Lumber Reporter Archives: April 2008

Lumber Reporter Archives: April 2008

Mountain Pine Beetle – Research and Funding Progress; Canadian Softwood Lumber “Surcharge” ; Canadian Housing Starts; Pulp, Paper and Newsprint; Mountain Pine Beetle, NAFTA Speculation, Timberland Investment, Canada Wood Export Initiative, Bio Fuels, Wood Pellets

Mountain Pine Beetle Mortality in Alberta

While the pine beetle infestation in British Columbia can only be left to run its natural course of killing off Lodgepole Pine forests, Alberta continues to fight hard to prevent a spread across Canada’s boreal forest.
A series of climate sensors providing data for a beetle mortality computer model have proven very successful in the past two years in helping determine the allocation of resources once the spring thaw comes. Using data from Natural Resources Canada, the province of Alberta is able to send staff to areas where the pine beetle winter survival rate is higher, in order to continue its population control efforts.
Almost exactly one year ago, just after a change of ownership with the Reporter, Madison’s wrote a piece on the Mountain Pine Beetle, following an announcement out of the British Columbia Ministry of Forests and Range that the pine beetle population in BC was dropping. Similar announcements last week by Natural Resources Canada prompted several news reports by the mainstream press, one of which stated that “About 90 per cent of the pests have died in northern Alberta, and 95 per cent were killed in southern Alberta, according to a computer model developed by the Canadian Forest Service,” in the National Post.
“While those sound good, they’re not good enough,” said Duncan MacDonnell, spokesman for Alberta Sustainable Resource Development on Friday. “We need 97.5 per cent to stop the spread of infestations,” continued the article.
Funding and Research Progress
Greatly buoyed by these numbers, Madison’s contacted the research scientist who runs the computer model. Barry Cook has been working on pine beetle data for NRC long enough to be able to say that, “The last three winters in southern Alberta have been very mild. 2009 was like 1950’s-era cold weather for the Banff region.” As Cook explained, there is a lot of misinformation out there about what kind of cold temperatures, for how long, and at what time of year are required to kill the beetle. Madison’s most recent piece on the pine beetle (refer to your October 23, 2008 issue) quotes Brian Aukema, also with NRC at the University of Northern British Columbia, that “cold weather can only affect the beetle if it comes when the pest least expects it”.
Scientists have taken to referring to it as the “shoulder seasons”, early autumn and late spring when the beetles’ natural defense against the cold is not active. Even a relatively mild temperature for a brief time can decimate the beetle population during the shoulder seasons. In addition, Cook explains that, “unlike other temperate insects, the pine beetle has no obligatory diapause therefore is always ready to wake up. It can break out due to warm weather” even in the depth of winter. (ed – diapause is a sort of hibernation period for insects) The Banff area experienced a sudden drop in temperature in mid-December 2008, from about 5 C to -45 C, over the course of just a few days. As evidenced by the graph on this page, that single temperature drop served to reduce the beetle population by about 80 per cent. Other temperature fluctuations that followed over the following few weeks are not expected to have had much effect as the vast majority of beetles in southern Alberta have likely perished. Northern Alberta did not experience quite the same sudden drop in temperature, therefore it is probable that approximately 15 per cent of the beetle population there has survived the winter.
Barry Cook laboured on this point in order to be sure he was quite clear; this is a computer model which gives real time predictions of the effect of climate on the beetle population. NRC has stations throughout Alberta and also in BC, enabling them to use this data to better allocate their beetle control programs once the thaw comes. Rather then spreading staff equally around a province in May, the agency is able to concentrate the
All of this pine beetle talk reminded Madison’s about the $200 million announced by the federal government in January 2007, ” to support a comprehensive response to the infestation and its consequences.” It is difficult to track where such a vast sum of money actually goes, which begs the question: how much of the $200 million has actually been used to help communities affected by the pine beetle? It was to have been a four year plan, which currently brings us to the half-way point. From what Madison’s could determine, Western Economic Diversification Canada is meant to disperse the money to actual communities. A large portion of the funds have already been given to various research agencies, including our friends at NRC, in addition Forest Innovation Investment and Forintek have been major recipients. A call to the Forintek got Madison’s through to the librarian, Barbara Holden, who very quickly sent along a list of all the pine beetle research Forintek has done since 2006. The list is far too long to detail here, but includes such uses for beetle-kill as wood-cement composites, plastic composites, blue-stained landscape products, pheremones, thick laminated wood plates, glulam, as well as a brand-new paper on the uses of beetle-kill for biofuels.
As far as Madison’s could determine, the amount of money to reach affected communities directly totals about $16 million. The largest by far was the expansion of the Prince George Airport runway announced towards the end of February 2009,$11 million of federal funds will be matched by $11 of BC provincial money to “create new and exciting opportunities for Canadian goods and services to reach new markets abroad, ” according to the government press release. One of the smaller programs, announced on April 6, 2009, will use $220,000 of the Pine Beetle Initiative money to “support the Cariboo-Central Interior Poultry Producers Association to create a mobile poultry-processing unit that will help diversify the local economy and encourage growth in the poultry industry.”
Western Economic Diversification Canada was not able to provide the total figures of money allocation to date by press time. Madison’s will print the latest figures when we receive it.

Canadian Softwood Lumber “Surcharge”

Not satisfied with the Canadian government’s offer last week to send one lump-sum payment of $47 million in compliance of a London Court of Arbitration tribunal ruling, the US Department of Trade has slapped an additional 10 per cent “surcharge” on softwood lumber imports from Option B (quota + duty) provinces, effective April 15, 2009.
Quebec, Ontario, Saskatchewan and Manitoba lumber exporters may become subject to drastic and costly changes to entry requirements for shipments subject to the 2006 Softwood Lumber Agreement. Together with the additional 10 per cent “surcharge” the economic hardship to relevant companies during this time of an extended downturn in lumber demand could very well cause more bankruptcies and permanent closures. On Wednesday Canada’s Prime Minister Stephen Harper indicated that more communication is needed with the US Trade Department to settle this issue of different interpretations of the London tribunal’s ruling by Canada and the US.
Canadian Housing Starts
The seasonally adjusted annual rate of housing starts increased to 154,700 units in March from 136,100 units in February. Urban multiple starts increased 28 per cent, while urban single starts moved up by 1.3 per cent in March. New home construction is now at a more sustainable level after having been exceptionally strong over the past seven years, exceeding 200,000 units per year. “Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre.

Canadian Home Building

The CMHC said housing starts last month were 297 units and the lowest level of overall activity for the month since 1995. They were 3,068 units in March 2008.
Through the first quarter of this year, total housing starts have reached 746 units, about 4,000 units lower than year-to-date production in 2008 — or a decline of 84 per cent.
“Last year was a record (for March),” said Lai Sing Louie, senior market analyst in Calgary for the CMHC. “So when we compare any month to last year, March will be a low number.”
Building permits decreased 16 per cent to $3.7 billion in February across the country, compared with the month before. StatCan said the largest decreases were in the non-residential sector in Ontario; the value of all building permits in Toronto fell 41 per cent during that period.
“While no doubt a pleasant surprise, we wouldn’t read too much into today’s rebound in starts,” notes Douglas Porter, BMO Capital Markets Economics. “The housing sector is still trying to find a bottom, and with prices in retreat in most major cities, we wouldn’t look for a lasting rebound in homebuilding until at least 2010.”
Pulp, Paper and Newsprint
US production capacity for paper, paperboard and pulp slowed to a 0.8 per cent decline in 2008 at 96.3 million tons, the American Forest & Paper Association reported in its 49th Annual Survey of Paper, Paperboard, and Pulp Capacity. Inventories at all US users of newsprint declined 3.3 per cent in February from a month earlier to 744,000 metric tons from 769,000 tons in January, according to the Pulp and Paper Products Council According to the 49th Annual Survey taken at the end of 2008, total US paper and paperboard capacity is projected to decline 2 per cent in 2009 and then expand by 0.3 per cent in both 2010 and 2011. That corresponds with last year’s survey finding that there would be gains of 0.2 per cent in 2009 and 0.3 per cent in 2010.
The decline was slightly less than the 1 per cent annual rate of contraction recorded from 2001 through 2007 but close to the 0.7 per cent drop the previous survey had suggested. Cumulatively, paper and paperboard capacity has contracted 7.3 per cent since its 2000 peak level. The AF&PA survey also reported that 18 US mills were permanently closed in 2008, shutting down 27 paper and paperboard machines, and an additional 14 machines were permanently shut down at other mills — a total of 41 in all. Another two machines (one entire mill) are scheduled to be shut in 2009. In 2007, 17 mills and 38 machines were permanently closed as capacity dropped 0.6 per cent to 97.1 million tons.
Meanwhile, newsprint production was down 25 per cent from a year earlier to 625,000 tons from 829,000 tons, the PPPC said.
Also, inventories at US daily newspapers rose 6.4 per cent to 712,000 tons from 669,000 in January, to a record of 59 days’ of product on hand. Mills in February operated at an estimated 75 per cent of capacity, down from 96 per cent in February of 2008. The PPPC report showed US consumption plummeted 29 per cent from a year ago in February. Consumption by the daily newspapers fell 26 per cent as the recession bit into advertising revenues for the newspapers.

Mountain Pine Beetle

The BC Ministry of Forests and Range has determined that the mountain pine beetle population in British Columbia is beginning to decline. Beetle kill progress will continue, however, until 2015, by which time 76 per cent of the Lodgepole Pine in the province will be dead. Ministry figures show that 582 million cubic meters of forest were devastated in 2007; estimates for 2008 indicate that 710 million cubic meters will be affected (13.5 million hectares of timberland, or 33.4 million acres).
BC Population Dropping
Salvage operations are expected to continue for a couple of decades at least. At the latest count, combined funding provided by various levels of government for pine beetle initiatives amount to approximately $260 million dollars (some of which British Columbia will share with Alberta), of which about $48 million has already been put to use. The effects of the large swaths of standing-dead trees goes beyond causing problems for local sawmills. The Canadian Forest Service released a report on April 23 stating that over the next 21 years one billion tonnes of carbon dioxide will be released into the atmosphere.
Some critics have pointed out that this figure is inflated because it both subtracts the amount of carbon dioxide the forest usually absorbs and adds the expected emissions as the trees decompose. Either way, it’s a staggering amount. An important fact to remember, however, is that a growing tree absorbs multiple times more carbon than a mature one.
Given British Columbia’s active silviculture plan over the next couple of decades, carbon levels should eventually balance out. It normally takes 20 to 30 years for a pine or fir tree to grow enough to be harvested for lumber products, so during that time a significant amount of carbon will be absorbed. This is assuming that the same types of trees will grow in the areas affected by the beetle, given that global warming may have changed the micro-climates where those forests originally grew. Another unfortunate result of the devastation in the forests is the effect on the salmon population.
There is a certain irony in the reality that part of the reason British Columbia has such lush forests in the first place is due to the salmon; bears and eagles carry carcasses far from salmon streams and rivers, bringing essential nitrogen for healthy fir and pine trees. Alarming evidence of flash flooding and wash-outs in the Fraser Valley are feared to threaten salmon habitat. Firstly due to the loss of forest cover (without pine needles the branches don’t absorb snow or rain), and secondly because dead trees soak up groundwater. Again, active silviculture is planned in areas with the most vital need first.

NAFTA Speculation

The three heads of state of the United States, Canada and Mexico met this week in New Orleans to focus on issues facing their respective countries. Of particular concern were cross-border commerce, security and immigration. Political analysts noted that Canada presents a different set of circumstances to the U.S. than does Mexico. Some offered the idea that a tri-lateral meeting on these issues was pointless.
Convergance Anticipated?
The future of the North American Free Trade Agreement (NAFTA) may be a chip in the political poker game. U.S. President George Bush is late in his term of office and will be replaced within the next year. Both of the U.S. democratic party’s presidential candidates have endorsed reopening discussions on NAFTA if elected. Hillary Clinton and Barack Obama are tracking with the concept of beefing up the borders between the U.S. and its neighbors to north and south.
Republican candidate John Edwards has softened his stance on NAFTA since his statement in 2004 that canceling it would be the best policy; he now supports renegotiating it. All three presidential candidates appear to be leaning toward a popular “America for Americans” platform. Apparently unaware of the direction of public opinion in the U.S., in Quesnel, BC, the heart of Canada’s softwood lumber production region, a group of about a dozen concerned citizens met on April 19. Convened by the Canadian Action Party of Canada (CAP), the meeting’s purpose was to protest what that party believes is the ultimate loss of Canadian sovereignty. Attendees were given flyers warning of the dangers of “secret” summit meetings.
Citing the proposed Security and Prosperity Partnership (SPP) between the three countries, Connie Fogal, party leader, asserted: “ The North American continent is being transformed from three sovereign nations . . . into one regional corporate power base . . . [This] union is being created by stealth . . . and is being imposed on us by our own elected representatives and government with no opposition.” While Bush, Harper and Calderon enjoyed jambalaya in the Delta, the Canadian Action Party asserted that the “three amigos” were planning a merger of the three nations by 2010. While the interdependence of Canada and the U.S., particularly on softwood lumber, is critical to the economic well being of both, the CAP interpreted smoothing cross border commerce as an indicator of subversive intent.
Speakers firmly stated that within a few years the peso, the greenback and the loonie would be melded into one amorphous currency they called the “amero.” When questioned about their objection to what would amount to a European Union in the northern hemisphere, one spokesperson said, “we are just concerned about who would run it.”

The New Business of Timberland Investment

For the past ten years integrated paper companies in the United States, traditionally the main proprietors of US timberland, have been selling to financial investors. Pension plans, university endowments and others are buying up tracts of forests as a long term investment. Generally seen as a low-risk renewable asset, timberlands are attractive because they act as an inflation hedge.
Industry insiders estimate that the value of timberlands owned by financial investors has increased ten fold over the past decade, from US$5 billion to US$50 billion. With a wider view than the average saw mill, these companies plan to harvest trees when log prices are good, develop a certain amount into resorts or high-end condos, and even just sit on the land to either sell off in small chunks or mill into lumber products later. Word has gotten out to other types of investors, however, causing some very competitive bidding that is bringing land prices to record highs. An unexpected result in a time when the US housing market has crashed to almost unprecedented levels.

Canada Wood Export Initiative

The Canada Wood Export Program is actively promoting the increase of Canadian wood product exports into Asia, Australia, and Europe with the help of the Canadian government. In a partnership program involving industry and provincial governments, the federal Ministry of Natural Resources will provide $9 million over the next two years to support activities designed to expand offshore markets for high quality wood products. Specifically the funds will be used to increase access to international markets, develop innovative public policy and regulations, and for research and development. Expected to generate close to $15 million in development activity overseas, the Canada Wood Program will focus on the continued competitiveness of the Canadian forest industry.
In 2006 the Canadian forest products industry contributed $36 billion to the nation’s GDP. The Program will promote wood frame construction training, building codes and standards development, product testing, market acceptance and accreditation of Canadian wood products in the target countries. In particular, promotion will be going on in Japan where over one million homes have been built with Canadian wood. $1.4 million of the funds from the program are earmarked promote the use of new and emerging technologies in forest industry transportation that should reduce greenhouse emissions and fuel consumption.

Bio Fuels

In a time when lumber products are fetching record low prices, new opportunities are arising for the industry to capitalize on what was formerly considered ‘wood waste’. Until recently too expensive to remove from the bush, forest residue is being heavily researched as a source of bio fuel. More traditional suppliers of bio energy like corn or grains may very soon price themselves out of the market (rice and wheat prices have doubled in the past year alone) while becoming politically unpopular as sources in the face of food rioting in several poor countries.
No More ‘Wood Waste’
The cost barrier of breaking down cellulose into usable fuel is fast disappearing as energy providers and agriculture producersrace to research new, inexpensive methods. Meanwhile oil prices rise to unprecedented levels with no signs of slowing. Alternatives of all kinds are beginning to look more attractive. For example, BP is investing US$500 million over the next ten years in the Universities of Illinois and Berkeley for bio fuel research.
An international research group is dedicated to making pryolysis (the chemical decomposition of organic material to make an oil substitute for petroluem) cost effectively (www.pyne.co.uk) Another process being researched is gasification, which produces synthetic gas (syngas) to be burned directly in internal combustion engines. While extremely efficient, at the moment the production costs are still prohibitive to its being used on a large scale. Its only a matter of time, however, before the balance of expense vs. revenue makes the idea more appealing! By then, North American forest products companies would do well to have worked out a method of harvesting the rich resource of biomass currently clogging the forest floor.
European producers are making staunch efforts to increase production to meet their own expected increase in demand of 20 per cent by 2020. It’s obvious that there is a place for North America to capture some of this huge potential market. There is some action on the Canadian front, with CanBio sending 45 participants to the World Bioenergy Conference and Exhibition in Sweden (May 27 – 29 2008). Soon the prohibitive expense of salvage ‘wood waste’ from the forest floor (of which, ironically, fuel costs is a major factor) will no longer exist. Companies will be able to remove the fuel source and turn it into a tidy profit. For now the process of research and education must continue. Forest products companies across this continent are realizing that – if they are to survive and profit into the future – flexible thinking is the best bet.
Wood Pellets
North America needs to catch up with the rest of the world in valuing its forest residue. Europe is ahead of North America in using this clean-burning energy source, having already converted its burners and boilers. It is now crying out for pellets to such a degree that a mill with enormous capacity is being constructed in Florida. Expected to have a 560,000 ton annual production capacity, Green Circle Bio Energy is close to completion of its 225 acre facility. While British Columbia sits on its hands and tries to figure out how to mill beetle kill wood into dimension lumber or panel, other regions have already found ways to make a good profit from salvaged wood.
European Demand Up
Its a wise move to invest in a pellet plant when preliminary figures show that European consumption spiked up 55 per cent from 2004 to 2006, with all signs pointing only to increased demand. The main pellet producing countries there are Austria, Denmark and Germany. At the moment production amounts of 3.5 million tons per year roughly match consumption, but not for long. Some analysts are predicting that by 2010 Europe will consume 13 million tonnes per year. Expectations of a need to import the product are so powerful that there are several active campaigns to increase global production, particularly from North America.
Meanwhile the Wood Pellets Association of Canada is predicting that pellet consumption in the United States will rise to almost 3 million tonnes in 2010 (from less than 1.5 million tonnes in 2006). Canada produced approximately 1.5 million tons of pellets in 2006, the largest bulk of which were sold into the European market. But it doesn’t stop there with Asia fast on the heals of Europe as a major pellet importer. China in particular is proving itself to be in need to massive energy sources. This can only be good news to Canada wood products companies, particularly in British Columbia. With the mountain pine beetle only half way through its destruction of the Lodgepole Pine forests, BC has a natural, long term source of wood pellets just waiting to be harvested.

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