Lumber News Archives: July 2011

Lumber News Archives: July 2011

Maritime Lumber Bureau ; Madison’s Timber Preview ; West Fraser Sells ; Canada Housing Starts ; Housing Starts, Japan ; US Mortgage Applications US Mortgages ; Madison’s Investment Rx ; Pine Beetle Survives Winter in Alberta ; China Annual 2010 and 1Q 2011 Wood Demand ; Winton Global Employees’ Appeal ;Global Pulp Market ; Madison’s Timber Preview ; Wildfires Continue ; Japan Update ; Canada Economic Indicators ; Lumber Export Tax ; North Enderby Timber Mill Fire ; US Home Sales ; Tolko Closures ;

July 27, 2011

Maritime Lumber Bureau

The always-boisterous MLB’s annual conference and trade show, its 72nd this year, was held this year on June 16 and 17 in Halifax, NS. Speakers included Patricia Mohr, VP at Scotiabank Group, on “Lumber Prices, Global Growth and Currencies”, Wayne Trusty of the Athena Sustainable Materials Institute, on “Sustainability in Codes, Standards and Rating Systems”, Stephen Lovett, Managing Partner of Phoenix Strategic Solutions, on the “Softwood Check-Off Initiative”, Gerry Van Leeuwen of International Wood Markets Group, on “Overview of Global Wood Markets”, and Marianne Berube, Executive Director at the Canadian Wood Council, on “The Latest Innovation in Wood Construction.”

Annual AGM

Kicking off the two days of presentations, Mohr explained that the Scotiabank Commodity Price Index showed an 18.1 per cent increase in December 2010 compared to one year earlier, and that forest products specifically improved by 28.8 per cent in May compared to the low in April 2009. An analysis of metals prices, sovereign debt, and the economic condition of China and the US followed. Mohr’s data then showed that British Columbia’s lumber exports overseas jumped by 1.4 billion board feet in 2010, from 2.6 billion in 2009 to 3.9 billion. In the next decade, 10 to 15 million Chinese residents per year (110 million people in total) will relocate from rural areas to China’s cities. In India the corresponding number is expected to be 40 million. This suggests strong residential construction in those countries for the medium term, Mohr pointed out.

For 1Q 2011, Canadian lumber exports mostly from BC and Alberta stayed strong, showing a 107 per cent increase over 1Q 2010. However, this increase demonstrated a drop from 4Q 2010 levels of 13 per cent. Mohr stated that when buying from China is strong, lumber prices are set by customers from that country rather than from the US. When demand from China fades then lumber prices are determined by the as-yet weak US market. The Scotia Capital presentation claims that “there is a noticeable seasonal pattern in buying from China, with strength concentrated in the 4Q, providing a counter-seasonal offset to weaker North America shipments.”

While strong lumber demand out of China has definitely occurred in 4Q for the past two years, the possibility of stockpiling and supply chain issues might still come into play. Two short years might not be long enough to determine a “pattern”, especially when compared to over a century of demand from the US.

Going forward, Mohr said that the medium-term outlook for lumber should improve markedly as the impact of the mountain pine beetle infestation is in timber supply from BC and the US coastal Inland Region. Due to an overhead of US homes for sale, there will be a small pick up in construction for 2012, but it is 2013 that “should be the big turnaround year for lumber prices,” detailed Mohr.
CWC’s Marianne Berube’s presentation consisted of 115 slides covering many topics. The section focusing on new trends and developments in mid-rise wood framed building was not to be missed. Mid-rise building projects made of wood are proving quite popular with regulators and builders the world over. Following BC’s change to provincial codes allowing six-storey wood framed buildings, Ontario is also now considering building code changes. Ontario may allow for light wood frame and hybrid construction, for both mixed-use and residential construction, of up to six storeys, explained Berube. In just over a year after the BC code change of 2009, more than 40 such projects had come on stream in that province.

The UK, Italy, Austria, Japan, and the US, among others, are also making similar building code changes. Several seminal events have helped to foster better attitudes toward taller wood buildings, including a fire test on a six-storey wood frame building in the UK during 2000, a 2008 seismic test of the same kind of building in Japan, and recent earthquakes in Italy, Japan, and China where wood buildings proved to be more resistant than their concrete counterparts. In addition, light wood frame solutions have proven best suited to meet jurisdictional conditions, including density, seismic, green, and economic, Berube continued.

An interesting point of Berube’s presentation, was that the tallest solid timber building in the world, a nine-storey building in London, England, took only nine weeks to build and has no sprinkler system. 1.5 metre thick ‘party walls’ and inflammable separations between floors will act to slow a fire’s progress considerably. Please refer to the March 12, 2010 issue of your Madison’s Reporter for more information on this British building and others in Germany.

Stephen Lovett’s presentation, from Phoenix Strategic Solutions, explained the workings of the recent US softwood lumber Check-Off, and what that will mean to the industry both in the US and Canada. The Blue Ribbon Commission for Check-Off consists of 21 North American lumber CEO’s and heads of business, comprising of 14 US and 7 Canadian members. Membership is spread among smallest to largest producers, ranging from less than 250 Mmfb produced annually to over 3,000 Mmbf. However, 35 per cent of members represent companies with the smallest annual production, explained Lovett.

The purpose of the softwood check-off is to prevent market share erosion, even during periods of solid sales, and to counter well-funded, aggressive campaigns by competitors in construction materials. Also, Lovett pointed out that the North American lumber producing industry is fragmented, with no single industry wide voice. Lovett went on to say that there are untapped market opportunities offshore, and that there should be more advantage taken of major industry investments in certification and green buildings.

The softwood check-off will be funded by an industry assessment of US$0.35 per mfbm, with an option to increase that to US$0.50 in the third year. These amounts will be sufficient to raise US$14 to $20 million, said Lovett. Over US$400 million per year in sector-wide funds is expected as return on investment, if applied to more than 40 billion board feet of wood sold annually.

Lovett concluded by saying additional customs burdens on Canadian exporters, especially those operating at under 15 Mmbf annually, in terms of paperwork and broker costs. The Maritime Lumber Bureau has already raised these concerns, as have other Canadian agencies.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview takes a hard look at recent logging constraints due to flooding in British Columbia’s northern interior, as well as log supply and demand developments across North America and globally.

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West Fraser Sells

Kitimat LNG has reached an agreement to buy the site of West Fraser Timber’s dormant Eurocan pulp and paper mill in northwestern British Columbia, the companies said Thursday.

West Fraser permanently closed that mill at the end of January 2010.

No price was disclosed, but in a news release, Kitimat LNG president Janine McArdle said the partnership plans to use the Eurocan linerboard mill industrial site as a work camp and lay-down and storage area as it prepares to start clearing and grading the location for its liquefied natural gas export plant several kilometres south of the old mill. The plant, being built on Haisla First Nation land, is being designed to liquefy up to 700 million cubic feet of natural gas per day.

Canada Housing Starts

Data from Canada Mortgage and Housing Corp showed 197,400 seasonally adjusted annualized housing starts in June, up 1.7 per cent from May and well ahead of consensus forecasts of 185,000.

Housing starts for both May and April, however, were revised to 194,100 from 183,600 and 178,700, respectively. This represents a 5.7 per cent revision for May and an 8.6 per cent change for April. Overall, housing starts gained 11.6 per cent quarter over quarter, the first gain in four quarters.

Canada Home Building, Sales

The CMHC attributed the strong showing in June to an 11.1 per cent surge of single-family urban starts on May. Urban multi-unit construction, which includes condominiums, apartments and duplexes, contracted 3.1 per cent while rural starts declined 2.1 per cent.
Ontario markets gained the most, up 24.1 per cent in June. British Columbia, home to the most overheated market in Canada in Vancouver, actually had starts contract by 27.6 per cent.

Scotia Capital economists noted that housing starts notched their first quarterly gain in three quarters, up 6.7 per cent.
BMO Capital Markets said every province contributed toresidential construction activity in 2Q.

The surprising revisions for April and May were a bright spot in an otherwise lackluster quarter for economic growth, owing to supply chain disruptions that arose from Japan’searthquake, analysts said.

“The data suggest that house-building in Canada is still holding up and outperforming most expectations, as that sector is continuing to get a lift from stimulative low rates, as well as positive sentiment from a robust resale market,” said Emanuella Enenajor, an economist at CIBC World Markets.

But the overall pace of housing activity, from starts to resales, are forecast to slow in coming months as higher interest rates and tighter mortgage regulations dampen demand.

Home sales rose by a seasonally adjusted 2.6 per cent in June from the previous month, a sign the housing market is on a “solid footing,” the Canadian Real Estate Association said Friday.

Sales activity remained stable in Toronto, with gains recorded in Victoria, Calgary and Montreal, as well as in the Ontario cities of Ottawa, London and Hamilton, CREA said.

On an unadjusted basis, sales were up 10.8 per cent in June from the same month last year.
On Wednesday, TD Economics said Canada’s housing market is set to undergo a “modest” correction, with resale activity poised to drop 15.2 per cent and average prices likely to fall 10.2 per cent over the next two calendar years.

Housing Starts, Japan

According to a report released by Ministry of Land, Infrastructure, Transport and Tourism on June 30, Japan’s housing starts in May increased for the second consecutive month to 63,726 units, a 6.4 per cent increase from the same month in a year earlier, says the Japan Lumber Journal.

Owner-occupied houses dropped for the first time in 19 months, while those of built-for-sale houses saw a large increase, of 43 per cent, due to the growth in condominiums.

Home Building, Japan

The seasonally adjusted annual rate of home building in Japan was 815,000 units, which returned to more than the 800,000-unit mark after two months, says the Journal.

Housing starts of wooden houses fell below the result of the same month a year earlier with 34,126 units, down 2.4 per cent, due to drops in both owner- occupied houses and built-for-sale houses.

The percentage of wooden houses dropped 4.7 points from one year ago, to 53.6 per cent.

Starts of prefabricated houses increased for the second straight month to 10,106 units, up 2 per cent.

Those of 2 x 4 houses also remained favourable, with the sixth consecutive month of growth to 6,891 units, a 1 per cent increase.

Housing starts in the metropolitan areas increased 30.6 per cent owing to the growths in condominiums, which skyrocketed 206.8 per cent, owner- occupied houses and rental houses.

US Mortgage Applications

Mortgage applications in the US dropped for a fourth straight week, led by a decline in refinancing even as borrowing costs dropped, said Bloomberg Wednesday.

The Mortgage Bankers Association’s index fell 5.1 per cent in the period ended July 8 from the prior week, the Washington- based group reported. The group’s purchase gauge decreased 2.6 per cent, while the refinancing measure dropped 6.2 per cent.

Smaller job gains and a tight credit landscape may be keeping consumers from entering the housing market, preventing a sustained recovery. At the same time, a surplus of distressed properties driving prices down could be making it harder for home owners to refinance current mortgages.

The average rate on a 30-year fixed loan fell to 4.55 per cent from 4.69 per cent the prior week, the biggest drop in three months. The average rate on a 15-year fixed mortgage decreased to 3.68 per cent from 3.79 per cent, the report showed.

July 19, 2011

US Mortgages

It is apparent that, when the US National Association of Realtors starts taking out primetime television ads promoting the purchase and sale of homes, more developments in the confusing landscape of US real estate are afoot.
“The sale of each home creates two jobs,” claim the ads, which started running this week. Why is this American agency suddenly approaching the sales of houses from this standpoint? Because there is significant movement in the US mortgage market this week on several fronts.

More Turmoil

One of these fronts is US State Attorneys General ongoing investigation of big-bank mortgage servicers. Republican members of Congress Thursday lashed out AGs, claiming they are trying to achieve in a sweeping settlement what Democrats were unable to accomplish in Congress. At issue are discussions between State AGs, the Justice Department, and large bank servicers, to settle an investigation into problems uncovered in foreclosure practices at large financial institutions. Fines in the billions of dollars are likely still on the way as part of that deal, with some participating in the discussions seeking to have a portion of the fines be used to cut amounts owed by some borrowers facing foreclosure. Republican lawmakers on the House Financial Services Committee took issue with that idea, insisting that principal write-down creates an incentive for homeowners to default and seek a reduction.

New York State AG Eric Schneiderman said June 28 that states and banks are in talks about imposing a US$20 to $25 billion fine on the financial institutions, according to the Democrat and the Chronicle newspapers. A group of the biggest US banks reportedly proposed paying US$5 billion to settle an investigation of foreclosure practices conducted by Federal and state authorities. The top four US mortgage servicers are Bank of America, Wells Fargo, JP Morgan Chase, and Citigroup Inc. These four companies are also top securitizers of mortgage loans.

The US Federal Reserve said, also Thursday, that it wants a uniform set of national standards developed for mortgage servicing companies and for handling foreclosures to prevent abuses of consumers. In a statement filed with two House financial services subcommittees, the Fed said it also was staying in close touch with the Justice Department on negotiations with five big banks trying to settle over deficiencies in mortgage servicing and foreclosure practices.

“We will continue to monitor and assess the corrective actions taken by the servicers and the holding companies, as required by the enforcement actions, and take further action when necessary to address failures,” the Fed’s Washington-based Board of Governors said in testimony to a House Financial Services subcommittee Thursday.

On another front, JPMorgan Chase, Bank of America, and three other US mortgage servicers, were in advanced talks to resolve state and federal claims over faulty foreclosures, two sources briefed on the matter told Bloomberg Thursday. Negotiators have tentatively set a July 13 target for a settlement, which may exceed US$20 billion. Some banks were briefing their boards on deal terms, which could be formed of State and Federal funds to resolve claims and provide relief to borrowers. That target date may be postponed as parties iron out details.

The July 13 target corresponds with a separate deadline set by the Office of the Comptroller of the Currency for banks to submit an “action plan” for fixing deficiencies and compensating people whose homes were improperly seized. The proposed accord would require banks to set up a fund for States to resolve civil mortgage complaints, and a separate federal account that would require them to provide a specified amount of mortgage relief to borrowers, the two sources explained.

The settlement’s total value might reach US$60 billion, the New York Post reported Wednesday, citing unidentified people close to the discussions.

In yet more news breaking Thursday, the US housing industry is finding political traction in Congress as it objects to plans that would wind down Fannie Mae and Freddie Mac and eliminate any government role in mortgage finance. Two members of the House Financial Services Committee, Gary Miller, a California Republican, and Carolyn McCarthy, a New York Democrat, Thursday introduced legislation to create a government-run replacement for the two mortgage finance companies. The new measure directly challenges House Republican leaders, who have backed bills that would do away with the two companies and aim to minimize the risk that taxpayers will have to bail out future mortgage failures.

The Campbell-Peters bill was modelled on proposals from the Housing Policy Council, a Washington trade group that represents big financial companies, private mortgage insurers, lenders and loan servicers, including JPMorgan Chase and the Mortgage Bankers Association, whose own members include small lenders.

Smaller lenders oppose the approach, saying they fear that they could be squeezed by larger competitors who might end up being the ones selling the guarantees now sold by Fannie Mae and Freddie Mac. At this stage in the legislative process, both proposals are little more than stakes in the ground. Neither will get a hearing before the Financial Services Committee, said Representative Scott Garrett of New Jersey, who is leading Republican efforts to eliminate Fannie Mae and Freddie Mac.

Since being seized by the government three years ago, Fannie Mae and Freddie Mac have become even more important to US housing. By propping up the market, the terrified real estate industry and consumer groups think the disappearance would herald yet another downturn in home prices, according Reuters BreakingView blog. Fannie and Freddie, together with the Federal Housing Administration, are guaranteeing roughly nine out of 10 new mortgages and back roughly half the US$10.6 trillion market market, says BreakingView.
Since being taken into government conservatorship in September 2008, Fannie Mae alone has cost US taxpayers some US$86 billion, according to CNN‘s Tom Foreman. Together, the two have cost the Treasury Department about US$130 billion since that date.

As of 1Q 2011, they had paid US$26 billion in dividends back to the Treasury, according to Bloomberg BusinessWeek.
Lastly, mortgage rates in the US rose broadly over the past week after showing little movement over the past month, according to Freddie Mac’s weekly survey released late Thursday.

The 30-year fixed-rate mortgage was 4.6 per cent, compared with 4.5 per cent the previous week and last year’s rate of 4.6 per cent. Rates on 15-year fixed-rate mortgages were 3.8 per cent, up from 3.7 per cent from the previous week and down from 4.1 per cent a year earlier.

“Mortgage rates followed Treasury yields higher over the holiday week but remain quite affordable by historical standards,” said Freddie Mac Chief Economist Frank Nothaft in the release.

Madison’s Investment Rx

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Pine Beetle Survives Winter in Alberta

Mountain pine beetle populations experienced varying degrees of over-winter survival in Alberta in 2010/11, ranging from moderate to high survival in the northwest and central parts of the province to declining populations along the eastern edge of the infestation and in the southwest, according to an Alberta Sustainable Resource Development release Thursday.

Milder winter weather throughout most of the province’s forests this year is the likeliest cause of greater beetle survival, compared to the extreme temperature fluctuations the previous winter which led to significant beetle mortality in 2010.

Over-winter mortality survey results are used to help set priorities for control work in the coming year. This year’s results mean Alberta will continue to target specific areas for aggressive action against mountain pine beetle in 2011/12.

Over-winter mortality survey results show Grande Prairie and the majority of northwestern Alberta are in the midst of a growing population of the tiny beetle.

While the population is increasing, the growth rate in the region is relatively unchanged from last year.

Pine Beetle in Western Canada

Alberta Sustainable Resource Development senior forest health manager Mike Undershultz told the Herald-Tribune Thursday, “We recently did a case study where we took an area north of Grande Prairie where we have not been conducting any level of control activities and then compared a similar-sized forest south of Grande Prairie where we have been doing aggressive level-one control … and what we found from a period of 2007 to 2010 in the north area, the number of trees [infested] expanded 242-times over that time period.”

In northwest Alberta there was high beetle population survival, indicating an increasing population. There is a continued high risk of in-flights of beetles into the region from adjacent infested areas in British Columbia.

Central Alberta saw moderate beetle survival success, indicating a stable population aside from the eastern edge of the infestation, where populations continue to decline.

In southwest Alberta, beetle survival was low. Local populations declined following both control work and high winter mortality in 2010 and dropped again in 2011.

Six-million hectares of pine forest in Alberta are susceptible to attacks by mountain pine beetle, threatening the province’s $8.3-billion forest industry and other resource assets.

Duncan MacDonnell, Public Affairs Officer for Alberta’s Sustainable Resource Development explained to Madison’s in a phone interview Friday that there is “low beetle survivability in the leading edge of west-central Alberta. However where the beetle population already is, there is more survival.”

“Of the six million hectares of pine forest in Alberta susceptible to attacks by mountain pine beetle, 4.5 million is within our forest management agreement areas and three-quarters of that represents the pine basket of fibre supply for the forest industry.”

China Annual 2010 and 1Q 2011 Wood Demand

Data from China Customs showed that China imported 2.82 million cubic metres of SPF lumber from Canada in 2010, a 1.40 million cubic metres or 98.6 per cent, increase over 2009, says the Japan Lumber Journal using data from China Wood Monthly Market Report.
Both the import total volume and increase in volume broke previous records.

Important new trade and production regions of SPF lumber have been developed, beyond the traditional ports such as Shanghai Port, Tianjin Port, Qingdao Port and Taicang Port.

Manzhouli Port imported 2 million cubic metres of logs from Russia in 1Q 2011, a 22.6 per cent increase over 1Q 2010. The import value is 2.7 billion Yuan, a 40 per cent increase. The average price was US$133.8 per cubic metre, up 14.2 per cent over the same time period last year.

China’s Wood Imports

This year, China’s Manzhouli Port Russian timber imports continue the high monthly rates of recent months, says the Japan Lumber Journal. In March, imports were at 775,000 cubic metres of logs from Russia, an 18 per cent increase over 2010, and the highest value since April 2009.

The average price of imports have also maintained highs. Rising supply volatility since December caused price increases exceeding US$133 per cubic metre. In March, the average price of Russian timber reached US$134.5 per cubic metre, a 14.5 per cent increase, and price levels not seen since February 2009.

According to Nanjing Customs, Jiangsu Province’s total import of logs was 2.9 million cubic metres from January to March 2011, a 25.8 per cent increase. The import value reached US$570 million, a 23.1 per cent increase.

As of April 25, timber imports from Alashankou port, Xinjiang Province, were 39 thousand cubic metres, a 29.1 per cent increase. The value was US$6.76 million, representing a year-on-year increase of 39.1 per cent.

The import of wood at ErLian Port from January to April reached 505.5 thousand cubic metres, a 3 per cent drop, with an import value of US$81.68 million dollars, a 12.3 per cent increase.

Winton Global Employees’ Appeal

Former employees are calling on the Ministry of Forests to pull Winton Global’s forest licence. It has been nearly three years since Winton Global, a forestry company which is partly owned by Canfor, shut down it’s River Road operations in Prince George, BC, putting as many as 220 people out of work.

Although there have been ongoing talks between the union and the company, there has yet to be details in the way of severance for the employees due to loopholes in the provincial legislation. Nor is there any reason to hope that the mill will ever reopen.

Steve Thomson, BC’s Minister of Forests, Lands and Resource Operations, has responded by stating that “there are no grounds” for cancelling Winton Global’s forest licenses, and that he will not comply with the workers’ demands.

July 12, 2011

Global Pulp Market

Figures released Monday by the Pulp and Paper Products Council indicate a slowdown in North American newsprint demand.
May shipments of NBSK (northern bleached softwood kraft) pulp to North American customers were virtually unchanged compared to one year ago, however were down 6.4 per cent since the beginning of 2011, says the latest PPPC report.

North American demand for newsprint fell 6.1 per cent in May to 415,000 metric tons compared with the same month a year ago. A pullback in US consumption drove the decline, with demand by US dailies dropping 12.3 per cent compared with May 2010, according to the PPPC’s monthly data. Newsprint production in North America also fell in May, declining 5.6 per cent from a year earlier to 618,000 metric tons.

Status and Forecast

Other paper production in North America, however, is faring better. In addition, newsprint production in other regions of the world, specifically China and India, is growing.

This week’s list prices for NBSK pulp, posted Tuesday at FOEX.fi, continue to rise compared to the beginning of 2011. At this time last year many analysts had indicated that market pulp prices would likely not increase much above US$1,000 per metric ton. FOEX puts US NBSK prices at US$1,035 per metric ton, up almost US$68 over early January 2011. In Europe market pulp prices are even stronger, rising almost US$74 since the beginning of the year, to US$1,023 per metric ton this week. Industry sources indicate that strong demand out of China is responsible for the lengthy run of market pulp price increases.

A recent conference call held by Deutsche Bank featured Brian McClay and Associates out of Montreal, QC. Principal Brian McClay lead listeners through a few slides demonstrating NBSK pulp price trends and a forecast, as well as China’s purchases and imports of chemical grade wood pulp since 2006.

“The next ten years for the pulp market will be better than the last ten years,” explained McClay in answer to listener questions.

With pulp supply globally currently strong, McClay sees pulp prices falling 10 to 15 per cent through 2011, then an upcycle in 2012 and even stronger demand in 2013.

“July is the biggest month of production for pulp, but traditionally there is a lull in demand,” said McClay in his presentation. “This June the day’s supply of pulp is up 3 per cent compared to one year ago. This will shift higher through the summer and therefore put downward pressure on prices.

“At the moment there is a huge lack of credit in China so pulp stocks are not expected to be built in the immediate future. As well there are deliveries of pulp ordered still yet to arrive to China.”

McClay also mentioned that there is resistance in China to purchase at current price levels for both NBSK and BHKP (bleached hardwood kraft pulp), and that pulp stocks in China will last for a while due to recent paper capacity curtailments in that country.

“Paper demand is continuing its ongoing structural decline, except for tissue which is not a seasonal product,” detailed McClay. “One-quarter of global demand for pulp is now going to tissue production. There has been a trend to more tissue production using market pulp, as well as viscose.”

“The compound annual growth rate for market pulp is up 3 per cent this year [and for dissolving pulp up 4 per cent], compared to about 7 per cent for 2010,” continued McClay. “There is 15 million tonnes of new capacity coming online, mostly in South America. The first plant should be completed in 2013, with the next one expected in 2016 or 2017.”

McClay pointed out the significance of new hardwood pulp production, while in softwood pulp, mills in North America and Europe have been struggling and even closing.

“NBSK will begin acting more like a specialty product with a widening premium on BHKP. There doesn’t seem to be a lot of places where there is enough wood to put in several softwood pulp mills,” McClay pointed out. “Except Russia.”
McClay explained further to Madison’s in a phone interview Wednesday, “There is not going to be enough NBSK, due to a combination of mill closures in North America and an increase in demand.

“There will be 50 million tonnes of new paper and board production in China in the next ten years, which will require 100 million tonnes of wood to make,” explained McClay to Madison’s. “The US industry currently makes 80 million tonnes.

“China is already an importer to chips and logs from all over the world. China is certainly going to need more wood in the future. Its already has more plantation forests than any other country in the world. Canada’s gain as an exporter comes at the expense of Brazil. A lot of that wood is going to tissue production in China, as well as viscose. Generally tissue producers like to put a 30 per cent mix of NBSK to make their product.”

“Right now pulp demand out of China has really gone cold,” concluded McClay. “China stopped buying at the end of last year. Customers there are really momentum buyers, if they think prices are going to rise further they will buy more. In a way the price cycle becomes a self-fulfilling prophecy. If a few key market players stop buying, then everyone else follows.”

Once this current cycle reverses, especially if market pulp prices are to soften, China’s buyers will come back again. Keeping a view of remaining pulp stocks in China, as well as fluctuations in paper production, could turn out to be a good indicator of when Chinese customers will begin buying pulp again.

On Thursday morning equity analysts at Deutsche Bank sent around a note announcing that Domtar had just informed US customers that it will reduce NBSK pulp prices by US$20 per tonne to US$1,020 per tonne, effective July 1st. The announcement comes two days after Canfor Pulp dropped its US prices by US$20 per ton and just over a week after Ilim Group, Russia’s largest pulp and paper company, dropped its softwood prices to China by US$70 per tonne. With demand from China softening in recent months, industry pundits have suggested the pulp markets were at an inflection point, the Deutsche Bank note went on to say.

By the time that supply-demand balance becomes apparent, McClay’s forecast of a strong pulp market in 2013 would be evident.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the latest announcements of new, expanded, or updated North American paper mills.

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Wildfires Continue

Firefighters were confident Thursday they had stopped the advance of a wildfire that headed toward the Los Alamos, NM, nuclear lab and the nearby town that now sits empty for the second time in 11 years, even as they battled the blaze that crept into a canyon that descends into the town and parts of the lab.

The Las Conchas blaze had consumed 92,710 acres near the city of Los Alamos. That’s roughly 23,000 acres more than the fire had claimed Wednesday. Most of the additional growth in the past day came as the western section of the fire, driven by southerly winds, moved north from the Los Alamos area.

Wildfires

By midday Friday, Las Conchas, NM, is expected to capture the dubious title of largest single forest fire on record in the state. The previous record-holder was the Dry Lakes fire, which burned 94,000 acres near the Gila National Forest in southern New Mexico in 2003.

In Arizona, the Forest Service proposed Thursday that the Four Forests Initiative, which is expected to help clear about 50 square miles a year and use the discarded brush for construction material. Through arrangements with contractors, Vilsack said the program could eventually impact more than 1 million acres.

Wildfires have scorched nearly 3.3 million acres of Texas since November, setting ablaze an area larger than the state of Connecticut. Authorities have banned outdoor fires in 235 of the state’s 254 counties, a figure the Texas Forest Service called record-setting.

In Arizona, the Stanley Fire still grew as a thunderstorm cell pushed the southwest corner of the fire uphill. The blaze began June 26 east of Stanley Butte. The area is near Mt. Turnbull and is about 10 miles southwest of Bylas.

All tribal forest lands are closed to the public except fishing at San Carlos Lake. The Copper Creek Fire began June 28 in the Galiuro Mountains west of the Gila Valley. The terrain is extremely rough and nearly inaccessible, however, significant fire suppression progress was made, and the 1,400-acre fire was listed as being 35 percent contained as of Thursday morning.

The US Forest Service has nearly 9,000 personnel assigned to more than 130 wildfires across the country. Many of them are focused on blazes in the Southwest.

Japan Update

Glulam manufacturers and export managers of large sawmills in Central Europe are assuming that reconstruction in Japan will stretch over a period of five years, according to FORDAQ. Japan housing starts in 2010 amounted to 819,000 units, and for 2011, 900,000 units are expected. The share of wood framed buildings will remain 56 per cent.

Japan Production

The Japan Federation of Plywood Manufacturers Association is quoted as saying that six plywood mills which sustained considerable damage as a result of the recent earthquake and tsunami will restart partial production, probably in July.

In Ishinomaki the power supply was restored late May but in other areas, such as Miyako and Ofunato, it will be some time before power supplies are resumed and this will delay the resumption of production of mills in these areas. The Association reported that April plywood production was almost the same as in April last year. Mills that were not damaged increased production to meet the emergency demand for temporary housing in the quake and tsunami stricken areas.

Meanwhile, according to Lumber Statistics announced by Japan’s Ministry of Agriculture, Forestry and Fisheries on May 20, the amount of demand for logs in 2010 increased for the first time in 4 years, to total 23.724 million cubic metres, a 4 per cent increase compared to the previous year.

Within that amount, logs used for lumber totalled 15.8 million cubic metres, a 3.2 per cent increase, accounting for two-thirds of the total. As a reaction to the large drop in 2009, logs used for plywood in 2010 increased to 3.811 million cubic metres,a 22.7 per cent increase.

Imported wood totalled 6.5 million cubic metres, 5.6 per cent increase.

Wood from North American, which accounts for 60 per cent of the total, increased by 7.5 per cent. Wood from New Zealand increased by 35.3 per cent, and from Southeast Asia by 6.7 per cent, but Russian wood decreased by 12.4 per cent.

Canada Economic Indicators

Canada’s gross domestic product was flat in April, Statistics Canada said Thursday, an anemic reading that nonetheless was better than the contraction economists had expected. Both goods and services were flat in the month.

Mining and energy extraction is by far the country’s fastest-growing sector, tallying growth of 9.7 per cent in the past year. Momentum in mining continued in April, when it was the fastest-growing sector in percentage terms.

Canada Economy

Mining’s gains were tempered by a slide in manufacturing, which tumbled 0.7 per cent. A 6.9-per-cent drop in cars and parts production was mostly due to supply disruptions following the earthquake and tsunami in Japan, Statscan said. That drop, on top of lower production in aerospace, caused a 4.7-per-cent reduction in transportation equipment manufacturing.

Lumber production by sawmills decreased 0.7 per cent from March to 4,767.7 thousand cubic metres in April. Lumber production was down 0.1 per cent in April compared with the same month a year earlier.

In April, sawmills shipped 4,718.6 thousand cubic metres of lumber, up 0.1 per cent from March.

“With gasoline prices simmering down, auto production poised for at least a partial rebound, we look for growth to pick up to the 2.5 per cent-to three per cent range in the next two quarters,” said BMO deputy chief economist Doug Porter.

July 03, 2011

Lumber Export Tax

The additional ten per cent export tax charged to Option B provinces under the 2006 Softwood Lumber Agreement is about to be paid by Canadian lumber exporters from those provinces.

In March 2008, following an arbitration process, the US claim that Quebec, Ontario, Manitoba, and Saskatchewan’s lumber export shipments into the US for the first six months of 2007 exceeded their quota limit was upheld in international court. In February 2009 the LCIA ruled that those provinces must remedy the overshipment levels, to the tune of C$68 million. In addition to the 5 per cent export already in place, Option B provinces were to pay an additional 10 per cent export tax on Canadian lumber going into the US. The federal government of Canada made several attempts to pay less than the full remedy all at once, and in April 2009 requested the LCIA arbitrator panel reconvene to clarify the method and manner of payment. Dissatisfied with Canada’s lack of compliance with the LCIA ruling, in May 2009 the US issued new customs instructions, effective mid-April, which required Canadian lumber exporters to pay an additional 10 per cent duty surcharge on softwood lumber imports. Please see the May 29, 2009 issue of your Madison’s Lumber Reporter for details.

$68 Million Remedy Charge

One of the main benefits of the 2006 SLA to Canadian lumber exporters are that any money collected under the terms of the Agreement are to stay in Canada. Upon signing the 2006 Agreement, the US returned only $4 billion of the $5 billion collected during the preceeding softwood lumber dispute. In the case of the 2007 arbitration, due to Canada’s slow response to the binding LCIA ruling, the US was able to put into motion a clause of the Agreement preventing either side from dragging its heels. While both sides waited for the LCIA panel to reconvene, the US collected an import duty on Canadian lumber rather than Canada collecting an export tax.

Canada finally acknowledged, but not until August 2010, that exporters must begin collecting the tax. At that time Madison’s requested of Canada’s Department of Foreign Affairs and International Trade an estimate of how much the US had collected. DFAIT would only say that “approximately half” of the $68 million had been collected. When pressed, a media representative at DFAIT replied to Madison’s that Canada had no intention of approaching the US to bring those import duties collected back into Canada.

Effective September 1, 2010, in filling out their US Customs Proforma Invoice, Consumption Entry and the Canadian Export Permit, customs brokers handling exports into the US across the Canada/US border began filling in line 002 to reflect a Canadian Export Surcharge of an additional 10 per cent to the Option B provinces.

This bureaucratic change did not hinder the paperwork process of selling Canadian lumber into the US. As it was always meant to be, the Canadian government began collecting what remained of the additional 10 per cent lumber export tax on that date.

As if this all wasn’t complicated enough, in the meantime a second arbitration was launched by the US against Ontario and Quebec under the 2006 SLA, this time for alleged government subsidies to the lumber industry there. A smaller additional export tax was eventually charged against those two provinces.

Last week Madison’s requested an update from DFAIT and was told that, “Foreign Affairs and the Canada Revenue Agency expect the [additional] charge to be terminated shortly, no later than this summer.” The DFAIT media representative indicated that Canada’s lumber export volumes into the US have increased since September, “thereby accelerating the rate of payment.”

Some amount of good news for Canadian lumber producers, no doubt.

In a strange twist, and as illustration to the level of complication all this involves, a Pembina CBP Import Specialist working in Buffalo, NY, issued a CF 28 and 29 to a veteran customs broker, indicating that the Proforma Invoice was to reflect only the initial 5 per cent duty, not the additional 10 per cent. The import specialist was unable to find official notification from the US International Trade Administration department instructing US Customs of the September 2010 change to the collection process. The customs broker was informed that monitoring the additional 10 per cent duty was “not a Customs concern.”

Jones & Jones Customs Brokers and Trade Consultants were issued the CF 28 Notice of Action at the end of April. Company president Michael Jones explained to Madison’s that a customs broker receiving such a notice is required by law to comply to that Notice in all subsequent Proforma Invoices for that commodity, as well as undertaking corrective actions for all entries and permits yet to be liquidated from September 1, 2010 to present. A large volume of emails and no small amount of hair tearing ensued as Jones tried to achieve a level of understanding with the Import Specialist, going so far as to involve a National Lumber Import Specialist and a Deputy Director at DFAIT. Major US Customs Brokers dealing with Canadian softwood lumber shipments surveyed and the DFAIT Deputy Director all agreed completely with Jones’ position. DFAIT’s Deputy Director allowed that he would take the matter up with the ITA. However, it was only after further communications from Jones directed to high level ITA and CBP personnel that the ITA finally acted. All the while a significant amount of Canadian lumber crossed into the US border.

On Tuesday afternoon, the US Office of International Trade sent an email to Jones stating, “We have crafted a memo for field distribution clarifying confusion stemming from additional 10% export charge. The memo will be made available very soon.”

In surprisingly quick service, the memo arrived Thursday from the Pembina Import Specialist, providing Jones with his much-requested written response that CBP’s actions have been cancelled.

Jones immediately notified clients by email, “If this mandate [to revise all US Permits for Option B Province softwoods shipped on and after September 1] would have gone unchallenged, it would have cost those Canadian companies hundreds of thousands of dollars in revised entry and permit costs, not to mention the time involved to the exporter, their broker and CBP.”

In a sick sort of way it’s gratifying to know that other government departments besides those in Canada get confused over their own processes and regulations. However, there may be yet another complication for US customs broker to deal with for their lumber clients.

The current arbitration under the 2006 SLA, tabled by the US over British Columbia’s timber stumpage rates, is scheduled to begin hearings at the LCIA in February 2012.

North Enderby Timber Mill Fire

A large fire burned at North Enderby Timber on Highway 97 in BC early Friday last week. Enderby fire chief Kevin Alstad says the planer building was on fire when crews arrived just before 5 am. He says it took the 23-member crew five hours to put it out. No one was hurt.

“They had some finished product there. I’m sure there was alot of dust and some shavings which helped feed it,” Alstad told local media.

A group of 22 employees are back on the job this week. However, eight others at the heavily used planer mill have been laid off. The mill is currently using a second planer at a molding plant to help fill orders for its customers.. General manager Ben Hendrickson hopes the burned out planer mill will be rebuilt within four to five months.

Fire investigators are trying to determine what caused the blaze. It is not believed to be suspicious.

US Home Sales

The National Association of Realtors reported Wednesday that existing US home sales in May fell 3.8 per cent to 4.81 million units. Total sales off 15.3 per cent in year over year comparisons. Single family sales fell 3.2 per cent, to 4.24 million. Single family home sales were off 15.4 per cent in year over year comparisons.

The median existing home price rose 3.4 per cent to US$166,500 from April’s US$161,100. Median prices were down 4.6 per cent in year over year comparisons.

Homes-for-sale inventories fell to 3.720 million from 3.759 million units. Months supply rose to 9.3 months from 9.0 months previously.

Real Estate, US

The US Commerce Department Thursday released May new home sales at 319,000, off 2.1 per cent compared to April. Sales up 13.5 per cent in year over year comparisons. The median new home price was up 2.6 per cent to US$222,600, compared to April’s median of US$217,000.

Unsold home inventories were off slightly to 166,000 units. The months’ supply fell to 6.2 months from 6.3 months in April.
Regionally, new home sales compared to April were up 2.4 per cent in the south and unchanged in the midwest. Sales fell 3.5 per cent in the west and 26.7 per cent in the northeast.

US ome prices rose 0.8 per cent on a seasonally adjusted basis in April from March, according to the Federal Housing Finance Agency’s monthly home price index. It was the first monthly increase since May 2010, the agency said.

Compared with a year earlier, prices were still down 5.7 per cent. April’s index value was 182.4. A reading of 100 is equal to the price of homes in January 1991.

The FHFA’s index is calculated by using the prices of houses purchased with mortgages backed by government-controlled mortgage companies Fannie Mae and Freddie Mac.

Fewer US homeowners are falling behind on mortgage payments, which is helping to reduce the number of distressed homes already on the market or soon to be listed for sale, according to the Financial Times.

Eighteen per cent fewer loans were delinquent in May compared with a year ago, according to Lender Processing Services.
The number of US homes likely to hit the market soon fell compared to last year due to fewer new delinquencies and a high level of distressed sales, a real estate research firm said on Wednesday.

CoreLogic reported that the so-called shadow inventory, of distressed properties not currently listed for sale, in the three months to the end of April declined to 1.7 million homes. That’s equivalent to a five months’ supply and is down from 1.9 million in the same time frame the year before.

The drop was an 18 per cent decline from its January 2010 peak, CoreLogic said.

CoreLogic estimates the supply of homes yet to come up for sale by calculating the number of properties that are not currently listed on multiple listing services and are delinquent by 90 days or more, in foreclosure and owned by lenders.

Tolko Closures

Two Tolko operations will temporarily shut their doors. Tolko Industries announced this week that due to continuing poor market conditions, it will temporarily curtail panel production.

White Valley division’s veneer operation in Lumby, BC, and Armstrong, BC’s, plywood operation will shut the weeks of July 4 and July 11 with restart scheduled for July 18. Heffley Creek Division, near Kamloops, BC, will curtail one shift of plywood production during the same period.

Tolko Cuts

Tolko General Manager, Lumber & Plywood Sales, Larry Broadfoot, said to AM1150 that the unusually cold, wet spring has impacted the construction industry. Tolko will review the situation at the end of the shutdown to see if extensions are required.
Closures of the three plants cut the company’s plywood production by 10-million board feet.

A total of 260 Tolko employees are affected.

Kruger Inc, and White Birch Paper have each scheduled downtime for three Quebec operations toward the end of June, as is the custom in that province during the summer.

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