British Columbian Wood in Demand in Asia ; Madison’s Timber Preview; US Home Building and Real Estate Market ; Japanese Economy ; Tolko Announces Curtailments ;New Technology in Preservation of Softwoods ; Canadian Home Prices; Canada-British Columbia Rebuilding Schools in China ; Japan Housing Starts ; Canadian Trade Figures ;Timber Resource Perspectives ; Madison’s Timber Preview ; British Columbia Forest Minister’s Trade Mission to China ; US Leading Real Estate and Economic Indicators; North American Wood Fibre Costs ; Mackenzie Pulp Mill Offer ;Technology Developments for Forest Resources ; Wood Tech 2010 ; US Real Estate ; Quarterly Results ; West Fraser Closes Paper Mill ;
November 29, 2009
British Columbian Wood in Demand in Asia
Having just returned from a week-long trade mission to China and Japan with a group of lumber industry representatives, BC’s Minister of Forest and Range, Pat Bell, spoke to Madison’s about what transpired during the trip.
Two Memorandums of Understanding to buy distressed BC pulp mills, one in Kitimat and one in Mackenzie, with interested parties in China, 156 million board feet sold into China, $8 million in sales during the Japan Home Show, and other achievements were discussed.
Projected Future Growth
British Columbia’s Minister of Forests and Range, and Integrated Land Management, Pat Bell, has just returned from a trip to China and Japan accompanied by a group of lumber industry representatives. Bell had high expectations for the trip, and told Madison’s in an interview this week that even those expectations were surpassed. Building on groundwork done during last year’s trade mission to the Asian countries, Bell’s group sold 156 million board feet of lumber to the Chinese marketplace – almost double the 83 million board feet sold during last year’s mission. Recent Ministry of Forests figures for January to August 2009 show that BC exported 975 million board feet of softwood products to China, well over the record 784 million board feet exported in all of 2008. Bell expects total 2009 lumber exports to China to reach 1.6 billion board feet, then grow to 4 billion board feet in 2010.
Bell told Madison’s that while a significant proportion of this wood was comprised of the utility and economy grades, there was also “very positive numbers” for Spruce #2&Btr and Hemlock. When Madison’s asked if Bell felt this demand would remain once lumber prices normalize, he said “if the price of lumber were to jump to the $300 range very quickly then there might be a problem, otherwise demand from China will stay firm.” Bell correctly pointed out that, even when lumber prices return to profitable levels, wood will still be less expensive than concrete and steel. “The Chinese are remanning 2×4’s and 2×6’s, #3 and #4, into strapping,” Bell explained in example of what is being done with the wood imported. “Russian sawlogs are selling for US$105 per cubic meter, but there is a lower lumber recovery factor in China due to outdated equipment, with producers averaging US$40 mfbm as cost of production. This brings the total price quite close to BC wood.”
The Minister’s trade group visited the China National Building Materials warehouse – the “Home Depot of China” if you will – at Taicang Port in Shanghai. Last year they had one warehouse and hoped to build five more, but they now have 11. The port takes in about 756 million board feet a year. In terms of cargo, shipping BC wood to Shanghai costs the same as shipping to Chicago – about $65 per mbfm, said a Ministry of Forests memo.
A BC lumber trader exporting into China explained to Madison’s that there is a lot of lumber buying activity outside the state-owned National Building Material Enterprises. “There are big private companies in China building lumber inventories,” the source said. “The demand right now is for a stable supply of 2,000 shipping containers full of wood per month. Consumption levels are at about 20,000 cubic meters of Hemlock and 10,000 cubic meters of SPF monthly. It is all construction lumber.”
“Wood homes cost more than those made with concrete and steel,” the source said. “But upkeep, energy, maintenance, etc. costs are lower later.” The Chinese do not believe in mortgages, apparently, and pay cash up front for homes. “In south and east China homes are built using 2×4’s but in the south 2×6’s are necessary. The homes must be built stronger due to environmental conditions,” the source explained.
Home building in China is classified into two part, “villas” or “American style”, and “hybrids” which are usually 3 or 4 storey apartments or condos. Villas are entirely wood-framed, and usually wood finished, while hybrids can be either wood or concrete and steel, but are often both.
Earlier this year when Madison’s originated a piece about Chinese wood home building, an internet search of “wood home China” brought up images of poorly constructed, one hundred year old structures. Today there are plenty of websites by wood home builders in China, for example HangZhou Hklong Arts & Crafts. Hangzhou is a sub-provincial city in the Yangtze River Delta, and the capital of Zhejiang province, located 180 kilometres southwest of Shanghai. A Chinese professional log cabin, log home, log house, wooden house and timber-frame builder and manufacturer, Hklong specializes in designing and building quality log house, timber frame structures, post and beam houses, including prefabricated wooden houses, custom log homes and wood houses, log cabin home packages and kits, etc. The company can produce timber frame structures of all many types and sizes and for many purposes, such as for living, entertainment, restaurant, body building or meeting, according to the website (link: http://www.bokee.net/companymodule/company_indexCompany.do?id=1483133) Hklong is specialized in researching, designing, producing and marketing timber frame structures of various types and for many purposes, the website says.
Moving on to Japan, Pat Bell’s trade group encountered further positive news; BC’s value-added wood manufacturers project sales of $8 million through the Japan Home Show. Japan recently modified its building code to allow larger multi-unit buildings to be constructed entirely from wood.The first example of these new building codes being put to use is the Sagamihara Elderly Care Home, a commercial building project bid on by private companies. When completed in 2010, the 6,500-square-metre facility will be the largest 2×4 wood-frame elder care home in Japan. The building will require the same amount of wood needed to build 70 homes. There is a shortage of elderly care homes in Japan; an estimated 400,000 seniors are on waiting lists for elderly care facilities, and about 7,400 new facilities are required to house this aging demographic. If every single one used wood-frame construction, about 1.15 billion board feet of lumber would be used, according to a Ministry of Forests press release.
During a conference call while in Japan last week, Bell explained that, “Japan is a mature market for wood products. For years new home building in Japan was at 1.2 million per year, and while currently lower than in previous years is expected to get back up to that level in five to 10 years. If the non-residential sector is added to traditional wood home building, Japan is a significant growth market for BC wood.” Bell pointed out that, “there were more homes built in Japan this year than in the US, with 800,000 new homes built in Japan so far in 2009 compared to about 550,000 in the US. Japan is part of BC’s long term forest strategy, despite what the US does.”
As of September, BC has shipped $390 million worth of product into Japan in 2009. British Columbia supplies 44 per cent of Japan’s softwood lumber, according to a Ministry of Forests memo.
Given all this good news, Pat Bell finished up by saying, “As excited as I was last year, I am perhaps even more excited this year about China and Japan as customers for BC wood. We will be redoubling our efforts to continue growing customer relationships in these countries.”
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines renewed investment into the forest indusry, timberlands and solid wood producers. The provinces of Nova Scotia and Ontario lend money this week to flagging mill operations, while major deals are struck on the international stage, particularly through the UN, and PricewaterhouseCoopers releases a report putting a value on the settlement of native land claims in British Columbia.
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US Home Building and Real Estate Market
New US housing starts in October unexpectedly fell to their lowest level in six months, weighed down by a sharp decline in construction activity for both single-family and multi-family dwellings, a government report showed on Wednesday.
The Commerce Department said housing starts dropped 10.6 per cent to a seasonally adjusted annual rate of 529,000 units, the lowest level since April, and the percentage drop was the biggest since January.
Compared to October last year, housing starts dropped 30.7 per cent. The big fall in October starts marks a setback in the housing sector’s recovery. New-home sales hit bottom in January but are up 22 per cent since, the latest government data show. Buyers surfaced amid an improving economy and a big government tax incentive. With the sales increase, inventories of unsold homes have gone down, leading some builders to resume construction.
As sales rise, builders have been reporting favourable results. Luxury-home developer Toll Brothers Inc.’s said last week that inked contracts for its fiscal fourth quarter rose 42 per cent from a year earlier. The US stock market is way up since March, restoring some wealth to those who might want to buy a more expensive house.
US Mortgage Issues
The US Mortgage Bankers Association said Thursday a record one in seven US mortgages, or four million homeowners, were in foreclosure or at least one payment late in the third quarter. The housing market accounts for about 20 per cent of the US economy, and a stabilization in plummeting property values is seen as a key pillar of an economic recovery. Americans with solid credit ratings comprised 33 per cent of the quarter’s foreclosures.
Rising job losses were behind the increasingly bleak portrait of the housing market in a trend that will continue into next year, the group said in data that adds to recent evidence of a still-struggling housing market.
The delinquency rate broke the record set last quarter, based on MBA data going back to 1972. The rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.
US companies have shed 7.3 million jobs since December 2007, the biggest contraction since the Great Depression, and the unemployment rate jumped to 10.2 per cent in October, the highest since 1983, according to the US Bureau of Labor Statistics.
The jobless rate probably will peak at 10.4 per cent in 2010’s first quarter, even as the US economy continues an expansion that began in the third quarter, said Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier.
The spring selling season for homebuilders typically begins in February, earlier than the resale market because families with children want to be able to move into a home before September’s start of school. It can take up to six months to build a home, and up to 9 months to build the larger houses sold by Toll Brothers.
Japanese Economy
The Bank of Japan upgraded its economic assessment on Friday, setting itself up for a confrontation with a government pressing for a policy response to deflation and a possible return to recession.
The Japanese government published a report that pronounced the economy officially in deflation for the first time since 2006, and the finance minister said he wanted the BOJ to “respond appropriately”.
Bank of Japan
Japan’s government debt burden, at nearly 200 per cent of gross domestic product, is the heaviest of any rich nation, and concerns about Japan’s fiscal health helped widen the spread between two-year and 10-year bond yields to a 3-1/2-year high of 121 basis points last week.
Japan’s sovereign five-year credit default spread widened to around 77 basis points early last week, its highest since April.
So far, Japan’s central bank has dismissed the possibility the country could enter a deflationary death spiral. On Friday, the Bank of Japan upgraded its outlook for the Japanese economy and left interest rates at 0.1 per cent.
“The BOJ doesn’t want to take any aggressive policy measures because it doesn’t think the status quo is so harmful,” says Kanno of JPMorgan Securities.
Tolko Announces
Curtailments
Tolko Forest Industries is taking down most of its operations in central BC for two weeks during Christmas.
Tolko said the curtailment is due to weak product prices, an oversupplied market and efforts to control costs.
Tolko has operations in Quesnel and Williams Lake, and further south.
For most Tolko operations, the curtailment will begin Dec. 18, with an anticipated restart on Jan. 4, subject to market conditions. The scheduled shutdown will reduce lumber production by about 52.5 million board feet, and panel production by 6.4 million square feet.
November 22, 2009
New Technology in Preservation of Softwoods
Two companies out of Scandinavia have developed simple, alcohol-based wood preservation techniques that render softwoods stronger and more durable than the endangered tropical hardwood species used for exteriors.
Norway’s Kebony ASA uses surgarcane residue to make a resin of furfuryl alcohol, while Netherland’s Titan Wood converts hydroxyl groups into acetyl groups to make a wood sealant. Both products create a durable product and neither product leaches toxins into the environment.
Furfurylation
What sounds like a children’s toy or a new cartoon character is actually a wood preservation process developed by Kebony ASA, out of Norway. Furfurylation is the process where furfuryl alcohol is impregnated into the wood cell wall structure, and subsequently polymerised to furan polymers that are “grafted” to the cell walls. These polymers are very stable, and will not degrade or leach out of the wood. Furfuryl alcohol is a simple liquid produced from furfural, which is derived from hemicellulose, a plant constituent. In Kebony’s case, the furfuryl alcohol is produced from bagasse, a waste product from cane sugar.
Kebony stops wood from rotting by placing it in a vat containing the furfuryl alcohol made from the waste left over when sugarcane is processed. The vat is then pressurised, forcing the liquid into the wood. Next the wood is dried and heated to 110ºC. The heat transforms the liquid into a resin, which makes the cell walls of the wood thicker and stronger. The result is a wood with excellent outdoor exposure tolerance like teak or mahogany, but with a harder surface than many of the tropical woods that it replaces. The wood also naturally fades to a silvery-grey color much like those tropical woods. Maple is used in place of teak, and southern yellow pine is used in place of ipe (The ipe is native to rainforests, especially in Brazil – ed).
The result is a wood that retains its shape in the presence of water, and is no longer recognised as wood by grubs that would otherwise attack it. It is thus extremely durable. An extensive third party study found that, in terms of fire or other emissions, that furfuryl-treated pine produced less than 50 per cent of the smoke as untreated pine, depending on the type of flame and ventilation. The study also found that chemicals leached from treated pine were at less than 5 per cent over 30 days, well within environmental regulations. The full results of this study can be found here; http://www.forestprod.org/woodprotection06lande.pdf .
The products are completely recyclable, environmentally friendly and create woods that are actually harder than most tropical hardwoods. The strengthened softwoods can be used in everything from window frames to spas to garden furniture. Treated maple is also being adopted for decking on yachts. The cost is similar to that of teak, but the maple is more durable and easier to keep clean. Obviously treating wood makes it more expensive. But because it does not need to receive further treatments—a shed made from treated wood would not need regular applications of creosote, for example—it should prove economical over its lifetime. Kebony reckons that its pine cladding, for example, would cost a third less than conventionally treated pine cladding over the course of 40 years.
The finished product, a sleek, dark wood, has all the characteristics of endangered mahogany from Peru’s Amazon rainforest. Yet it was manufactured in a five-day process that instills all the qualities of rare, tropical hardwood into sustainable softwood. Rigorous testing took place before the first trial production in 2004. Strong demand for the product convinced Kebony to build a new plant with ten times the production capacity, which opened in January 2009.
Kebony’s approach is similar to that of a firm based in the Netherlands called Titan Wood. Conventional timber swells when it is damp and shrinks when it is dry because it contains groups of atoms called hydroxyl groups, which absorb and release water. Titan Wood has developed a technique for converting hydroxyl groups into acetyl groups (a different combination of atoms) by first drying the wood in a kiln and then treating it with a chemical called acetic anhydride. This reduces the ability of the wood’s cell walls to absorb water by approximately 80 per cent, greatly improving the wood’s dimensional stability and resulting in reduced maintenance frequencies for coatings.
As with Kebony’s product, the toxicity of traditional treatment products has few environmental implications, both during the serviceable life of the wood and for its safe disposal. Titan Wood’s product is non-toxic and 100 per cent recyclable. Traditional preservative processes tend to discolour and weaken the wood, rendering it unsuitable for many uses. Titan Wood’s production process does not weaken the original wood species – in fact, its hardness is slightly improved – nor does it compromise its bending strength.
This process is ideal for exterior applications such as doors, window frames, garden decking, façades, cladding and sidings, boat decks and garden furniture where exposure to the elements means that dimensional stability, durability and UV resistance are important. According to a Titan Wood company statement, acetylated wood in Holland was used as a canal siding and removed after 10 years’ exposure to water without showing any signs of degradation.
Both acetylated wood and furfurylation use organic compounds to treat the prepared wood rather simply and cheaply so that the curing process results in a product that competes directly with the best tropical hardwoods. Being organic, they degrade naturally without problems.
There is a great deal of interest in Europe and the United States for these new preservation processes. Softwoods are the fastest growing coniferous species on the planet, and account for 80 per cent of the world’s timber. Such a simple solution to problems of deforestation and illegal logging of exotic species, as well as an exciting new use for softwoods, is a double-bonus for North American forestry companies.
Canadian Home Prices
New home prices in Canada rose by a sharper-than-expected 0.5 per cent in September, the fastest rate in 20 months, Statistics Canada said on Thursday in another sign of improving markets and consumer confidence. The year-on-year decline in prices eased in September to 2.7 per cent from a 3.1 per cent decline in August.
Canada’s housing market slumped during the recession, which is believed to have ended in the third quarter, but recent data suggest the sector is one of the economy’s strongest in the recovery phase thanks in part to rock-bottom interest rates.
Canada-British Columbia Rebuilding Schools in China
Canadian federal and provincial officials unveiled Tuesday a plaque commemorating the opening of Xiang’e Primary School in China’s Sichuan Province. Xiang’e Primary is one of three buildings funded under the $8 million Canada-British Columbia Wenchuan Earthquake Reconstruction Project. The 5,749-square-metre complex recently received fire safety approval from Chinese authorities, setting a new precedent for multi-storey, multi-use wood frame buildings.
Construction of the school was a collaborative effort between Canadian officials from Forestry Innovation Investment, the BC government’s international marketing agency for forest products; the Canada Wood Group, an industry marketing association; and Chinese officials from Tongji University and Shanghai Municipal Reconstruction.
Pat Bell, British Columbia’s Forests and Range Minister and Lisa Raitt, Canada’s Minister of Natural Resources attended the ceremony.
Bell spent this week touring China with a group of 40 lumber industry executives and agency members. Shanghai alone is expected to build 20 million square metres of affordable housing space by 2012. On Thursday the BC trade mission moved on to a major home construction trade show in Japan.
BC Lumber Trade Mission to China
The Chinese prefer milled lumber as it is kiln dried and weighs less so ships can carry more of the finished product than they could if it were raw logs.
During a conference call Thursday afternoon, Bell said a memorandum of understanding has been signed with what he described as a private Chinese company to look at Eurocan’s financial books as well as the books of the closed pulp mill in Mackenzie.
Bell said the first memo of understating was signed Monday to examine the possibly of a sale of the Worthington Pulp Mill. He added that the government also at the same time signed a MOU with a Chinese company to look into the possible takeover of Eurocan Pulp and Paper in Kitimat.
In 2008 BC shipped about 83 million board feet of lumber to China, to date for 2009 that number has exceeded the Minister’s expectations, at almost 1.6 billion board feet.
Bell explained during the conference call that the number of building projects in China using wood are growing faster than his Ministry can count, and that expectations for 2010 of 4 billion are beginning to look conservative. In an unexpected twist, Chinese importers are turning their attention to higher-grade Canadian wood, still available at very low prices. When noticing the difference in quality, several importers declared they will no longer focus solely on economy and utility grades.
Japan Housing Starts
September 2009 actual housing starts in Japan were down 37 per cent over the same month in 2008, at 61,181 units. The lowest September housing starts on record, the decline is the tenth straight month in a row.
Seasonally adjusted annual starts for September were up 3.4 per cent over August, at 699,000 units. Total starts for the first nine months of 2009 were also the lowest since record keeping began in Japan.
Japanese Lumber Demand
In particular, condominium starts decreased for nine consecutive months, and September condominium starts were 72 per cent lower than one year ago. Wood framed units declined by 19 per cent, but rose to an almost 60 per cent share of all home building.
Evidence of increased Japanese demand for Canadian hemlock is shown in MacMillan Bloedel Japan’s high strength-rated laminated hemlock beam, according to the Japan Lumber Report.
In other news, demand for North American lumber products, particularly out of BC, are up in Japan due to the weak US dollar in comparison to the Euro. However, supply is tight due to curtailments of North American mills, according to the Japan Lumber Report. In particular Douglas Fir lamina is in high demand, while inquiries for SPF 2×4’s have not increased noticibly, says the Report.
Canadian Trade Figures
Canada’s merchandise exports rose 3.5 per cent in September, while there was little change in imports. As a result, Canada’s trade deficit with the world narrowed to $927 million from $2.0 billion in August.
Exports rose by $1.0 billion to $30.3 billion in September, as volumes increased 4.5 per cent. Exports which have been on a downward trend since July 2008, reached a low point in May 2009. Since then, exports have increased in three of the past four months.
Automotive products, industrial goods and materials, and machinery and equipment were the main sources of growth for exports. Energy products mitigated the gains.
Exports to the United States increased 0.5 per cent while imports grew 1.7 per cent. As a result, Canada’s trade surplus with the United States shrank to $2.1 billion in September from $2.3 billion in August.
November 15, 2009
Timber Resource Perspectives
At the 6th Timberland Investment World Summit in New York city last week Madison’s learned about all kinds of exciting developments, discoveries and updates for the forest products sector.
Speakers from Credit Suisse, Potlach, and Timberland Investment Resources gave presentations about the relationship between lumber prices and timberland values, the future of housing construction in the US and developing regions, and expected demand for wood products globally into 2015.
Timberland and Wood Products
At the 6th Timberland Investment Conference in New York City, several presenters spoke about the relationship between timberland value and lumber prices. In the same way that the lumber market can impact prices further down the value chain for such products as market pulp, and to a lesser extent paper, solid wood prices have an effect on timber value, and thus on timberland as an investment.
Chip Dillon, Managing Director of Credit Suisse, explained the discrepancy between lumber prices and timberland value. Tom Temple, VP of Wood Products at Potlach, and Chung Hong Fu, Economic Research Analyst with Timberland Investment Resources, discussed perspectives on the changing global market for wood products.
Focussing mostly on US timberland, Credit Suisse’s Dillon noted that of the 2.3 million acres (1 million hectares) total US land mass, 29 per cent (or 651 million acres) is comprised of forests. In addition, 26 per cent is pasture or range land, 20 per cent is crop land, and 13 per cent is wildlife or parkland. In terms of ownership, 37 per cent of US timberland is federally owned, and 55 per cent owned by private investors, with the rest held by state governments. Of the private timberland, the vast majority, 99.8 per cent, of owners hold less than 1,000 acres. A closer examination shows that just over 23,000 owners hold timberlands larger than 1,000 acres. This group would include Real Estate Investment Trusts and other investment vehicles such as the Harvard Endowment Fund.
Dillon’s research found that, while timber values have been dropping in recent years due to reduced sawlog costs, the land values have remained the same. A big question mark for the future, said Dillon, is a projected reduction in North American timber supply once British Columbia’s beetle kill salvage has run its course. Based on hard data and this type of analysis, Dillon expects the composite lumber price to approach US$300 mfbm by the end of 2010. See graph on this page of your Reporter.
Potlach’s Temple started his talk with a look at US home building. Due to demographics, specifically the children of baby boomers who are approaching their mid-20’s and will soon be forming households of their own, and an upside from increasing immigration numbers, Temple sees a reversal to the past few years of dropping US housing starts coming. He estimates between 1.5 to 1.8 million annualized monthly starts in the near future. However he pointed out, as other home building watchers have been saying, that the size of these new homes will likely be smaller, by an average of 100 square feet, than the luxury homes of the early 2000’s.
When this happens, said Temple, demand will stress the mills due to low inventories. The industry has been operating at below cash costs, therefore needs to equalize before there will be any significant increase in production.
Madison’s posed the question of less expensive finishing materials, such as plastic windows, which many analysts have been mentioning in addition to smaller home sizes. Temple side-stepped this question by saying he is “not in the window business.” Regardless of who makes the alternative products, there is agreement within much of the industry that such cost-cutting measures in US home building will occur, at least at the outset.
In terms of the market for forest products in China, Temple maintained that, based on current demand, that market is mostly for makers in Western Canada. So far Chinese buyers have been looking for low grades almost exclusively, orders that BC’s beetle kill is perfectly suited to serve. Temple quoted a statement by BC’s Minister of Forests that to 2Q 2009 BC shipped 1.5 billion board feet to China, and that number for 2010 is expected to be 4 billion.
The obvious question is what will happen to Chinese demand when North American lumber prices firm next spring? Expectations are that Chinese demand for pulp would drop off when the price of that commodity rose, however such a drop has not yet happened.
Chung Hong Fu of Timberland approached the question of solid wood products market from a global perspective, with a look strictly at the financial situation. In the short term, said Fu, lumber is experiencing a market cycle, however some structural changes are coming. In the long term Fu predicts a homogenization of wood products. Consumer demands are already changing, and there will be less differentiation on how a product is made, regardless of end use. Fu used the example of US furniture makers. Both domestic sales and exports have dropped because consumers are no longer willing to pay a premium for domestic products. Fu sees an increase in demand for composite and engineered products, particularly in the panel market, and an increase in glulam use in North America.
In the end, said Fu, solid wood products in the developed world are on a very different market path from that of the emerging world.
It is clear from these conference presentations that, while all agree that the worst is over and recovery is on the way, there is also consensus that the lumber and panel market will be different than what the industry had become used to.
Adjustments will have to be made, to production, to products, and to the varying demands of different markets.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines recent activity in the lumber futures market, leading real estate activity and economic indicators out of the US, and a positive relationship between the latest Institute of Supply Management’s monthly manufacturing supply index and corrugated box shipments.
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British Columbia Forest Minister’s Trade Mission to China
Pat Bell, BC’s Minister of Forest and Range, is departing on a trade mission Friday to China in a bid to boost exports to what is now the province’s second-largest lumber market.
“I’ll be joined by the Canada Wood Group and senior executives from BC’s largest forest companies to promote wood-frame construction and create new demand for our forest products,” said Bell in a Ministry of Forests statement.
The delegates will visit the Shanghai metro area, Sichuan province, and Beijing-Tianjin corridor – the three regions of China where BC and Canada have focused most of their marketing activities.
Bell described the delegation as the largest-ever mission by both the provincial government and the forest industry to build a BC presence in China. He said the Chinese market is “unique,” needing close co-operation between both government and industry to succeed.
Bell, along with industry representatives, hope to make a case for the use of wood in federal government-sponsored affordable housing during a meeting with the China Ministry of Housing and Urban Development.
The trade mission will also be stopping in Japan.
US Leading Real Estate and Economic Indicators
The US homebuyers’ tax credit has been extended to April 30, 2010. President Barack Obama approved the extension as part of a US$24 billion economic stimulus bill signed Friday.
US Economy
A trio of economic reports this week showed the US economy continues to rebuild itself. The US manufacturing sector has now grown for three consecutive months, according to the Institute for Supply Management.
The US manufacturing sector grew in October at a faster rate than was expected, with a reading of 55.7, the highest since 56.0 in April 2006.
US construction spending made its largest gain in a year in September, with the biggest increase in private residential building in more than six years.
The US National Association of Realtors said Monday the number of contracts to buy previously owned homes in the US rose in September for an eighth straight month as home buyers worried that the home buyer tax credit would not be renewed.
The index of signed purchase agreements, or pending home sales, rose 6.1 per cent after a 6.4 per cent gain in August.
North American Wood Fibre Costs
Wood costs have remained unchanged for Canadian pulp mills in 2009 despite tighter wood chip supply, reports the North American Wood Fiber Review.
Wood Chip Supply
Wood fibre supply to Canadian pulp mills has shifted from lower-cost residual chips from local sawmills to higher-cost wood chips manufactured from roundwood, according to the North American Wood Fiber Review. The low operating rates for many sawmills has decreased the availability of relatively inexpensive residual chips.
With the US lumber market predicted to improve in the latter half of 2010, Canadian sawmills are likely to be running at higher operating rates a year from now.
Because lumber production has declined by about 50 per cent over the past three years but pulp production has only fallen by 25 per cent, many pulp mills throughout the country have increasingly had to rely on more expensive chips manufactured from roundwood.
Many Canadian paper companies sell their products into the US market, therefore are competing with the US domestic pulp and paper manufacturers. Pulp mills in Eastern Canada have been at a big disadvantage the past few years, partly due to substantially higher wood fibre costs. In 3Q 2009, pulp mills in Eastern Canada had approximately 70 per cent higher conifer fibre costs than the US South. As a result, many pulp and paper mills in Ontario, Quebec and the Maritime Provinces have been forced to reduce production more than other regions of North America the past 12 months.
Mackenzie Pulp Mill Offer
The Mackenzie Pulp Mill Development Corp, a newly-formed company which includes local investors, announced Tuesday it has reached a six-month agreement with Worthington Mackenzie Ltd. that allows it to take possession of the Mackenzie pulp mill. The company also has an exclusive option to purchase, but stresses it will not be operating the mill. The development corporation says its key focus is to protect the pulp mill’s assets and infrastructure during the winter by keeping critical equipment warm.
The four investors are: Fort St. James-based K&D Logging, the McLeod Lake Indian Band-owned Duz Cho Logging, Vancouver Island-based Interior Fibre Management, and Tanner Elton & Associates (Elton is former Director of the BC Forest Safety Council).
Technology Developments for Forest Resources
At the 6th Timberland Investment World Summit in New York city this week Madison’s learned about all kinds of exciting developments, discoveries and updates for the forest products sector.
Miles Drake, Chief Technology Officer for Weyerhaeuser made a presentation about what progress that company has been making in the fields of silviculture, landscape forestry, and – most importantly – biofuels.
Biomass Fuel
Having returned early Thursday morning from the 6th Timberland Investment World Summit in New York city, Madison’s is excited to bring to subscribers timely information on critical issues surrounding the valuation of the landscape and the forests. Fascinating presentations were made by experts from around the world on everything from mapping the pine genome, technology developments in wood and paper production, pine beetle issues, carbon credits and sequestering, high yield forestry, biofuels and more.
The main premise of the conference was generating revenue from forest land, primarily in the US but also globally, by whatever means. All topics were examined in detail, and were followed by questions and discussions from the floor. Over the coming weeks Madison’s will spell out this information and new developments, particularly in terms of what it can mean for Canada and Canadian producers.
Miles Drake is Chief Technology Officer for Weyerhaeuser. With a doctorate in sciences and in-depth experience in the North American solid wood industry, Drake explained the challenges and breakthroughs Weyerhaeuser has recently been dealing with.
Drake spoke first about precision landscape forestry, and nursery engineering, as a means to maximize the future value stream and potential of forest land. By implementing advances in the technology of silviculture and in the understanding of the metrics of trees, Weyerhaeuser has been able to increase the volume of its sawtimber production in the US south while keeping pulp wood volumes at the same level. In terms of sustainability, Weyerhaeuser staff take the time to get a third party to validate their findings, for peer review of their scientific work, in order to achieve high yields, high returns, and truly transparent sustainability. This transparency is critical for garnering investment revenue, a fact that was echoed by almost every presenter.
Weyerhaeuser has deployed LIDAR, light detection and ranging using a laser beam, in flying a light plane over timberlands to map the ground surface beneath the trees. The technology then provides a map of terrain, giving information on hill grade, presence of scarp, eroded debris, slump deposit and more. Eventually Drake expects that LIDAR will be able to map trunk diameters, and widths, just by flying a light plane over the timberland.
Drake dedicated the bulk of his presentation to biofuels. That topic, as well as carbon capture, was discussed extensively by a wide range of presenters. The importance of these developing markets on the global stage can not be stressed enough. According to Drake, due to the US renewable fuel mandate, multiple sources will be needed for feedstock in the coming years. There is much research being done into breaking down biomass from forests to make liquid transport fuels. This technology is still in the early stages, and Weyerhaeuser is currently looking for partnerships to develop the technology further. However Drake did state that “leveraging pulp mills is a good way to deliver biomass to biofuel mills.”
Like other facets of industry, both forestry and otherwise, Weyerhaeuser is placing emphasis on liquid transport fuels made from cellulose. Madison’s has detailed progress in this field in recent issues of your Reporter. Drake listed several challenges to processing forest residue into liquid fuel.
Scalability of feedstock can be a major problem, and Drake defined collecting and transporting slash as currently prohibitively costly. On site chipping, compressing, and baling before transport, would bring this cost down. At least two forest harvesting equipment manufacturers are already marketing such equipment. Drake mentioned an interesting concept that could be implemented at the silviculture stage; intercropping of dedicated energy crops within the tree plantation. Switchgrass and other low-growing, short-rotation species could be used to fill in space between seedlings and eventually as feedstock for biofuels.
Logistics remain difficult; the collecting, processing and distributing of feedstock and fuel products continues to be a high expense. Drake suggested the solution of “aggregating biomass from multiple ownership of the land to maintain sustainability.” In this way a variety of feedstock from various sources could come together to produce biomass fuel even more efficiently.
Another important issue for the development of this technology, and indeed for gathering interested investors, is the need to galvanize policy. Investors want long term stability to ensure maintenance of their investments. Policy makers need to provide incentives to increase biomass supply into the future. Drake maintained that “if we are thoughtful into the next decade, we can substantially increase biomass to use as a fuel source.” Refer to the table on this page to see Weyerhaeuser’s projections of the breakdown of feedstock for biofuels from forest residue and other sources into 2020.
Drake concluded by saying that good science must happen to ensure good policy, that there must be multi-partnerships working across the entire supply chain. In addition, and probably most importantly, due to intensive planting practices over the past 20 years, forest supplies in the southeast US are growing.
Wood Tech 2010
The 2010 biennial Wood Tech Show – to be held March 9-11, 2010, at the Oregon Convention Center in Portland, OR, promises to be the best resource for attendees to strengthen their business through education that includes; discovering the latest products, discussing current trends and industry-critical issues, and connecting with the wider primary wood processing industry.
The Wood Tech Show will feature over 175 top manufacturers, such as USNR, Comact, Vollmer, Wellons, HewSaw, Autolog, and Optimill Machinery, just to name a few. The exhibit hall will showcase virtually every product in the primary wood processing industry, making Wood Tech Show the best opportunity for attendees to see the most innovative products, machines, equipment, and services that are moving the industry forward in today’s economy.
For the more information about Wood Tech Show, visit woodwideweb.com. If you would like to exhibit at this year’s show, please contact David Muirhead, Sales Manager, by email at david.muirhead@nielsen.com or by phone at 770 291-5432.
US Real Estate Market
The US National Association of Realtors reported Monday that existing home sales in September rose 9.4 per cent to 5.57 million units. Total sales were up 9.2 per cent in year over year comparisons.
Single family sales rose 9.4 per cent to 4.89 million, up 7.7 per cent in year over year comparisons.
The US Commerce Department released September new home sales Wednesday at 402,000, off 3.6 per cent. August sales were downwardly revised from 429K to 417K. Sales of new homes were off 7.8 per cent in year over year comparisons. Median new home prices rose 2.5 per cent against August levels to $204,800.
US Home Buying
The median price of existing homes fell 1.4 per cent to $174,900 from August’s revised $177,300. Median prices were off 8.5 per cent against year ago levels. Inventories fell to 3.630 million, from 3.924 million units in August. At the higher sales pace inventories fell to 7.8 months from 9.3 months in August.
A seven months’ supply is usually consistent with stabilization in prices, NAR chief economist Lawrence Yun has said in recent months.
The market is “close to a self-sustaining recovery” where home values stabilize or start increasing, Yun said in a press conference. The drop in sales runs counter to figures on pending purchases and signals that low appraisals and slow underwriting remain obstacles to sustained gains, Yun said.
Unsold inventories of new homes continue to fall and were off 3.8 per cent to 251,000 units. Outright inventory levels were the lowest in 27 years, with months supply flat at 7.5 months based on the slower sales pace. Regionally, sales rose 34 per cent in the Midwest and were flat in the Northeast. Sales off 10 per cent in the South and 10.6 per cent in the West.
Quarterly Results
3Q 2009 financial results are being released, with Canfor, Domtar, Interfor, Norbord, Weyerhaeuser, TimberWest, International Paper, Potlach, and Rayonair already reporting.
Many companies detailed fewer losses than for the rest of this year, generally due to closures, curtailments and other cost-cutting measures. Some companies pointed to a slow increase in demand, but cautioned that the forest industry has a way to go yet before full recovery is achieved.
Financial Results
Timberwest generated a distributable cash loss for 3Q 2009 of $3.8 million, compared to a distributable cash loss of $5.4 million for the last quarter, and a loss of $6.3 million in 3Q 2008. Year to date, the distributable cash loss was $24.5 million including $9.0 million of financing costs, compared to a distributable cash loss of $13.4 million for the first three quarters of 2008.
Canfor Pulp Income Fund reported sales of $202 million and net income of $18.3 million for the quarter ended September 30, 2009. The Fund reported net income of $8.5 million.
Norbord reported a loss of $7 million in 3Q 2009. Norbord recorded losses of $18 million in the prior quarter and $18 million in the 3Q 2008.
Domtar has reported net earnings of $183 million for 3Q 2009 compared to net earnings of $48 million for 2Q 2009 and net earnings of $43 million for 3Q 2008. Sales for 3Q 2009 amounted to $1.4 billion.
Canfor reported a net loss 3Q 2009 of $5.2 million compared to net income of $10.5 million for the second quarter of 2009, and a net loss of $94.2 million for 3Q 2008. For the nine months ended September 30, 2009, the Company’s net loss was $53.5 million, compared to a net loss of $115.4 million for the comparable period in 2008.
Weyerhaeuser reported a 3Q 2009 net loss of $56 million, wider than $3 million in 3Q 2008. For 2Q 2009, the company’s net loss was $106 million.
Interfor showed earnings of $9.7 million compared to a loss of $15 million in 2Q 2009 and a loss of $8.1 million in 3Q 2008.
West Fraser Closes Paper Mill
In a not surprising move, West Fraser Timber is closing its aging Eurocan paper mill in Kitimat, British Columbia on January 31, 2010.
535 people will lose their job.
West Fraser said the 40-year-old mill, which produces linerboard and kraft paper, has struggled over the years with high costs and negative returns.