia Polytechnic Institute and State University — is about more than biofuels, she pointed out. “Understanding these complex materials — specifically how proteins work to assemble the biopolymers — is key to efficient utilization and technological breakthroughs,” Brown said. “Furthering our understanding of renewable material synthesis and coupling this to nanotechnology is paramount to engineering composites and other value-added materials for the 21st century.”
Other researchers involved in the center from the College of Agricultural Sciences include John Carlson, director of the Louis W. Schatz Center for Tree Molecular Genetics in the School of Forest Resources; Tom Richard, associate professor of agricultural and biological engineering and director of Penn State’s Institutes of Energy and the Environment; Doug Archibald, research associate in the Department of Crop and Soil Sciences; and Virendra Puri, Distinguished Professor of Agricultural Engineering.
“We want to understand the role of the different components of plant cell walls,” Puri said, “The hope is that once we understand this, we can design a better plant that will give us biofuel without having to waste or deal with other materials.”
Puri doesn’t expect any quick revelations. “It is a long-range kind of thing — our understanding will be a lot better in the coming years,” he added. “Once we unlock the mystery of how the materials go together — how they are intertwined — and we can learn to take them apart, then the possibilities are vast.”
Pennsylvania State University Press Release
Genome Research into Forestry Biofuels
A new research project largely funded by Genome Canada, Genome BC and Genome Alberta will tackle the problem of the sheer volume of biomass required to produce biofuels, and how to guarantee a steady supply.
Canada’s conifer forests form the largest renewable source of “woody plant” feedstock for the national bioenergy sector, for which BC and Alberta forests constitute a large percentage. Their sustainable use for biofuel production would help economically diversify the forestry sector and reduce dependence on fossil fuels.
But predicting and guaranteeing sources of feedstock is complicated by natural and environmental factors, such as the current mountain pine beetle epidemic. Dr. Joerg Bohlmann (UBC) is co-leading this project along with Dr. Janice Cooke (U of Alberta). “We are currently faced with millions of hectares of dead trees, and have a surplus of potential bioenergy feedstock, but this does not guarantee a supply for the future. The question is: what are we going replant with?” says Bohlmann.
Beetle Kill as a Fuel Source
The $7.8 million dollar research project spans universities and scientific institutions across BC and Alberta, and will create tools for the prediction of available sources of feedstock so that investments in bioenergy are made in the right place and at the right time.
This work will form the basis of improved environmental risk assessment tools, which resource managers can use to help them determine the geographic areas that will be threatened next, and help inform long-term forecasts.
Government and industry will have immediate access to the resources and tools developed in this project, which will potentially lead to applications in less than five years of project completion, expected in the fall of 2012.
The project will deliver a high level of preparedness far beyond the current MPB epidemic and into other jurisdictions of forestry and agriculture and will build on previous and ongoing studies of the mountain pine beetle
BC Wood Exports to China Continue Growing
While the 714 million board feet of lumber shipped from BC to China in 2008 didn’t meet BC Forests Minister Pat Bell’s forecast last year of one billion board feet, it continued a trend of several consecutive yearly increases. With another 413 million board feet already shipped to China this year, Bell believes his ambitious target for China up to 2011 isn’t out of reach.
The minister said shipments of 2.5 billion board feet to China by next year isn’t unrealistic and that would put shipments on target for four billion for 2011, according to the Canadian Press.
Bell even believes the volume of lumber shipments to China in 2009 could exceed that to Japan, traditionally BC’s No. 2 market.
Chinese Demand for Lumber
It’s unlikely, however, that the dollar value of shipments to China will surpass that to Japan, as Japan is a market for high-end lumber. For example, the dollar value of shipments to Japan in 2008 was $719 million, while the value of shipments to China was $177 million.
Meanwhile, production by China’s forestry industry rose 13 per cent last year to US$194.7 billion, said a senior forestry official on Monday.
Foreign trade of forest products was US$70 billion, 18 per cent of the world’s total and ranked second after the United States, said Li Yucai, deputy director of the State Forestry Administration.
New Canadian Export Figures
Canada’s merchandise exports fell 5 per cent to $30.8 billion in April, mostly due to a 3 per cent reduction in prices while volumes decreased 2 per cent, according to a new report out of Statistics Canada.
Lower exports of industrial goods and materials, energy products, and machinery and equipment largely accounted for the decrease in overall exports. Gains in agricultural and fishing products, and automotive products partially offset the decline.
Exports and imports have generally been trending downwards since the peak of July 2008. Exports have fallen $13.6 billion or 31 per cent since July 2008, with more than 80 per cent of the decline occurring from November 2008 to January 2009.
In April, Canada posted a small trade deficit with the world of $179 million following a surplus of $1.0 billion in March.
Canada’s trade surplus with the US shrank from $3.5 billion in March to $2.8 billion in April, as exports and imports both declined. Since July 2008, exports to the United States have accounted for 88 per cent of the decrease in Canada’s exports to the world. Accordingly, the US share of Canada’s exports was 72 per cent in April 2009, down from 77 per cent in July 2008.
The trade deficit with countries other than the US widened from $2.4 billion in March to $3.0 billion in April, as exports fell 7 per cent and imports were down 1 per cent. After a solid gain in March, exports to the EU fell 17 per cent and led the decrease in exports to countries other than the United States.
July 05, 2009
Recent US Economic Indicators
New figures released this week from several US government departments show the balance of imports and exports in the US is shifting.
Canadian imports of wood, pulp and paper products into the US have been falling steadily since 2005. Meanwhile recent Canadian trade figures show that Canadian exports of wood products to emerging markets have been steadily rising.
US Trade Balance
Since 3Q 2008, the world has been waiting anxiously for signs of good news out of the US economy. Toward the end of 1Q 2009 there was a perception by analysts that, while improvement was still a way off, at least the rate of economic decline in America was slowing. The latest US government reports, released this week, indicate cautious optimism is justified, but how long it will take for the US economy to recover completely is still not known.
The US economy shrank at a 5.5 per cent pace in 1Q 2009, the US Bureau of Economic Analysis said Thursday in a report offering a glimmer of hope for recovery from prolonged recession. It still showed a dramatic decline on the heels of a 6.3 per cent slide in 4Q 2008 — the worst slump in decades — and 0.5 percent in 3Q 2008.
Both exports and imports fell, but the decrease in imports provided a boost to GDP of 2.39 percentage points. Real exports decreased 30.6 per cent in 1Q 2009, the steepest drop in foreign sales in 40 years, compared with a decrease of 23.6 per cent in 4Q 2008. Real imports decreased 36.4 per cent, the steepest since the summer of 1947, compared with a decrease of 17.5 per cent in 4Q 2008.
Real US federal government consumption expenditures and gross investment decreased 4.5 per cent in 1Q 2009, in contrast to an increase of 7.0 per cent in the 4Q 2008.
Separately, the Labor Department said the number of workers filing new claims for jobless benefits unexpectedly rose last week by 15,000 to a seasonally adjusted 627,000 — a measure of the strain still faced by hard-pressed consumers. Consumer spending, which fuels two-thirds of US economic activity, decreased by 1.4 per cent. Weak job markets and falling home prices are expected to dampen spending for some time.
“The economy will contract less in 2Q 2009 — somewhere between 2.0 and 3.0 per cent annualized — be flat in the third quarter, and then start to expand at the end of the year,” said Paul Ferley at RBC Capital Markets adding that the revisions “do not alter the near-term expectations for improving growth going forward.”
Overall business investment plunged at a record 37.3 per cent rate during the 1Q 2009, while spending on homebuilding in the US fell 38.8 per cent for its biggest quarterly tumble since early 1980. Nonetheless, corporate profits grew at a 1.4 per cent rate during 1Q 2009, after falling 10.7 percent in the final three months of 2008.
“The recession is losing steam,” Ken Goldstein, an economist at the Conference Board, said in a statement. “If these trends continue, expect a slow recovery beginning before the end of the year. However, employment will take longer to turn around.”
US existing home sales rose 2.4 percent in May, to a seasonally adjusted annual pace of 4.77 million homes and apartments, marking the first back-to-back monthly increase since 2005, the National Association of Realtors said Tuesday in a sign the troubled sector was steadying. Foreclosure-driven declines in property values are helping to reduce the glut of unsold houses.
“Sales are stable but exceedingly low,” said Celia Chen at Moody’s Economy.com. “The NAR’s inventory numbers likely understate the magnitude of the inventory overhang since many foreclosed units are not listed.”
Sales of distressed properties declined to 33 per cent of all sales in May from 45 per cent in April. NAR officials said this distorts the median price. The national median existing home price for all housing types was US$173,000 in May, down 16.8 percent from a year earlier, but up from US$166,600 a month earlier.
Meanwhile, the seasonally adjusted annual rate of new-home sales was down 0.6 per cent from April and fell 32.8 per cent from May 2008, amid a glutted housing inventory. From April to May, new-home sales actually increased in all regions of the US except the South, where they fell by 8.5 per cent, the Census Bureau reported. But because the volume of new-home sales in May was much greater than in other parts of the country, that region’s sales decline dragged the national total into negative territory. Compared with a year ago, May new-home sales were down by double-digit percentages in every region of the US. The median sale price for a new home in May was $221,600, down 3.4 per cent from a year ago.
“Housing is really what led the US into this downturn, and I think, at the very least, we have to see a stabilization in the housing sector before we can count on a recovery for the broader economy,” said Douglas Porter, deputy chief economist of BMO Capital Markets.
“‘The crisis cannot end fully until home prices in the US are at least stabilizing,’ says Alan Greenspan, who continues to dissect housing data with as much interest as he did when he was Federal Reserve Chair. “The lower house prices go, the less those loans and investments are worth and the weaker the foundations of the financial system are.” Greenspan went on to point out that although the number of home sales are up, the prices of those sales are not.
Commodity prices have seen significant rallies of late, with oil prices rebounding to double their historic lows of 2008 and copper also rising almost double. While housing starts appear to be coming back, a full strengthening of the US economy may take some time yet.
In terms of the lumber industry, there was limited logging in BC through the past winter as companies tried to reduce working capital requirements. As a result lumber companies did not build a log inventory. Currently, with logging restrictions in place due to forest fire hazards through many areas of the province, and the threat of a potential labour dispute brewing, there will likely be little opportunity to resume logging on a large scale until September. Given an average of two months from bush to finished lumber, most BC companies likely won’t be able to start building lumber supply until November. In the ideal scenario timing would coincide with the projected resurgence in US home building.
Kimberly-Clark to cut 1,600 jobs
Irving, TX based consumer-products company Kimberly-Clark Corp. said Thursday it plans to cut 1,600 jobs, or 3 per cent of its global work force, as it slims down in the tough economy.
Company spokesman Dave Dickson said between 100 and 200 positions will be cut in North America, in addition to 600 employees who already took a buyout. He said it was too soon to say whether any of those cuts would come from Kimberly-Clark’s Canadian operations, which include plants in Huntsville, ON, and Saint-Hyacinthe, QC.
The company said it expects the cuts to save about US$150-million a year. In the second half of the year, the company expects the restructuring will translate into savings of 10 cents per share.
Quebec Forest Fires
Tinder dry conditions and lightning strikes in Northern Quebec are keeping fire-fighting crews busy. Lightning sparked 30 new fires on Thursday, for a total of 51; three of which are out of control.
By Friday, firefighters struggled to contain more than 60 forest fires burning across northern Quebec. In the past week, the province’s forest fire protection agency has dealt with more than 100 forest fires across Quebec, most of them sparked by lightning.
Thursday’s rain did little to slow the spread of 15 new fires, also caused by lightning, that burned overnight across the Abitibi, Saguenay and North Shore regions.
The two biggest fires are near Val-d’Or in the Abitibi region and the Manic V hydroelectric complex on the North-shore. They alone cover an area estimated at 10,000 hectares.
The province has brought in more than 40 firefighters from Saskatchewan, Nova Scotia and New Brunswick, and another 60 arrived from Maine, Vermont and New Hampshire to help.
Meanwhile, forest fire conditions in the North Bay region of Ontario are getting worse after several warm, windy days with little rain. With Ontario firefighters, including 14 from the area, already sent west to help battle blazes in British Columbia and Alberta, a crew from Sudbury is there on red alert.
British Columbia Labour Issues
Canfor Corp’s proposal to the United Steelworkers union calls for a lengthy six-year agreement, and seeks a simplified collective agreement that covers all of Canfor’s operations, according to the Prince George Citizen. In the company proposal provided earlier to workers in Prince George, Canfor says the $50-million cost reduction, possiblly involving a 20 per cent labour cost cut, will enable it to reduce cash losses and survive.
“This will also position us for a market recovery and attract investment critical for long-term sustainability,” said the company in the two-page document obtained by The Citizen.
The company proposal gives the first inside glimpse of the negotiation battle that may unfold between the BC sawmilling sector and the United Steelworkers, the largest forestry union in the province. The union has already indicated it’s looking for wage increases and a shorter contract.
The proposed Canfor reduction is in the same range as a recent rollback taken by workers at a shuttered sawmill in Mackenzie represented by the Pulp, Paper and Woodworkers union.
United Steelworkers local 1-424 president Frank Everitt observed that Canfor is counting on the workers becoming their banker.
“I imagine we’ll spend a fair amount of time talking back and forth before reaching an agreement,” said Everitt to The Citizen.
Bob Matters, United SteelWorkers Wood Council Chair, told Madison’s on Friday that the union has met with all four major employers’ groups and will research their proposals to seek a “progressive agreement”.
Matters described all four industry presentations as “ugly”.
In contrast to Canfor’s six-year contract offer, Matters explained the union is looking for a shorter, likely two-year, agreement. He also said that there is still speculation within the union as to whether the new contract will be tied to lumber prices.
Matters said the union is working hard to “pick a winner, quickly.”
Grant Forest Products Restructures
Grant Forest Products, a closely held Canadian maker of oriented strand board with plants in Ontario, Alberta and South Carolina, has been placed under bankruptcy protection. The Earlton, Ont.-based company has $600 million in secured debt.
Despite the move, officials with Grant Forest Products insist that things will continue to be “business as usual,” with plants continuing to operate and no layoffs for staff.
At peak periods, the company employed nearly 600 people in Ontario alone, and 715 across Canada. However, that number has dipped to 200 in Northern Ontario in recent years as the strong downturn in the global economy and the United States’ housing market has affected operations.
These issues have also affected the company’s bottom line, with the closure of the company’s Timmins mill in 2006 and industry price changes leading to a drop in sales from $506 million in 2004 to $184 million in 2008.
The company’s Englehart OSB mill has operated on a reduced number of shifts through the winter, but an upswing in orders leads Bob Fleet, vice-president of woodlands operations, to speculate that full production could resume by from July through to September and possibly beyond.
Out of the 66 OSB mills in North America, Grant Forest Products’ Englehart facility is just one of 10 which continues to operate, and is one of the largest on the continent.