Lumber News Archives: March 2013

Lumber News Archives: March 2013

India Growth and Trade ; Madison’s Timber Preview ; Sawmill Accident ; Asian Lumber Company Visits to US Sawmills ; US Home Prices; Canadian Industrial Capacity Utilization BC Timber Allocation ; Canada Housing Starts ; LNG Plant in Howe Sound ; AFPA Results; Flavelle Cedar Mill’s Future Uncertain ; US Mortgage Regulator Making Progress ;BC’s Forest Practices Model ; EU Timber Regulations ; Madison’s Investment Rx ; Financial Results ; US Housing Starts, Home Sales, House Prices; China Wood Imports 2012 ; CLT Test Results ; Trucker Shortage ; Western Forest Products Announces . . .

March 27, 2013

India Growth and Trade

Touted as a major global consumer in the near future, the explosive growth of India’s middle class is surely an important statistic to watch for manufacturers and exporters of all kinds. Major trading partners around the world, Canada included, are working hard to increase exports to India. It is estimated that India’s GDP will grow by 5.9 per cent this year and by 6.4 per cent in 2014. Sixty-six per cent of India’s population is under the age of 35 and the country is poised for economic and social prosperity similar to that of industrializing European countries at their peak. The US, UK, EU, and China are all vying to foster significant trading relationships with India.

With all that in mind, the first ever BC-India Global Business Forum was held early this week in Vancouver, BC, with several hundred attendees from both India and Canada.

“Canada will have to fight harder to be noticed in India,” said Adam Roberts, South Asia bureau chief for The Economist. “The P5 nations [the five permanent members of the UN Security Council – ed] have a huge presence in India. Canada is barely on the radar.”

During the speaker sessions of the Trade Forum, Mike Manson, CEO of TaraSpan, said, “If Canadian companies become trading partners in India, they could ride the coattails of larger countries around the world.”

TaraSpan, Canada’s leading provider of India market entry services for technology companies, Tuesday announced that it will be opening an office in Vancouver to accelerate technology trade from BC into the burgeoning Indian market.

Said Vivek Rastogi, VP of Americas for Abellon Energy, “More Canadian provinces need to follow the very aggressive example of BC in opening up trade with India. Canada is moving so slowly that individual companies may as well just look for new trade themselves. The danger is in only the biggest companies making deals with each other. There need to be trading offices to provide traction.”

BC Lumber Export to India

In that regard, BC Forestry Innovation Investment opened the lumber trade office in Mumbai on December 10, 2012. The FII operation will provide on the ground assistance for the BC and Canadian wood industry.

It is generally acknowledged, by both Indian nationals and business people from other countries, that India has some hurdles to overcome in the near future, but that the long-term future absolutely is bright. Those both inside and outside India say the situation and business climate is very regional; depending on the state. While the central government makes a lot of decisions, most of the actual control is at the state level. And there are massive differences between states, very generally divided between the north and the south.

Many of Canada’s current business successes can be found in Gujarat, India’s fastest growing state, where Bombardier and McCain Foods have set up facilities.

Guest speaker Mobashar Akbar very astutely pointed out that it is not the ratio of the population that is heading toward middle-class status, nor is it the relatively low average age of the population, that is important. Rather more important is, “What percentage of India is aspiring to enter the modern world? It is not just about business,” said Akbar, former Editorial Director of India Today. “They want it [to enter the modern world] in their own lifetimes. India pays the democracy price. Don’t punish India for the sins of its government. Thirty to 40 per cent of India has an urban mind, questions of caste and religion get submerged.”

Praveen Kandle, CEO of Tata Capital, said, “In terms of consumer power, the middle class in India is close to 400 million people, which is bigger than the entire population of Europe. Most of this growth is due to urbanization.”

Apart from BC Premier Christy Clark’s speech and a couple of cursory mentions, forest products did not feature very highly in the conversations throughout the day. However clean energy, whether liquified natural gas (LNG) or biomass fuel, both in liquid and solid form, were much discussed.

A lot of the conversation about India and growth comes down the energy. Stable, cost-competitive energy sources are in great demand all over the country. Several of the speakers specifically mentioned an initiative to replace the diesel generators which are backup power units for 350,000 mobile signal towers with sustainable energy.

Explained Manson, “These can be anything from lithium ion batteries to solar or wind power.”

Presumably fuel created from the abundant supply of BC’s mountain pine beetle wood would also fit the necessary criteria.

Rastogi went even further, saying, “Biomass energy is the only renewable fuel source that has hydrocarbons. India intends to go the biorefinery route. North America has 15 per cent of the world’s forests but 70 per cent of the third-party certified forests. BC is a mecca of clean technology and pellets. This province is the largest exporter of pellets in North America, there is a lot of sawmill residue available from the large corporations. In five years we expect there will be 1 million tonnes of pellets produced annually in BC.

This province has an important advantage due to the proximity of Asian markets. And even though BC is twice the distance from Rotterdam as the east coast is, freight is not that much higher but the feedstock is much cheaper.”

Social issues and those of infrastructure and transportation were frequently mentioned topics.

Nirmal Verma, India’s High Commissioner to Canada, said, “India needs a $1 trillion investment in infrastructure in the next five years. Fifty per cent of the funding for this will come from the private sector.”

Please refer to the February 24, 2012 issue of your Madison’s Timber Preview for details of the massive projects planned for India and the public-private partnerships involved in that development.

Some cumbersome bureaucratic impediments and tariff barriers remain between Canada and India, but not for long if ongoing negotiations have the desired affect. On February 5 and 6 the seventh round of negotiations toward a Comprehensive Economic Partnership Agreement (CEPA) between Canada and India was held in New Delhi. A Canada-India joint study concluded that a trade agreement between the two countries could boost Canada’s economy by at least $6 billion. That translates to almost 40,000 new jobs across the country. Canada has identified core economic opportunities in India in the energy, agriculture, infrastructure, and education sectors.

Tom Sundher, principal at Coast Clear Wood and export agent for Western Forest Products explained to Madison’s in a phone interview Thursday, “About 12 years ago there was a 37.5 per cent tariff on Canadian goods going to India. Now it is 14.5 per cent. If we can get that even lower, trade volumes will be even better.”

Sundher indicated that a Canada-India free trade agreement may be completed by the end of 2013. Please refer to Page 7 for Sundher’s trade letter detailing BC lumber exports to India.

But Canada is not the only country looking to improve trade relations with a fast-growing India. The US-India Business Council (USIBC) said Thursday that bilateral trade between India and the US could touch US$500-billion mark over the next decade, according to the Times of India.

“From US$25 billion in 2006, the Indo-US trade has sniffed at US$100 billion last year, while defence trade alone touched US$10 billion in the past decade,” said USIBC Chairman Ajay Banga. “If both the partners chart out a larger strategy of engagement I am hopeful that two-way trade between the US and India can achieve our next target of US$500 billion over the next decade.”

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines a recent rush of institutional investment into US real estate, and looks closely at Blackstone Group specifically.

Contact us any time to receive this vital and timely information regularly.

Sawmill Accident

An incident at McKenzie Forest Products’ mill in Hudson, ON, has resulted in a Ministry of Labour investigation.

Ministry Spokesperson Matt Blajer says the mishap happened on Tuesday. Blajer says a male worker suffered a crushing injury to his left arm and is in hospital in Winnipeg, MB. There is no word on the extent of the injury.

Blajer says it appears the worker was injured when he was changing blades on a saw.He notes the investigation is on-going but an inspector has issued 8-work orders against MacKenzie Lumber. Blajer says the orders surround the requirements of documents and information as well as the lock-out of equipment while it’s being maintained.

Asian Lumber Company Visits to US Sawmills

A delegation of Chinese and Korean wood and lumber companies is visiting Idaho and Montana this week. The delegation spent Thursday in Coeur d’Alene, ID, at the Small Log Conference hosted by the Forest Business Network. One of the largest trade delegations to ever visit Missoula, MT, will arrive Friday evening to begin what state leaders hope is a shopping spree in Montana wood products and a new market for Asian buyers, says the Billings Gazette.

The Montana World Trade Center at the University of Montana will introduce its members to Montana wood products, lumber companies, and the state timber industry.

Asian Lumber Trade Delegation in US

Organizers are hopeful the visit will open a new market to the companies, which represent more than US$300 million in annual lumber imports throughout the world. The buyers represent a number of large Asian companies, including the Shanghai Anresion Wood Industry Co, the Chongqing Zhongnuo Timber Development Co, and the Tae Won Lumber Co, among others.

This group represents nearly 20 per cent of all wood products imports to China and Korea. Most have annual sales ranging from US$20 million to US$75 million each.

“They’re interested in dimensional lumber, pine and softwoods for paneling, and architectural lumber,” said Arnie Sherman, executive director of the Montana World Trade Center. “Most of what they’ve purchased in the US has come out of Georgia and the Southeast, but now they’re interested in Montana wood.”
The trade mission also is sponsored in partnership with the Montana Wood Products Association, Missoula Economic Partnership, Bitter Root Economic Development District, and the Forest Business Network.

US Home Prices

JPMorgan Chase & Co more than doubled its forecast for US home price gains in 2013 to 7 per cent this week, and predicts a more than 14 per cent increase through 2015, according to Bloomberg Friday. Bank of America Corp said last week property values will jump 8 per cent this year, up from a prior estimate of 4.7 per cent in a report titled “Someone say house party?

Home Price Forecast, US

Housing and economic indicators are “showing resilience,” JPMorgan analysts led by John Sim wrote in the March 13 report. The New York-based firm estimates home prices will increase 3.9 per cent next year and 3.2 per cent in 2015. New-home sales in January saw the highest increase in 20 years.

The two biggest US banks are predicting an accelerating rebound as homebuyers and investors rush to acquire a dwindling supply of properties and the Federal Reserve pushes down borrowing costs by buying mortgage bonds. That’s strengthening the economy and sustaining a rally in homebuilder shares after the stocks more than doubled since the end of 2011.

Canadian Industrial Capacity Utilization

Canadian industries operated at 80.7 per cent of their production capacity in 4Q 2012, down slightly from the 81.1 per cent in 3Q, said Statistics Canada Thursday. The decline was a result of a 2.1 percentage point decline in the manufacturing sector in 4Q, which was partly offset by gains in the non-manufacturing sector.

The manufacturing sector operated at 80.2 per cent of its capacity in 4Q, 2.1 percentage points lower than in 3Q.

The decline was largely attributable to transportation equipment and food manufacturing, though most other industry groups were also down. Of the 21 major groups in the manufacturing sector, 14 reduced their capacity utilization.

March 19, 2013

BC Timber Allocation

A recent opinion letter by a British Columbia woodlot owner to the Kelowna Capital News sparked Madison’s interest in the issue of timber allocation in the province. There are several categories under which tenure is available in BC, the most common are: Timber Supply Areas (TSAs), Tree Farm Licences (TFLs), Woodlot Licenses, and Community Forest Agreements. Generally speaking, TSAs and TFLs are measured in volume, while Woodlots and Community Forests are measured by area and are a small percentage of all timber tenures. It is important to note that under the terms of the 2006 Canada/US Softwood Lumber Agreement (SLA), 20 per cent of BC’s Annual Allowable Cut (AAC) must go through BC Timber Sales (BCTS) as a way of assuring market pricing of timber.

On February 1, George Delisle, a woodlot owner in Westbridge, BC, wrote to the Kelowna Capital News in response to another opinion letter about the Fair Rail Freight Services Act, “I find it very strange that the forest companies are very concerned when they have to do business with another business that has a monopoly that controls part of their supply chain, [ . . . ] Perhaps what we need is some legislation [ . . . ] for a fair log price and market act. This would help correct the imbalance in the business relationship between the log buyer and the log seller.”

Woodlots, Major Licensees

The Fair Rail Freight Service Act is an effort by the federal government to bring relief to Canadian operators in remote areas who are at the mercy of Montreal, QC’s, Canadian National Railway’s monopoly on freight service. Please refer to the November 10, 2011 issue of your Madison’s Lumber Reporter for details.

In recent years Madison’s has heard similar sentiments repeatedly echoed by logging contractors and other independent operators, so these strong words prompted a phone call to Delisle for details of his experiences.

“The current system allows the major licensees to manipulate BCTS through surrogate bidders,” explained Delisle to Madison’s in a phone interview.
Delisle and others maintain that the big players, with such large volumes of timber, have many more options with log sales, buying, and trading available to them than smaller operators and contractors.

“The Arrow Boundary district has less than 1.5 per cent of the AAC — not including TFLs — going through small scale tenures like Woodlots, Community Forests, and First Nations,” detailed Deslisle. “We need to diversify out timber harvest tenure base, there need to be more small scale tenures for many reasons. For one thing, that is where young people get their training in timber management. For another, small scale tenures would improve the mid-term timber supply.”

This is presumably because the small operators are better able to utilize the marginal or lower-volume stands than the large companies with sizable land mass to manage. Smaller operators are also more focussed on value-added lumber production than the bigger companies.

“In my area [Arrow Boundary] 42 per cent of the AAC goes to open bid through BCTS, not 20 per cent as it is supposed to be provincially,” charged Deslisle. “The proportion of timber available to small tenure holders should be increased from 1.5 to 3 per cent, and should come from BCTS. This would also help the SLA because the logs sales would be more open market.”

In search of concrete answers, Madison’s spoke to Garth Wiggill, District Manager of the Selkirk Resource District, Thursday. That District includes the Arrow Boundary, Kootenay Lake, and Columbia Forest Districts.

One of Delisle’s main gripes is the ratio of AAC in Arrow Boundary which goes to open bidding through BCTS.

“The target for the province as a whole is for 20 per cent of the total AAC to go through BCTS to support the BCTS pricing mandate,” confirmed Wiggill in a phone interview. “However apportionment for the various districts are not itemized. The ratio is not balanced within each TSA across the province, what is important is the total percentage for the province as a whole.

“Approximately 43 per cent of AAC in Boundary goes through BCTS,” Wiggill estimated. “As soon as you start adding TFLs that ratio is reduced.”

So even though it seems like there is a disproportionate amount coming from one particular TSA, a change would waterboard across the province and bring that total down. Which could cause problems in terms of compliance with the SLA.

Wiggill pointed out that there are currently 34 woodlots in the Boundary district.

As for the issue of logs changing hands between the big companies with sawmills in different districts, Wiggill said, “For the major licensees to trade logs and sell logs between each other is good business. It is important to get the right logs to the right mill. As a district, in 2012 the volume moving into the Selkirk district exceeded the volume going out. There were 4.5 million cubic metres of timber logged and 8 million cubic metres of lumber processed.”

Delisle was quick to point out in a follow-up email Friday morning that, “It may be worth pointing out that for the volume coming into the Arrow, it may look like more volume has come into the district than goes out, but a good portion is for pulp wood and biomass that other districts can’t use, so this distorts the amount of the good wood portion that is being sent out of an area that has been hit very hard by the down turn in the economy.”

Just last week, the Ministry of Forests, Lands and Natural Resource Operations invited the Village of Fraser Lake to apply for a community forest licence. If the application process is successful, Fraser Lake could harvest up to 45,000 cubic metres of timber a year, said a ministry press release March 1. Since 2004, government has signed 47 community forest agreements with a total annual allowable cut of 1.3 million cubic metres of timber a year.

However in October 2008, then Minister of Forests and Range, Pat Bell, announced, “the Province will offer 60 to 75 new woodlots over the next three years, which will result in a total of about 900 woodlots operating in British Columbia by 2011.”

At that time there were 828 active woodlots that included about 546,000 hectares in British Columbia.

BC woodlot owner and communications chair of the Federation of BC Woodlot Associations, Lisa Marak, said to The Working Forest in May 2012 that the woodlot licence program has grown slowly, since the Forest Act was amended in 1979, to include 875 licenses covering over 575,000 hectares, of which approximately 95,000 is privately owned. Marak said that in 2005, woodlot licenses harvested just over 3 million cubic metres of timber, generating an estimated $183 million in economic activity within the province.

So between 2004 and last week there have been 47 new community forest agreements. And between 2008 and May 2012 there were only 47 new woodlot licenses offered, with a few additional ones added to date. It does seem like the government is moving much more slowly with these small-scale tenures than previously promised.

US Mortgage Deliquency

Freddie Mac reported Friday that the Single-Family Serious Delinquency rate (three monthly payments or more past due or in foreclosure)in the US declined in January to 3.20 per cent from 3.25 per cent in December 2012. The serious delinquency rate is down from 3.59 per cent in January 2012, and this is the lowest level since mid-2009.

The Freddie Mac serious delinquency rate peaked in February 2010 at 4.20 per cent.

Fannie Mae reported earlier that the Single-Family Serious Delinquency rate declined in January to 3.18 per cent from 3.29 per cent in December 2012.

Canada Housing Starts

Canadian housing starts climbed in February as multi-family construction rebounded in Ontario and Quebec, Canada Mortgage and Housing Corp said Friday in a report that nevertheless showed the housing market is continuing to moderate.

The seasonally adjusted annualized rate of housing starts was 180,719 units in February, up from 158,998 in January. The January figure was revised down from the 160,577 units reported previously.

The six-month trend level in housing starts was 195,087, continuing a downward slope that began in the middle of 2012, when Canada’s red-hot housing market peaked.

Housing Starts, Canada

Urban housing starts in Canada rose 18.4 per cent in February to 161,631 units, led by a 27.7 per cent increase in multiple urban starts to 99,022 units. Single urban starts rose 6.1 per cent to 62,609 units in February, the CMHC said.

Urban starts rose 46.8 per cent in Ontario, 34.9 per cent in Quebec, 2.1 per cent in British Columbia and 1.5 per cent in the Prairies. Urban starts slumped 31.7 percent in Atlantic Canada.

LNG Plant in Howe Sound

An Asia-based energy company is proposing what it calls a “small-scale” liquefied natural gas (LNG) processing and export facility at the site of the former Woodfibre pulp mill along Howe Sound, said The Squamish Chief Wednesday.

In a statement issued on Monday, Pacific Energy Corp officials said they have launched a feasibility study for such a facility on the 86-hectare(212-acre) waterfront industrial site. The site’s current owner, Western Forest Products, is also doing remediation work, including the clearing of wood waste from the portion of Howe Sound that surrounds the site, officials said.

Howe Sound LNG Plan

Pacific Energy, part of the Pacific Oil and Gas Group, is a Canadian-incorporated company. Its main office is in Jakarta, Indonesia.

The 86-hectare Squamish site was bought last month for $25.5 million from Western Forest Products. It isn’t connected by road to Squamish, but is home to a deepwater port at the head of Howe Sound.

AFPA Results

The Alberta Forest Products Association has released its financial information for 4Q 2012.

Values of lumber, pulp and paper, and panelboard manufactured by AFPA members totalled approximately $2.3 billion for 2012. The value of production was up $184 million or 9 per cent from 2011.

AFPA Fourth Quarter

Lumber production for AFPA member companies in 4Q totalled 745 mmfbm with a value of $242 million. Compared to 4Q 2011, lumber production was up 66 mmfbm or 9.8 per cent and values increased $73 million or 43.2 per cent. Compared to 3Q 2012, production volume dropped by 18 mmfbm or 2.3 per cent and values declined by $6 million or 2.5 per cent.

Panelboard production in 4Q was 269 million square feet with a value of $90 million. Compared to 4Q 2011, production was up roughly 11 million square feet, or 4.4 per cent, and values rose by $28 million, or 44.5 per cent. In comparison to 3Q 2012, production increased by 4 million square feet or 1.4 per cent, but values declined by $2 million or 1.6 per cent.

Flavelle Cedar Mill’s Future Uncertain

David Gray of Mill and Timber Products said to Coquitllam Now Friday that there isn’t enough cedar available to keep the company’s Flavelle sawmill in Port Moody, BC running. Gray said the province is heading in the wrong direction, arguing policy is leading to fewer logs being available for the domestic industry.

Gray stepped down from the province’s Timber Export Advisory Committee last month, citing his opposition to government policy related to the export of raw logs. He said the province is heading in the wrong direction, arguing policy is leading to fewer logs being available for the domestic industry.

US Mortgage Regulator Making Progress

Fannie Mae and Freddie Mac will build a new joint company for securitizing home loans as a stepping stone toward shrinking the government’s role in the mortgage market, the regulator of the US government-controlled firms said on Monday.

Edward DeMarco, acting director of the Federal Housing Finance Agency, told the National Association for Business Economics that the the goal is to build a single infrastructure to support the mortgage credit business.

Fannie Mae and Freddie Mac, which were bailed out by the government in 2008, help finance about two-thirds of new US home loans. DeMarco is seeking to shrink their footprint and reduce risks to the taxpayers that support the mortgage giants.

Since they were seized by the government, the companies have drawn nearly $190 billion from the US Treasury to stay afloat.

By creating a new securitization company, FHFA intends to pave the way for a single securitization platform and force Fannie Mae and Freddie Mac to abandon their separate systems.

DeMarco expects Congress will ultimately decide how the securitization platform is operated and whether it should be privatized.

March 13, 2013

BC’s Forest Practices Model

Two important documents released in the past month address serious issues with access to timber for British Columbia’s small- and medium-sized forest operators. On January 25, three regional beetle action coalitions – Omineca (OBAC), Cariboo-Chilcotin (CCBAC) and Southern Interior (SIBAC) – jointly released a report titled “The Pathway to Prosperity in British Columbia Runs Through Its Rural Places”. This position paper is the final report from the Rural BC Project, and makes recommendations to assist with rural economic development throughout the province. And on February 14, Healthy Forests, Healthy Communities made public the results of extensive, two-year, consultations with communities and stakeholders around the province. The intent of that final report was to inform politicians of recommended strategic actions necessary to ensure the future forest will restore the BC forest legacy and energize the forest sector.

There are 20 recommendations in the Rural BC Project’s report, including the designation of a cabinet minister with responsibility for rural issues. The paper asserts that places where forestry is the main industry have gone from being the fastest-growing to the slowest-growing in the province over the last 50 years, to the detriment of B.’s economic stability. Among the other recommendations are the establishment of a leadership group consisting of the beetle action coalitions, regional trusts, and the First Nations Forestry Council, which would work with government on a long-term strategic work plan. This group would be funded by the rural stakeholders and senior government. OBAC chair Stephanie Killam, the mayor of Mackenzie, said to the Prince George Free Press that the final report is not the end of that project.

Community Forests, Woodlots

Healthy Forests, Healthy Communities presented a series of 13 nested recommendations, to be delivered over 10 years, as a Strategic Action Plan implemented in two five-year phases. The recommendations are directed toward investing in the forest asset through actions regarding long-term stewardship and community involvement, including:

Long-term stewardship

• Legislated principles, vision and goals to guide BC forest lands decision-making;

• Reliable and trustworthy forest resources inventories to base decisions upon;

• Protecting forests from wildfire, insects and disease, regenerating disturbed or harvested lands and increasing forest productivity to move towards creating healthy forests, and more.

Community involvement

• Providing resources and laws for communities to develop local forest visions to guide decision-making;

• Establishing policies that generate real influence by communities in local forest decision-making;

• Establishing a Government emphasis on community economic diversification, and more.

On February 22, the BC Ministry of Forests, Lands and Natural Resource Operations announced it will finally be undertaking a proper forest inventory. The province on Friday committed $8 million a year to a 10-year plan for renewing long-out-of-date inventories of the province’s forests. Minister Steve Thomson said the work will ensure 35-million hectares of British Columbia forests that have been devastated by the mountain pine beetle are properly inventoried. Thomson said he has increased the budget for inventory work to $7.5 million in the 2012/13 fiscal year, from $3.7 million in 2010/11, and staff allocated to the task number 24 full-time and three auxiliary employees.

The Association of BC Forest Professionals said a year ago that the current data in 40 per cent of inventories hadn’t been updated since 1990, and in 30 per cent of cases inventory work had been completed before 1980. That foresters’ report noted that the province’s inventory budget once amounted to $15 million a year, and before 2006, staff numbered 40.

Thomson said the inventory plan sets out nine goals, with five and 10-year targets, to integrate data on harvesting, reforestation and forest fires while ensuring no forest-cover data in inventories is more than 30 years old.

Developed in consultation with industry and academic experts, the ministry plan is intended to focus on areas where inventory needs are greatest, to collaborate with the groups with an interest in the forest, and to employ cost-saving technology such as satellite imagery and high-resolution aerial photography.

Improving the forest inventory data is a vital step in making a forest plan which works for all players: large companies, small operators, as well as the community forests, woodlots, and First Nations.

BC Timber Access

In the meantime, there are situations occurring on the ground right now, with the forest land base, that are counter to the improvements and progress for the future as spelled out in the above reports and announcements.
A striking example involves a small lumber manufacturer in the Kootenay Forest District, where the very rare and uncommon instance of the ministry suspending a forest license with significant AAC for poor practices occurred. In this case the failure was very poor performance in meeting its silviculture, road building, and maintenance obligations.

On February 18, 2012 the Ministry of Forests, Lands and Natural Resource Operations announced it had suspended Meadow Creek Cedar’s forest license and fined the Kootenay-based company $42,000 for failing to meet its legal obligations to reforest logged areas. In addition to the fine and license suspension, the ministry issued a remediation order requiring Meadow Creek Cedar to reforest each of the blocks to the levels prescribed in its site plans. If Meadow Creek Cedar failed to meet its reforestation obligations, the ministry had the option to carry out the work on the company’s behalf and levy additional fines to cover its costs.

However instead of having to carry out the work itself then try to recover the costs, the ministry reached an agreement with another local operator, of three family-owned companies. Gold Island Forest Products, Sentinel Enterprises, and Selkirk Truss are run by the Kanigan family, fourth generation sawmillers in the Slocan Valley.

An agreement is in place as of October 15 that gives the new Kanigan company, Blue Ridge Land and Timber Management Ltd, the exclusive right to conduct forestry operations under the license. This is the first step in the transfer of ownership of the license to Blue Ridge.

General Manager Trevor Kanigan said to the Valley Voice on October 31, “It [the license suspension] has been a huge local economic issue and also a huge provincial forestry issue.” In an unfortunately accurate insight, Kanigan then said his company was aware that they were stepping into a fairly messy situation. Part of the agreement with the ministry was to get logging operations started around Christmas.

But now, more than four months after the agreement was reached and more than a year since the original license was suspended, Blue Ridge has still not been able to start working at the levels negotiated, in good faith, when implementing the management contract.

“The flexibility I had with the local District Manager appears to have been taken away by Victoria,” explained Kanigan to Madison’s in a phone interview February 22. “Suddenly the Ministry of Forests in Victoria is telling myself and the District Manager that we have to follow the Variance Letter exactly. The District Manager and I needed some flexibility to tailor and streamline our operating plan once we found out what resources we had available to us.”

A media representative at the ministry said to Madison’s in an email Thursday that a “variance to the suspension has been issued to allow the new owner [license manager – Ed] to complete some logging on a previously issued cutting permit.”

“When I started the management contract I had an understanding with the District Manager,” detailed Kanigan. “When I signed the management contract in October I felt I was supported. I was supposed to have 48,000 cubic metres [of timber] to work with for the winter. But in the last six weeks I found out that this will be half. The ministry is also restricting my access to fibre on the license, to the higher value logs, that was supposed to go to the mill. The higher margins from that lumber processing was supposed to create a revenue stream to contribute to the backlog of silviculture costs, fines, and other outstanding obligations created by Meadow Creek Cedar.”

As a small operator trying to do something which would be completely normal in other jurisdictions, Kanigan is beginning to feel like ministry officials are fearful of this supposed new business model.

“Before we came along the government wasn’t acting [on that land]. Maybe because it’s a huge problem, maybe because they didn’t know what to do. The longer it takes for the work to get done the higher the cost is going to be. Every month we are delayed is a missed opportunity, an opportunity lost. If the government had taken over in October, we estimate there would have been an immediate $5 to $10 million in liabilities [to the public].”

The problem right now seems to be that this new scenario, of a private company restoring previous bad practices on public land, has sent longstanding bureaucrats at the ministry into a tizzy. Their reaction is to bury the operator in paperwork, oversight, and a ridiculous level of sticking to details, presumably to ensure no mistakes are made. However this cautiousness is so extreme it is preventing normal business practice.

In the meantime the land sits underutilized, incurring greater and greater costs to reclaim. After performing the public service of taking on this challenge, Blue Ridge is stymied by the very government that was unwilling to address the damaged area in the first place.

Faced with such impediments to what was supposed to be a relatively straightforward operation, Kanigan expressed frustration.

When asked about the ever-slowing forces in Victoria, Kanigan railed to Madison’s, “Who is MY voice in Victoria?? Who speaks for me, and the work I am trying to do?”

Who indeed. Given the uniqueness of this situation, that “the suspensions are infrequent, since the vast majority of licensees are compliant with all their legislative requirements”, as the ministry media contact’s email to Madison’s said, a race to slowness based on fear or uncertainty is absolutely the wrong way to go.

Kanigan is spending more time explaining himself, again and again, and going to meetings, than he is working on the land. Meanwhile, operators across the entire Kootenay region are complaining about difficulty in accessing fibre, and municipalities and communities are looking for ways to increase revenue and diversify their economies. All the while here sits this land that has been woefully unused for three years, and the only local willing to stand up and do something about it has been tied up in bureaucracy.

March 05, 2013

EU Timber Regulations

First announced as in the works in the December 19, 2008 issue of your Madison’s Lumber Reporter, new regulations preventing the import of illegally harvested exotic timber into Europe is about to take effect. The EU’s Forest Law Enforcement, Governance and Trade (FLEGT) legislation will require that due diligence is applied to all timber first placed on the EU market. In March 2013 the requirements of FLEGT will come into force. This new legislation prohibits placing timber on the EU market if it was illegally harvested. To achieve this, the legislation sets out procedures which those trading timber within the EU must put in place to minimise the risk of illegal timber being sold. The EU rules join the US Lacey Act and the Australian Illegal Logging Prohibition Bill in requiring certification against the standard.

It allows companies operating in regulated markets – as well as suppliers around the world – to demonstrate that they exercise due diligence in reducing risks of producing or sourcing illegal timber products. The standard sets out requirements covering supply chain management, risk assessment, risk mitigation, and quality systems for production or sourcing of forest products, amongst others.

Globally, the International Criminal Police Organization (Interpol) estimates total trade in illegal timber is more than US$30 billion. Both the US and Australia have banned the importation of materials made from illegally logged wood. If law enforcement efforts scale up, many illegal loggers may find that the black-market trade is no longer worth the risk.

In a stunning move of force and speed, Interpol’s first strike against widespread forestry crime came Wednesday. Working with local police forces, Interpol arrested 197 illegal loggers across a dozen Central and South American countries resulting in the seizure of 50,000 cubic metres of wood worth around US$8 million.

Illegal Imports

Illegal loggers were arrested in Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Paraguay, Peru, and Venezuela.

The global illegal logging trade has been estimated to be worth US$30-$100 billion each year and is thought to account for 15-30 per cent of all deforestation in the tropics. The destruction of forests threatens global biodiversity, watersheds, and releases greenhouse gases; in addition it often robs local communities and indigenous peoples of the forests they depend on. Illegal logging kingpins are also often involved in other crimes, such as human trafficking, weapons sales, drugs, and political corruption.

Suddenly finding themselves motivated to comply with international sustainability standards, countries which formerly ignored illegal logging within their borders are rushing to prove their forest practices meet the standard.

Myanmar announced this week its forestlands will undergo inspections, while Ghana said February 6 it will meet the EU deadline of March.

Ghana’s Minister for Lands and Natural Resources, Alhaji Inusah Fuseini announced the country will meet the EU deadline which prevents the export of illegal timber to their markets. Also, it will require traders down the supply chain to keep track of where the timber products were bought from and — where applicable — who they were sold to.

EU delegates will visit Myanmar next month to finish observing current timber extraction and set up a framework for legal trade, which will allow the country to export timber to the EU in June. Myanmar has most severe forest depletion in the region due to widespread illegal logging throughout the country, according to Win Htun, Minister for Environmental Conservation and Forestry. To export Myanmar timber to European countries, a legal authentication certificate will be required.

As well, a proposal has been sent to the President to form a 17 member committee which will issue licences for Myanmar timber, by conducting audits on the Chain of Custody process such as logging, cutting, and transporting, to designate wood as legal, said Barthar Cho, joint secretary of the Myanmar Forest Products and Timber Merchants Association to ElevenMyanmar.

The US and some Western counties have already lifted sanctions on Myanmar timber.

Elsewhere, there are concerns that China is now driving global trade for illegally harvested timber.

The British NGO, Environmental Investigation Agency (EIA), published a detailed report at the end of November called “Appetite for Destruction: China’s Trade in Illegal Timber”. It reveals just how China’s appetite for wood has grown in the past decades as a result of consumption by the new middle classes, as well as an export-driven wood industry facing growing demand from major foreign furniture and construction companies. The report drew on studies from Interpol, the World Bank, and the United Nations.

The EIA said the Chinese government has largely turned a blind eye as wood importers and furniture makers, some of them state-owned enterprises, have profited from an industry that harvests wood illegally from Myanmar, Mozambique, Indonesia, and other countries to feed citizens’ growing appetite for rosewood dining sets, hardwood floors, plywood, and printer paper.

Analysts say that at least two-thirds of the logs imported into China ultimately end up in the homes of affluent Chinese who are willing to pay steep prices for teak beds, merbau wood flooring, and mahogany trim, according to the New York Times.

After analysing trade data for 36 supplier countries, the EIA has concluded that approximately 10 per cent of the logs and sawed timber is illegal. Public enterprises, often controlled by provincial governments, play a strategic role in this trade, says the EIA. The report describes corruption networks in countries with weak governments such as Myanmar, Papua New Guinea, and the Solomon Islands.

China’s log imports in 2000 totaled 13.6 million cubic metres worth US$1.6 billion. By 2011, imports totaled 42 million cubic metres worth US$8.2 billion, with Russia the top log supplier last year, the United States second, and Papua New Guinea third, said the EIA report.

The EIA estimates China imported at least 18.5 million cubic metres of illegal logs and sawn timber in 2011, worth US$3.7 billion. The group said the estimate was conservative.

In a specific example, in 2012, Chinese companies imported between approximately 200,000 cubic metres of timber that had been illegally exported from Mozambique – comprising a staggering 48 per cent of China’s imports from the country, resulting in a loss of tens of millions of dollars in taxes to the world’s fourth-poorest country.

EIA urged Mozambique to bring in an immediate ban on the export of logs, while they investigate corruption within the forest sector. China is also urged to ban the import of illegal timber and ensure its state-owned companies are not exporting illegal timber from the country.

Madison’s Investment Rx

This month’s issue of Madison’s Investment Rx examines the latest spikes in solid wood prices against inventories, production, and log supply.
Contact us any time for this valuable and timely information.

Contact us any time for this valuable and timely information.

Financial Results

Cascades Inc reported Thursday a net loss of $29 million in 4Q 2012. Cascades’ net loss for the full 2012 year was $11 million.

Western Forest Products Thursday reported EBITDA of $14.2 million in 4Q 2012, compared to EBITDA of $11.6 million for 4Q 2011.

Net income for 4Q was $14.6 million, on sales of $231.2 million, which compared to a net income reported for 4Q 2011 of $3.3 million on sales of $220.7 million. Full year sales were $925.4 million, the highest in Western’s history.

Net debt decreased to $15 million, a record low for Western while year-end liquidity improved by $73 million to $185.1 million.

US Housing Starts, Home Sales, House Prices

US housing starts fell 8.5 per cent in January after several months of increases, the Commerce Department reported Wednesday. Builders started construction at a seasonally adjusted annual rate of 890,000 last month, compared to 973,000 in December.

The December performance was the best since June 2008. Applications for building permits rose to an annual rate of 925,000 in January, 1.8 per cent higher than December, which had been the high-point since mid-2008.

US Real Estate

The pace of construction of single-family homes rose 0.8 per cent in January, but the more volatile apartment construction dropped 24.1 per cent.
The Commerce data showed new home building was mixed in the four US regions last month. Construction on new homes dropped 35.3 per cent in the Northeast and was down 50 per cent in the Midwest. Construction rose 16.7 per cent in the West and 4.1 per cent n the South.

For all of 2012, builders started work on 780,000 homes. That was still only about half the annual number consistent with healthy markets, but it represents a 28 per cent jump from 2011.

Purchases of existing houses rose 0.4 per cent to a seasonally adjusted annual rate of 4.92 million units., figures from the National Association of Realtors showed Thursday. The nation’s inventory of existing homes for sale, which is not seasonally adjusted, fell 4.9 per cent from December to 1.74 million, the lowest level since December 1999.

Inventories were down 25.3 per cent from January 2012. At the current pace of sales, inventories would be exhausted in 4.2 months, the lowest rate since April 2005.

The low inventories are also helping pushing prices higher. Nationwide, the median price for a home resale was US$173,600 in January, up 12.3 per cent from a year earlier.

The National Association of Home Builders said Tuesday that confidence among US homebuilders slipped in February from a 6½-year high in January. Many builders reported less traffic by prospective customers before the critical spring home-buying season begins.

The homebuilders‘ sentiment index dipped to 46 in February from 47 in January. It was the first monthly decline in the index since last April.

China Wood Imports 2012

According to “The China Wood”, imports of logs and lumber to China in 2012 dropped but the export of plywood and fibre board increased, says the Japan Lumber Reports.

Log imports in 2012 were 37.9 million cubic metres, a 10.5 per cent drop over the previous year. Imports from the US fell by 25.5 per cent, to 2.6 million cubic metres, while those from Canada dropped by 6.2 per cent to 2.1 million cubic metres. Log imports from Russia also fell, by 20.5 per cent, while those from New Zealand and the Solomon Islands increased.

China’s total lumber imports were down by 4.3 per cent, to 20.6 million cubic metres, Lumber imports from the US dropped by 17 per cent, to 2.2 million cubic metres, while that from Canada was 6.4 million cubic metres, a 6.2 per cent drop.

Wood Imports to China

Meanwhile, Russian lumber imports to China increased by 2.3 per cent in 2012 compared to 2011, to 6.2 million cubic metres says the Reports.

China’s plywood production in 2012 was 142 million cubic metres, an 18.3 per cent increase over the previous year. Of this total 7 per cent was exported. China exported 10 million cubic metres of plywood, a 4.6 per cent improvement over 2011.

CLT Test Results

Full-scale tests carried out by Natural Resources Canada Construction researchers have demonstrated that cross-laminated timber (CLT) assemblies can achieve good levels of fire resistance, even when unprotected under full loading conditions. The tests are part of a study recently launched by NRC in collaboration with FPInnovations to develop a methodology that will foster the design of fire-safe CLT or hybrid buildings in North America. The study will also facilitate the acceptance of future code provisions for the design of CLT panels with regard to fire resistance.

The tests demonstrated that CLT assemblies can achieve significant fire resistance that is close to three hours in some cases with even unprotected CLT under full loading conditions. The failure modes were a mix of integrity and structural failures.

Trucker Shortage

Canada’s trucking industry may face a shortage of 25,000 truckers or more by 2020 due to an aging workforce and a lack of young people and immigrants taking the job, according to a report released by the Conference Board of Canada Thursday concludes.

The trucking industry moves 90 per cent of all consumer products and food within Canada and 60 per cent of trade with the US. The shortage of drivers stems in part from the sector’s struggles to attract young people – between the ages of 15 to 24 – to what’s been called the “for-hire” part of the industry.

Western Forest Products Announces . . .

The Board of Directors of Western Forest Products Friday announced the appointment of Don Demens as President and CEO, effective immediately.

Dominic Gammiero will continue his role as Chair of the Board.

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