Lumber News Archives: July 2010

Lumber News Archives: July 2010

Nanocrystalline Cellulose ; Canada to Collect Remaining Additional Duty ; Housing Starts US; West Fraser, Interfor, Norbord Report 2Q Results ; CN Rail Reports ; Export Demand ; Madison’s Timber Preview ; Canadian Housing Starts ; Japan Housing Starts ; Canfor Announces ; Paper and Pulp Industry ; STUDS Asia Exports ; US Export Growth ; EACOM Timber Closes Deal ; Forestry Investment Conference ; Madison’s Timber Preview ; Japan Lumber Importers’ Association 2010 Meeting ; Canadian economy stagnates in April ; Green Energy from Forest Biomass ; Canfor Pulp Signs Forest Carbon Offset Deal ; US Coalition for Fair Lumber Imports Presses for Full Compliance ; BC Investing $9.2 million to Promote Sales of Forest Products in Major Markets ;

July 31, 2010

Nanocrystalline Cellulose

Researchers at FPInnovations have developed a process to take the production of nanocrystalline cellulose out of the laboratory. Using funding from Canada’s Pulp and Paper Green Transformation Program, Natural Resources Canada and Quebec’s Natural Resources and Wildlife Ministry, FPInnovations, in partnership with Domtar Corp, formed a new joint venture company to build the world’s first one metric ton per day commercial-scale nanocrystalline cellulose demonstration plant at the Domtar Windsor, QC, pulp and paper mill site.

Nanocrystalline cellulose (NCC) is a renewable, recyclable and abundant nanomaterial made from the cellulose fibres produced in the wood pulp manufacturing process. Potential applications include optically-reflective films, high-durability varnishes, and innovative bioplastics of interest to a variety of sectors and markets such as the aerospace, automotive, chemical, textile and forestry industries.

Demonstration Facility

There are also a broad range of potential commercial uses that include paints and coatings, films and barriers, textiles, composites, paper (retention aids and binders), excipients (a material used in the pharmaceutical industry as a binder in tablets), cosmetics and other advanced materials.

“We have isolated a unique nano-particle,” explained FPInnovations’s research team leader Richard Berry to Madison’s in a phone interview. “This material is eight times stronger than steel. When dispersed through a matrix, NCC can impart this strength to, for example, various polymers including bio-plastics. Starting with cellulose from chemical pulp, which already has the lignin and hemicelluloses removed, we liberate the crystalline particles.

The importance of this demonstration plant,” Berry continued, “is that it will provide the opportunity test the process steps and to produce enough material for commercial development of applications that have been identified through R&D work. FPInnovations already has had a pilot plant for 3 years that has been producing kilo-quantities of material , so that those working on developing applications for NCC could have enough material for their own research and development. People get excited about using NCC, and find their own uses, specific to their industry.”

As an example, Berry points to work going on at McGill University using NCC as a catalyst substrate to improve the performance of nano particles of platinum in hydrogenation reactions which are critical in many industrial processes. “Many nanoparticles have a tendency to aggregate,” Berry explained. “NCC has the advantage that it can be kept disaggregated and in this catalyst application it ensures that the nanoparticles of platinum remain dispersed and active.”

The new joint venture will be working with major commercial companies in joint development agreements to further develop, for example, coating formulations. The end result will be a marrying of the NCC production with wide-ranging, potentially lucrative, commercial applications.

“As with petroleum products, where a significant amount of value comes from converting a small amount of petroleum to chemical products, we will be creating greater value by converting a small amunt of the cellulose into higher value products. The volumes of NCC produced will be small compared to Domtar’s pulp production, but the new material will be used further up the value chain,” said Berry.

Madison’s did a quick search in Google Scholar for “nanocrystalline cellulose uses” then narrowed down to reports published in 2010 only, to come up with 600 results. Potential uses range from; improving the performance of starch film, to synthesis of platinum nanoparticles using cellulosic reducing agents, to the use of cellulose nanocrystals as biobased nucleation reagents, to the production of ultrathin carbon film electrodes from vacuum-carbonised cellulose nanofibril composite, and more. Much more.

“This announcement is exciting because it is truly ground breaking,” Domtar’s VP of Corporate Communications and Investor Relations, Pascal Bosse, told Madison’s in a phone interview. “This is the first demonstration plant of NCC in the world. Domtar’s chemical separation of pulp makes a very pure, high quality NCC, which can be used as a filler in a lot of applications. The material is so strong that it can be used in many potential new applications, beyond the paint and adhesives that is already known.

Domtar’s core business will continue to be coated freesheet. However North American demand has been decreasing by 4 per cent per year since 2000. Opening this plant will increase Domtar’s revenue stream. The company is continually repositioning assets, in order to be exposed to growth. Domtar CEO John Williams was out west but made a special trip back to Quebec for this announcement. That’s how much he likes the risk/reward of our project,” Bosse said.

Berry and Bosse agree that, as things stand right now, NCC production will not likely replace curtailed pulp capacities in North America. However the new technology will augment revenues beyond pulp sales. When Madison’s puts together the various technologies developed in the past two years by FPInnovations, the UBC Wood Sciences Department, the University of Northern British Columbia, the Alberta Research Council, among others in new uses for wood, new wood preservation techniques, biomass fuel production, structural improvements in panel board, to mention just a few, the combined new potential sources of revenue and improved value streams can not be ignored.

“We immediately saw two or three applications in the short term,” said Berry. “That gave us the belief that we could base load a pilot facility. However, there turned out to be more uses, much more interest, than we initially thought. There is also potential for applications in engineered wood structures and various wood-plastic composites.”

Madison’s likes the idea of a new technology from cellulose that can be used to improve existing lumber remanufacturing processes.

In terms of monetary value, both Berry and Bosse say its too soon to put a dollar figure on NCC.
“We’re not putting a value per ton on the material, we are building up an industry which allows forest products to move up the value chain,” said Berry. “We’re building a new business model which we expect to eventually position us as having a competitive advantage globally. The forest sector will be more easily seen as innovative.”

“Once we see success we will know the true market value for the product,” Bosse explained. “NCC could bring in a very high mill net, or higher margins.”

Canada to Collect Remaining Additional Duty

As of September 1, Canada will begin collecting the 10 per cent duty imposed last year on softwood lumber imports to the US from four Canadian provinces. Currently US customs documents require the additional 10 per cent duty on Canadian lumber. Funds collected will be distributed back to the provinces of Ontario, Quebec, Manitoba and Saskatchewan.

The export charge stems from a February 2009 London Court of International Arbitration ruling under the Softwood Lumber Agreement, that Canada had breached its 2006 softwood lumber trade deal with the US. The tribunal said Canada should collect a 10 per cent tax on the value of its softwood lumber shipments from the four provinces until the $68.3 million fine was collected.

Housing Starts US

US housing starts fell more than expected in June to their lowest level in eight months. The Commerce Department said housing starts dropped 5 per cent to a seasonally adjusted annual rate of 549,000 units.
However, a 2.1 per cent rise in building permits helped temper the negative impact of the headline reading. May permits had fallen 5.9 per cent.

US Real Estate

Single-family housing starts slipped 0.7 per cent. Apartment construction fell harder.

May’s housing starts were revised down to show a 14.9 per cent decline, which was previously reported as a 10 per cent drop. Compared to June last year, starts were down 5.8 per cent, the biggest decline since November. There was a 2.1 per cent rise in applications for building permits to a 586,000-unit pace in June.

Purchases of existing houses dropped 5.1 per cent to a 5.37 million annual rate, figures from the National Association of Realtors showed Thursday.

Meanwhile, sales of new homes are seen rising by about 6.7 per cent to a 320,000 unit annual rate in June from 300,000 in May, according to a Reuters forecast released Friday. Sales plummeted 32.7 per cent in May to the lowest since record-keeping started in 1963. Forecasts from 57 economists polled by Reuters range from 290,000 to 350,000 units.

As for home prices, the S&P/Case-Shiller 20-city index is seen up 4.0 percent in May from a year earlier, compared with a 3.8 percent annual increase reported for April, a Reuters survey found.

West Fraser, Interfor, Norbord Report 2Q Results

West Fraser Timber posted a 2Q profit of $63.3 million compared with a loss of $39.1 million a year ago. International Forest Products reported a net loss of $2.6 million, while Norbord Inc. posted a 2Q profit of $37 million.

Lumber Producer 2Q Results

West Fraser benefited from a short, but strong, rally in lumber prices and growing sales to Asia this year as it managed the solid quarterly profit. The Vancouver-based company shipped 18 per cent of its Canadian lumber in the quarter primarily to Japan and China, versus 12 per cent in the same quarter last year.

Interfor’s Lumber production increased 7 per cent quarter-over-quarter to 277 million board feet, representing approximately 69 per cent of rated capacity. Lumber sales, including wholesale volumes, totalled 270 million board feet, an increase of 6 million board feet versus the first quarter.

Canadian wood-based panels producer Norbord profits compared with a loss of $18 million a year earlier. The company said it remained confident of the future, sending its shares up 12 per cent. Overall demand outstripped the ability of both OSB producers and distributors to increase supply, resulting in the surge in prices, which peaked at over US$300 msf in May, before retreating to more sustainable levels. Net sales for Norbord, which also manufactures plywood and a range of other engineered wood products, rose 60 percent to $278 million.

CN Rail Reports

Canadian National Railway reported Thursday 2Q net income of $534 million, a 38 per cent jump in quarterly profit, and raised its full-year forecast based on its strong results over the past six months.

CN Rail Expectations

CN revenues were up smartly, by 18 per cent, and carloads increased a hefty 27 per cent. The mix of manufactured goods and commodities it carries to customers across North America is a pretty reliable gauge of economic activity.

Freight volumes were higher in all major markets and some sectors were red hot: automotive shipments were up 52 per cent, coal deliveries increased by 49 per cent and metals and minerals were up 46 per cent.

Operating expenses were limited to a modest 7 per cent increase in the quarter, largely due to higher fuel costs. CN’s operating ratio, a measure of expenses relative to revenue, improved six points from a year ago to 61 per cent (the lower the number the better).

The strong first half and the expectation of a continued recovery led CN to revise upwards its guidance to investors. The railroad now expects to achieve 25 per cent growth in earnings per share in 2010 and expects free cash to top $1 billion.

And its market outlook remains bullish, despite some uncertainty about the strength of the economy south of the border.

July 25, 2010

Export Demand

Given the massive fluctuation in North American lumber prices in 2Q 2010, analysts are – once again – weighing in with opinions and forecasts. On July 14, Dina Cover, Economist with TD Bank Financial Group, released a report titled, “What’s Next for Lumber Prices?

“Lumber prices have had quite the ride this year, surging by nearly 50 per cent during the first four months of the year, before giving up all of those gains within the last two months,” begins the report. “In May and June, production was easily outpacing demand, bringing the market back into a position of excess supply. Tariff-free June drove Canadian exports to the US up 21 per cent on the month.”

Forest Products

As for the forecast, the report states, “While the downtrend appears to have come to a halt over the past two weeks, the outlook for demand is not too bright in the near term. [ . . . ] We expect
housing starts in the US to remain close to current levels over the next couple of months before gradually creeping up towards the 1 million unit mark by the end of next year. [ . . . ] As long as producers don’t get too excited about the seasonal bounce in prices and are disciplined enough to keep output in line with demand, prices are not likely to fall below current levels. As such, we have downgraded our lumber price forecast to include some weakness over the balance of this year, before gradually trending up to US$340 by the end of 2011.”

In terms of exports, the report boldly declares, “Offshore demand will also offer little help, as economic growth in several countries around the world – including China – will also likely moderate in the coming months.”

Larry Konnie, head of Eugene, OR’s, Swanson Brothers Mill noted to Examiner.com on June 23 that the prices his mill is getting for finished products used in home building – posts and timbers, beams and stingers, clears and joists and planks – is the lowest they’ve seen in 20 years due to sluggish US housing market. Konnie pointed to the “international” side of his business as a problem for his company and the timber industry as a whole.

“This recession is happening to countries like Japan,” he said. “Our chips are exported to Japan, but the demand is now way down. I’ve even heard that some mills are burning the wood chips that mills usually sell for revenue.”

Konnie said a dry ton of wood chips is today selling for between $50 and $100, or down by more than half of what chips usually sell for.

However other reports recently released out of Asia tell a different story.

“The 2010 demand forecast for North American logs, revised in June, is 2,616,000 cubic metres or a 5.2 per cent of year-on-year increase, and lumber forecast is 2,499,000 cubic metres or a 7.1 per cent of year-on-year increase. Demand for both logs and lumber bottomed out this year and turned up,” according to the Japan Lumber Journal. Japan North American Lumber Conference 2010 Chair Ema expressed his forecast saying, “Though demand for North American lumber was continuing to fall behind the previous year’s level by 16 per cent, it has finally returned to the regular level in 2010. In the future, it will gradually increase. [ . . . ] China’s log imports from North America are growing with 600,000 cubic metres in 2008, 1,130,000 cubic metres in 2009, and 600,000 cubic metres in January-April in 2010. Possibly, it will reach 2,000,000 cubic metres in the entire year of 2010.”

Asia’s RHB Research reports that log inventories in Japan plywood mills are currently at the lower end, and as such, some trading houses have been receiving offers of up to US$220 per cubic metre for ‘meranti’ regular FOB. These selling prices for logs are higher than the estimated of US$180 to US$185 per cubic metre levels for 2010, according to the Borneo Post. RHB Research believes that price increases were mainly a cost-push factor, caused by the limited supply of tropical plywood in Japan, as Japanese manufacturers continued cutting production in the midst of rising input costs as well as the rising input costs for Malaysian plywood manufacturers such as log, glue and logistics cost.

The July 1 issue of Fordaq‘s wood segment states that the supply of plywood in Japan during April was 301,900 cubic metres, up 29 per cent, on March levels and nearly a third up on levels in April 2009. Plywood imports rose notably from Indonesia and China, and because domestic consumption rose, plywood inventories fell. Log stocks are low in Sarawak, so Japanese log importers have delayed sending vessels to load logs. The next loading could be as late as the end of June. Meanwhile, many west coast US sawmills are increasing exports to Japan even in the face of rising US domestic log prices and higher ocean freight charges. To attract Japanese buyers, US millers are now cutting metric sizes and are offering more kiln dried lumber, according to Fordaq.

China imported a total of 10,602,000 cubic metres of wood raw materials in 1Q 2010, an increase of 3.3538 million cubic metres, or 46.21 per cent, over 1Q 2009, and an increase of 401,500 cubic metres, or 3.9 per cent, over 4Q 2009, says the June issue of China Wood Monthly Market Report.

Canada imported 102, 400 cubic metres of logs into China in 1Q 2010 up 119.2 per cent year on year, ranking among the Top 10 importing countries of China’s logs for the first time. Canada ranked first in lumber imports for the first time, surpassing Russia, and importing 790,300 cubic metres of lumber, up 147.51 per cent year on year. This upward trend has undergone further development in the 1st quarter of this year, says the China Wood Monthly Market Report.

Statistics Canada has reported a 2.9 per cent increase in lumber production from March. Sawmills shipped 4.9 million cubic metres of wood in April.

The United States imported 257,700 cubic metres of logs in 1Q 2010, up 178.29 per cent year on year. With the decrease in Russian log imports and the rapid increase in the purchase price of New Zealand logs, market competitiveness of North American imported logs has been enhanced, such as pines from the US, consequently North American imported logs have become the new options for the managers, according to the China Wood Monthly Market Report.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the latest finanical results from Universal Forest Products. Recent investment activity in the transportation sector in both the US and Canada is also detailed.

Contact us any time for a subscription.

Canadian Housing Starts

Canadian housing starts were lower than expected in June as multiple-dwelling projects declined, Canada Mortgage and Housing Corp. reported Tuesday.
Canadian housing starts fell in June to a seasonally adjusted annualized rate of 189,300 units from a revised 195,300 in May. May’s housing starts were originally reported at 189,100 units. April’s figures were also revised.
Low borrowing costs and a tax increase that took effect July 1 in Ontario and British Columbia sparked demand for Canadian homes, helping the country’s economy recover from its first recession in 17 years. The Bank of Canada predicted in April that housing will contribute 0.6 percentage point to growth this year and cut 0.1 point from next year’s expansion.

Urban multiple starts fell 5.8 per cent to 89,200 units, while single-family starts gained 1.4 per cent to 77,800 units. Starts in Ontario fell 17 per cent to 52,600 units, CMHC also said.

Canada’s Economy

In other news, Canada’s trade deficit with the rest of the world widened in May as strong exports were outpaced by even more robust imports, Statistics Canada reported Tuesday.

The country’s deficit rose to $503 million during the month, from a $330-million shortfall in April, the federal agency said. May was the third straight month in which Canada recorded a deficit. The April figure was revised downward from an initial estimate of a $175-million surplus.

Canada’s surplus with the United States — the country’s largest trading partner — increased to $3.6 billion in May from $3.5 billion the previous month.

Canadian factory sales rose in May for the eighth time in nine months, led by the motor vehicle and parts industries sectors, Statistics Canada reported Thursday.

Sales were up 0.4 per cent to $44.8 billion during the month, the federal agency said. Most economists had expected an increase of between 0.4 and 0.5 per cent in June.

Of the 21 industries included in the report, sales increased in nine, accounting for nearly half of the total sales for the month.

The non-durable goods sector saw sales fall by 0.7 per cent, but 1.6 per cent growth in the durable goods sector was more than enough to restore a positive balance.

Japan Housing Starts

After the increase recorded in April for the first time in 17 months, Japan’s new housing starts in May were 59,911 units, down by 4.6 per cent from the same month last year, reported the Ministry of Land, Infrastructure, Transport and Tourism on June 30.

As the result of the government’s housing policies the number of housing constructions tends to look up from this year, though in May it is having a temporary lull.

By applications, owner-occupied houses increased to 24,243 units, up 4.8 per cent, for the seventh consecutive month. In built-for-sale houses, those of detached houses increased to 8,953 units, up 30.0 per cent, for the fifth consecutive month, but those of condominiums declined to 4,202 units, down 31.5 per cent. This was big reduction, below a half or less compared to the previous month’s results.

Housing starts of houses for rent were 21,759 units, down 13.5 per cent, which declined for the 18th consecutive month, especially due to a cooling down of the construction by private funding.

Housing Starts Japan

Seasonally adjusted annual starts were 737,000 units, 7 per cent lower than May.

Wood based units were 34,956, a five straight month increase at 5 per cent higher than April, and a 58.4 per cent share of total home building.
Building permits in May were 41,620, 8.7 per cent higher than May 2009.

Housing starts this year are more than last year with 830,000 units. Domestic wood and imported products are more than last year’s volume, says the Japan Lumber Reports.

North American logs for the 3Q are estimated to maintain steady pricing and expanded production, then prices may firm up in 4Q, says the Reports. Lumber demand and supply out of North America should increase in 4Q due to ample capacity there to respond to increasing demand in Japan.

Domestic logs for the second half of the year would increase due to increasing housing starts, concludes the Reports.

Canfor Announces

Canfor Corporation announced Thursday that Howe Sound Pulp and Paper Limited Partnership has entered into an agreement for the sale of all its assets to Paper Excellence B.V.

HSPP operates a pulp and paper facility at Port Mellon, BC, capable of producing 400,000 tonnes of NBSK pulp and 230,000 tonnes of mechanical paper and employs approximately 500 people. HSPP is owned by Canfor and Oji Paper Co., Ltd. of Japan.

The transaction is subject to customary closing conditions and closing is expected during 3Q 2010.

July 19, 2010

Paper and Pulp Industry

Industry and analysts debate the health of the North American pulp and paper industry as short-fibre eucalyptus pulp mills in the southern hemisphere increase global production and new demand out of Asia throws old analysis models out the window. Increasingly it seems that, in order to survive, pulp and paper mills across North America need to adapt to changing market conditions. Traditional issues of fibre supply, product mix, and dedicated customers combine with emerging factors such as the benefits of converting to specialty products, more efficient co-generation, and new technologies in biomass fuel to give pulp and paper producers a lot to think about.

Canada

A final death knell was sounded this week with Richmond, BC, Catalyst Paper’s announcement of permanent closures of the company’s Elk Falls, BC, paper mill and its paper recycling operation in Coquitlam, BC.

“The steep decline in commodity paper markets, coupled with uncompetitive labour and tax costs were contributing factors that could not be overcome,” said Catalyst President and CEO Kevin Clarke in a company statement.

Catalyst Vice-President of Corporate Relations, Lyn Brown spoke to Madison’s Wednesday but was not available for a statement later in the week because the company is currently working on “announcing 2Q earnings later this month so is under limited disclosure,” Brown explained.

After a long and public battle, Catalyst announced July 1 that it would pay its full municipal property tax bill, or $13 million, to three of the four BC municipalities where it operates paper mills, and partially pay the tax on the remaining facility.

Dave Coles, President of the Communications, Energy and Paperworkers Union of Canada, explained to Madison’s in a phone interview that Catalyst’s Elk Falls mill is “a case study in how to do it the wrong way.”
“Current management didn’t create today’s problems, but they have run the company poorly. In terms of Elk Falls, its not a bad mill, but operational decisions have lacked foresight and capital investment. There are big disadvantages in running a pulp mill on the west coast, beyond the lack of fibre supply,” said Coles. “Details like labour costs and municipal taxes are just elements of the bigger problem.

The real problem is of disconnection. The forest industry is a multiple industry that can not be separated into units determined by the product made. On the west coast, BC Forest Products joined Fletcher Challenge, then became part of Crown Zellerbach. Operations were broken apart so were no longer vertically integrated, which is not how the market works. Forest companies need integration to cushion against market cycles, to keep costs down, and to keep up the supply of fibre. When sawmills started disappearing on the coast, pulp mills started having trouble getting chips,” Coles concluded.

The Canadian government continues with its careful plan to distribute funds to Canadian pulp and paper operators as a response to the recent US ‘black liquor’ tax rebate. On Wednesday, Natural Resources Canada announced, through its Pulp and Paper Green Transformation Program, $15.6 million in capital investments to improve the environmental performance of Canfor’s Prince George, BC, Pulp and Paper Mill, and $40.57 million for Daishowa-Marubeni’s Peace River, AB, Pulp Division. These are just two of 24 pulp and paper companies across Canada that qualified for credits under the $1 billion program, based on their 2009 production levels of black liquor.

In BC, part of the funding will go toward the installation of two new pipelines between Canfor Pulp’s Prince George and Intercontinental mills. In Alberta, the project will provide for the production of an additional 126,000 megawatt-hours/year of electricity generated from renewable sources that will be sold to the Alberta power grid — enough energy to power 10,588 homes annually, and an anticipated 630 per cent increase over current export levels.

Analyst opinions differ on forecasts for pulp, and lower grade paper, prices for the next year, but almost everyone is expecting a rebound in all paper grades into 2013, and another upward cycle in pulp prices.

While European and US market pulp list prices remain flat according FOEX.fi, spot prices appear to be softening. Mark Wilde at Deutsche Bank Equity Research reported Tuesday that, for the first time in the last 15 months, US spot NBSK prices fell US$35-40/metric ton from June, or approximately 12 per cent, across key pulp grades, to US$870-920/metric ton. In a more detailed release July 7, Wilde explained that while reports of spot discounting have been appearing for the past two months, the situation in Asia appears to be deteriorating.

Deutsche Bank learned that the world’s second-largest pulp producer, Chile’s Arauco, has reduced July prices by US$50/metric ton for all pulp grades in Asia. In Europe however, brokers report the NBSK market remains tight.

Sources suggest that Chinese paper markets have weakened markedly during 2Q 2010, with soft volumes and prices off as much as US$200/metric ton, continues Wilde’s letter. This is consistent with other reports suggesting that Asian producers may be becoming more active in trying to identify export opportunities, causing demand to weaken, Wilde concludes.

Whether bullish or bearish, with a short or long term view, industry insiders and observers alike agree that adjustments to operations are necessary. Specialty, recycled, and dissolving pulp seem to be the best options for North American operators. Capital investments for efficiency and increased energy generation also seem to be the way of the future.

STUDS Asia Exports

The export duty on shipments crossing into the US on or after July 1 returned to
ten per cent and is again collected by the Canadian government. In other export news,
offshore shipments are more heavily booked for August and September by bulk buyers.
Japan remains the largest volume Asian buyer of #1 and #2 “J” grade studs, primarily
going into custom built homes. In the China market, still a small fraction of the quantity
going to Japan, there is a better demand for six-foot and seven-foot studs.

The rest of Asia and the middle east continues to explore Canadian studs and dimension lumber for use in home building and concrete forms. Some premium studs are being
ripped by remanufacturers overseas for use in crates and other secondary products. Our
high grade studs hold together well and there is less waste in the reman process. Even
the best grades of WSPF studs from Canada are a bargain on the international market
due to the low Canadian dollar.
The fabled wall of wood crossing the US border from Canada during duty free June
turned out to have been less than had been totted up by thumbnail calculators.

US Export Growth

US President Barack Obama said in a speech at the White House on July 7, “American exports grew almost 17 per cent over the first four months of this year, compared to
the same period last year. Part of this, of course, is due to the global recovery. also moving forward on improving conditions for America’s exporters.”

US Exports

Declaring that
his administration is off to a “solid start”
on his State of the Union pledge to double
US exports over the next 5 years, President Obama gave what the White House
is calling a “progress report” on the goal.

Obama named 18 business leaders
to the advisory committee on stimulating business abroad, which advises him
on promoting US goods and jobs. This
council is to be headed by Jim McNerney,
President and CEO of Boeing and Xerox
CEO Ursula Burns, and includes the leaders of large companies such as Ford Motor,
Xerox and Walt Disney.

Obama announced also on Wednesday
said that he would soon present three controversial trade agreements with South Korea, Panama and Columbia to the Congress
for consideration.
The key to job growth is increasing US
exports to other countries, which account
for 95 per cent of the world’s fastest-growing markets,
Obama said his administration is making sure that the access of the world market
by US companies is free and fair.

Democrats are divided over all three
deals, but are particularly hesitant about mov-
ing forward with the Colombia agreement.
However, the South Korean deal has
more support as it is considered as the
most important of the agreements for the
US economy, but is opposed by labour
groups and Ford.
Obama said his goal to double America’s
exports in five years will boost economic
growth and support millions of American
jobs in a manner that is deficit-friendly.

EACOM Timber Closes Deal

EACOM Timber Corporation announced July 1 that it has completed the acquisition
of the Forest Products business of Domtar Corporation. The purchase was funded out of
the previously announced $145 million private placement.

EACOM Looks to Europe

Rick Doman, president and chief executive, is very keen on
expanding trade with Europe and said
the sawmills he is acquiring in Ontario
and Quebec have a strong potential to tap
into that market, according to the Timmins Daily Press.
He aims to build up a more diversified market for the company by expanding sales to Europe, the Middle East and
within Canada.

In other news, Eacom is suing the
government of Saskatchewan.
Statements of claim filed July 6 in
Court of Queen’s Bench in Regina allege
that the government worked to keep the
timber allocation historically provided
to the Big River sawmill out of Eacom’s
hands.

“The defendants did not want Eacom to acquire or operate the sawmill,”
the statement of claim says.
Regina lawyer Tom Waller, who is
representing Eacom, said the lawsuit
was a last resort for the company, which
remains baffled by the hostility from the
Saskatchewan Party government, according to the StarPheonix.

The Big River sawmill has historically been supplied out of the Prince Albert
forest management agreement. Weyerhaeuser closed that mill in 2006.
Waller said the government has essentially broken a contractual obligation
in its actions.

July 11 , 2010

Forestry Investment Conference

June 24 to 25 was the 7th annual Timberland Investment Summit in Vancouver, BC. Madison’s can rightfully take more than a little of credit for the conference moving north of the US for the first time ever; during the 6th Summit in New York City last October, Madison’s convinced organizers that their idea to bring the Summit to Vancouver was a good one. Unlike the 6th Summit, there was a significant Canadian presence, both on the panels and in the audience.

After introductions and an opening keynote address by Pat Bell, BC Minister of Forests and Range, and Integrated Land Management, was a speech about the US economy and its impact on timberland values by Steven Chercover, Senior Research Analyst for D.A. Davidson & Co.

IQPC 7th Conference

Madison’s found wisdom in Chercover’s declaration that monetizing the land base is best left to foresters, as they see more than just trees. “Valuing timberlands should not be done by equity analysts. There is valuation beyond the forest being merely a tree farm, such as: minerals; higher-and-better-use; leases including for cel towers, wind mills, etc,” said Chercover.

In what turned out to be one of many forecasts for recovery of the slumping US housing market that day, Chercover expects housing starts to rise by 200,000 annualized starts per year until they reach 1.5 million. “The sooner the incentives stop, the better. There is still a lot of investment going on. We know of people looking to invest in this supposed inventory, shadow or otherwise, of unsold homes and they can’t find it,” Chercover concluded.

The next topic on the agenda was Strategic Considerations on Investing in the Canadian Forestry Sector, with Conifex, Inc. CEO Ken Shields using the company’s example to demonstrate issues and opportunities in Canada. Shields’ own forecast for US housing had annualized starts going to 1.3 million by 2020 then rising to 1.7 million.

“There will be a widening gap between the Annual Allowable Cut in BC and sawlog timber supply in BC due to decaying fibre from the mountain pine beetle,” Shields explained. “The market in China is generally firming, especially for logs and market pulp. In tissue, China’s production depends on virgin fibre imports.”

Conifex has good opportunites in the biomass field, going so far as to dub itself a ‘fibre management company’.

“While we used to pay for removal, we can expect $35 to $50 per oven dried tonne in the next ten years,” Shields concluded.

Keith Balter, Senior Economist Forest Capital Partners, spoke next on the US housing market. Starting off on a high note, Balter declared, “2010 US housing starts are below where they should be based on previous cycles. There was a monthly incremental gain in housing coming out of the last four downturns which have not yet materialized this year. According to historical data we should be at 652,000 monthly starts seasonally adjusted, but we are only at 442,000.” Balter attributes the lagging recovery to US unemployment, and fear of potential home buyers of a stable source of income in the short term.

In terms of home ownership, Balter explained that 700,000 vacant units in the US must be absorbed to get back to a long term average of a 1.7 per cent vacancy rate. In rentals, 1.1 million units need to be absorbed to return to an 8 per cent vacancy rate.

“There are 8 million mortgages delinquent right now, facing potential foreclosures. All things remaining equal it will take four years to work through this inventory,” Balter said. At the moment there is competitive pricing between renting and owning, and a perception of home ownership as an investment, he explained.

“We will see a renewed downward pressure on home prices, a 5 to 7 per cent retrenchment in 2011, then back to normal growth,” said Balter.

Moving into the afternoon, the next speaker was Peter Barynin, Principal Timber Economist for RISI, whose presentation was titled Taking the Temperature of the North American Biomass Market. Readers know that this is a topic Madison’s covers frequently, and the data provided by Barynin bore out our conclusion.

“At a peak harvest of 500 million short tons in North America, one-third of this is low grade or pulp wood,” Barynin started off with a bang. “70 million tons of wood fibre will be processed into biomass fuel by 2015, 35 per cent of this will be wood pellets with 65 per cent going into wood energy. This figure is over-inflated, as it is driven by public policy,” Barynin warned.

The American black liquor tax rebate has expired; in the end US$8 billion was paid out with no encouragement of renewable energy production. Making traditional forest products out of wood creates more, and higher end, jobs than processing into biomass fuel, at a ratio of up to 12:1 said Barynin.

“In Europe there is demand for 70 million tons of pellet capacity annually and growing. Where is this wood going to come from?” Barynin asked rhetorically. “In the UK there is demand for 35 million green short tons annually compared to a harvest of just 10 million. Meanwhile the pulp industry remains the main consumer of sawmill residue, and will continue to determine the price of pulpwood in the short term future. The development of other biomass fuel technology beside pellets, like pyrolysis and gasification will take things higher. But not for another five years,” Barynin concluded.

The last presentation of the day, before panel discussions and round tables commenced, was Factors Affecting North American Supply: Mountain Pine Beetle, Harvesting Trends, and the Health of the Supply Chain by Rocky Goodnow, Director, Timber for Forest Economic Advisors. This presentation was so detailed and informative that it deserves a solo feature in an upcoming issue of Madison’s Lumber Reporter.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines Smurfit-Stone Container Corp.’s emergence from bankruptcy protection, as well as the latest updates in containerboard prices and inventories.

Contact us any time for a subscription.

Japan Lumber Importers’ Association 2010 Meeting

The Japan Lumber Importers’ Association held its general meeting for in Tokyo on June 14. At the beginning, Chairman Toshihito Tamba showed his expectation on the members’ efforts for the recovery of lumber saying, “Lumber Imports in 2007, 2008 and 2009 continued to shrink by nearly 20 per cent from the previous year, but in 2010, the trend has finally stopped,” according to the Japan Lumber Journal.

Japan Lumber Demand

Concerning demand, the establishment of the law to promote the usage of lumber in public buildings, in addition to various preferential treatment systems for acquisition of houses will achieve an effect.

He also commented on the association’s policy on legal lumber, “The trend to prove the legitimacy of wood products has spread all over the world, and in Japan too, it will become more and more common to give priority to purchase certified lumber. We have to increase the supply of legal lumber,” according to the Journal.

And he said that the association sent letters to overseas leading groups to call for their cooperation on promotion of the usage of legal wood.

Canadian economy stagnates in April

Canada’s dollar weakened on against the US dollar on Wednesday after domestic data showed the economy unexpectedly stalled in April on a slide in retail sales. Canada’s economy saw no growth or contraction in April, Statistics Canada said.
That compared to a 0.6 per cent expansion of gross domestic product reported for March. It marked the first month in eight the Canadian economy has not expanded.

Canadian Economy

Statistics Canada said a “large decline” in the retail sector, and lesser contractions in manufacturing and utilities, were offset by gains in mining, wholesale, the public sector and construction.

Retail trade was down 1.7 per cent in April, as demand dropped sharply for items such as automobiles and clothing.

Manufacturing output fell 0.3 per cent in April, the federal agency said, the first decline since August last year.

Earlier selling of the Canadian dollar as part of a general retreat from risk-sensitive assets was “juiced up” by the softer-than-expected GDP data, said Shaun Osborne, chief currency strategist at TD Securities in Toronto.

“I think, for the Canadian dollar, weaker GDP was a bit of a wake up call,” Osborne said.
“They’re thinking that growth might be slowing down in [Canada] right now, that’s hitting the market pretty hard,” said Phillip Streible, senior market strategist at futures broker Lind-Waldock in Chicago.

July 05 , 2010

Green Energy from Forest Biomass

After almost two years of negotiations and planning, Vancouver, BC’s, Nexterra Energy Inc. announced Wednesday that the Catawba County, North Carolina, Board of Commissioners voted to proceed with a new biomass-fuelled combined heat and power system developed by Nexterra in conjunction with GE Power & Water’s gas engine division. Combined with February’s go-ahead for a unique, on-site biomass-fuelled combined heat and power solution at the University of British Columbia, Nexterra now has two examples of gasification and steam production from wood residue ready for construction.

Gasification of Wood Cellulose

Green Energy
After almost two years of negotiations and planning, Vancouver, BC’s, Nexterra Energy Inc. announced Wednesday that the Catawba County, North Carolina, Board of Commissioners voted to proceed with a new biomass-fuelled combined heat and power system developed by Nexterra in conjunction with GE Power & Water’s gas engine division. Combined with February’s go-ahead for a unique, on-site biomass-fuelled combined heat and power solution at the University of British Columbia, Nexterra now has two examples of gasification and steam production from wood residue ready for construction.

For the Catawba application, wood residue will generate both electricity and steam; the wood-fired gasifier and steam production plant is expected to produce 3 megawatt hours of electricity and 15,000 pounds of steam per hour gross. A natural gas fired boiler, with similar steam output, will serve as a backup to the main wood-fired steam production plant. Micro-turbines will use heat to dry waste water sludge for 12 hours, then to generate electricity for the rest of a day.

The combined process will produce 2 megawatts of clean, cost-effective green electricity for sale to a local utility. Waste heat from the engines will be used to dry biosolids produced at a new waste water treatment facility. This unique bioenergy system will be the first of its kind in the United States.

Barry Edwards, Director of Utilities and Engineering for Catawba County, explained to Madison’s in a phone interview, “The process will remove pathogens from the waste water sludge, which will then be mixed with leaves and compost. This is a long term solution for the waste stream, a way of turning the waste stream into an ecology stream. Our goal was the optimize the process, to make use of all the waste.”

The fascinating aspect of the Catawba Ecocomplex project is the “marriage”, as Edwards calls it, of the energy generated by wood residue and the waste water sludge management. “If we weren’t drying the sludge, if we were just producing energy, the electricity alone might not make enough money for the project to be viable. [ . . . ] As a government we are not motivated by profit. We were able to elongate the payback period, the project will pay for itself and will service the debt incurred during construction within 15 years. We were looking for a 5 per cent return, but will be getting a 7 per cent return per year.”

The scope of the beetle-kill in BC is never far from Madison’s mind when discussing biomass fuel. “When proposing a system such as ours, there is a need to educate political bodies about cost avoidance, the value stream, the connectors involved, who wins, and so on, even if it costs some money. [ . . . ] It requires some analysis to determine what the value is, for example the costs of collection, as opposed to the risk factor in terms of fire hazard or other problems that could result from biomass littering the forest floor post-beetle infestation,” Edwards explained.

“We are creating a new paradigm in waste management through an industrial ecology application, using symbiosis. That combination was needed to make the project economically feasible. We have a tendency to be single-minded; we used partnerships to make this work.”

Catawba County already had a municipal program in place to collect wood residue, which will provide the Ecocomplex with 15,000 tons of green wood waste annually. A partnership with Gregory Wood Products, a high-tech dimension lumber facility, and Pallet One, Inc., the US’s largest new pallet manufacturer, will provide 50,000 tons of KD wood residue. From gasifying approximately 2.34 tons woodwaste per hour the Nexterra Gasification System will produce approximately 2 M We hourly and approximately an additional 0.5 MWe hourly from 2 or 3 micro steam turbines. The county anticipates it will generate approximately $2,500,000 annually in electric sales and credits.
“We have US$1.5 million in grinders of various kinds of break down recycled pallets, furniture residue, leftover building materials, fall-down at the mill, etc. to use as feedstock for Nexterra’s gasification process,” said Edwards.

The Catawba County Ecocomplex expanded its existing partnerships to include Nexterra and GE Energy to create a system that will be selling power back to Duke Energy, the local power utility.

“Everyone was just waiting for someone to actually do it,” said Edwards of the biomass energy project.
That sentiment has not escaped the notice of Madison’s. There is a palpable ‘wait and see until someone does it first’ attitude among BC’s forest products companies.

“Catawba County is a great example of how the Nexterra/GE CHP solution can help local governments achieve their energy and sustainability goals,” said Jonathan Rhone, President and CEO of Nexterra, in a company press release. “For Catawba, green energy is an economic development priority. The County has access to its own supply of wood fuel and already produces electricity using gas engines. We look forward to working with Catawba to demonstrate this new standard of small scale distributed biomass power generation.”

In an email to Madison’s, Rhone explained further, “We believe that mill operations throughout the forest products
industry could benefit from the new Nexterra/GE CHP system. As a new standard
of high efficiency, no steam cycle and
ultra low emissions, it will reduce costs
and generate new sources of revenue for
customers in the forest products indus-
try. With new projects at the University
of BC and Catawba County, North Carolina, we expect to see significant interest
from customers in this market.”

Canfor Pulp Signs Forest Carbon Offset Deal

Canfor Pulp Limited Partnership has signed a letter of intent with Pacific Carbon Trust for a multi-year deal to sell carbon offsets related to emission reductions at the Northwood pulp mill in Prince George, BC. The emission reduction project will generate up to 80,000 tonnes in CO2 reductions, announced PCT CEO Scott MacDonald.
Located at the Northwood Pulp Mill in Prince George, the aggregated emission-reduction project has three component sub-projects. One is the installation of a side stream scrubber which allows the mill to achieve higher biomass-fuel-burn rates, supporting a reduction in the burning of natural gas. Also, equipment improvements to the biomass delivery systems will reduce the need to supplement the fuel supply with natural gas, resulting in reduced greenhouse-gas emissions.

Under the agreement, Pacific Carbon Trust will purchase all third-party-verified offsets originating from the project from 2010 to 2012, with future purchases dependent on the parameters of any cap and trade systems developed at the regional or national levels.

US Coalition for Fair Lumber Imports Presses for Full Compliance

On June 1, British Columbia began to implement changes to its pricing system for public timber. The price of many BC Interior timber stands sold will be based solely on the volume and quality of timber estimated by a ‘cruise’ of the standing timber before harvest.
Until now, the BC government has required harvesters to ‘scale’ or measure and grade timber after harvest in order to determine the payment due. More changes are scheduled to take effect on July 1.

US Coalition Complaint

According to BC government statistics, over the last two years more than 40 per cent of the BC Interior timber harvest has been graded ‘lumber reject’ and therefore is eligible for the minimum stumpage rate of $0.25/m3.

However, most of this timber is in fact used to make lumber – meaning that BC is failing to properly implement the timber pricing system grandfathered in the 2006 Softwood Lumber Agreement, according to the US Coalition.

David Yocis, outside counsel for the Coalition, explained to Madison’s in a phone interview, “We have seen an increase in grade 4 logs in the past two years. 60 per cent of lodgepole pine in BC is now selling for 25 cents per cubic metre. This move to a system based on lump sum is meant to be revenue neutral, which simply locks in this level of grade 4 for the foreseeable future. The 25 cent stumpage will effectively become permanent in BC.”

“We don t think the amount of timber sold at 25 cents now is justified based on the rules in place in 2006 when the SLA was signed,” said Yocis.

BC Investing $9.2 million to Promote Sales of Forest Products in Major Markets

The funding includes $8.3 million for market development in key Asia Pacific countries including China, Japan and Korea, and maintaining markets in Europe and North America. In addition, $900,000 is targetted to the Business Innovation Program, which provides business development services to the value-added sector.

Funding for Value
Added Wood Products

Internationally, BC wood is marketted as high quality from sustainably managed forests, while BC’s advanced wood technology is positioned as providing innovative solutions to residential, commercial and public building design and construction.

Funds are being distributed through Forestry Innovation Investment (FII), the provincial Crown agency responsible for developing and diversifying markets for British Columbia forest products. Industry and the federal Canada Wood Export Program will add another $16.2 million to the marketing program, for a total marketing effort of $25.4 million.

Recipients of the largest portions of funding are the Canada Wood Group with $4.1 million, and the Western Red Cedar Lumber Association with $1.27 million.

Other recipients include:

  • Business Innovation Partnership – $900,000
  • Wood Products Council – $713,000
  • BC Wood Specialties Group – $698,000
  • Council of Forest Industries – $516,000
  • Wood WORKS! BC – $400,000
  • Coast Forest Products Association – $277,000
  • Western Red Cedar Export Association – $263,000, plus more.
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