North American Transportation ; Madison’s Timber Preview ; Japan-Russia Annual Timber Conference ; Quarterly, Year-End Results ; West Fraser Announces ; Oregon Timber ; BC Forest Practices Board Releases; Canada Housing Starts ; Housing Starts, Japan ; US House Prices, Mortgage Lawsuit; CanBio Announces; Biomass Production ; Madison’s Timber Preview; Quarterly, Annual Results, Norbord OSB Restart ; US Storm Season Early Start ; Sawmill Restarts, Construction, Sales, Completions ; TLA 2013 : Part II ; US Residential Construction Spending, Employment; US Home Sales, Prices ; Construction Activity Projection, US ; Canfor Invests ; Interfor Buys
February 26, 2013
North American Transportation
Always a good indicator of business and trade, new data on North American surface transportation shows a glimpse of US economic conditions. While some transportation data improved, in other areas the movement of goods is down compared to the recent past.
The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported Wednesday that its Freight Transportation Services Index increased 1 per cent from November to December, following a 1.7 per cent rise from October to November. The Freight Index measures the month-to-month changes in freight shipments in ton-miles, which are then combined into one index. The Index consists of data from: trucking, rail, inland waterways, pipelines, and air freight.
The BTS said that the December Freight Index, at 109.9, is 16.6 per cent higher than April 2009’s low point of 94.3, and 3.5 per cent below the December 2011 reading of 114, which represents the all-time high since BTS first began collecting data in 1990. The rail and trucking increases were due, at least in part, to recovery from Hurricane Sandy, as well as general economic activity, the Department of Transportation (DOT) said.
Trends and Statistics
The Index rose 0.7 per cent in 4Q 2012 following a 0.6 per cent decline in 3Q and a 0.3 per cent upturn in 2Q 2012. The index has improved in 11 of the past 14 quarters.
December 2012 freight shipments were down 3.5 per cent compared to December 2011, but rose 10.6 per cent from December 2008.
However, BTS said January 31 that trade using surface transportation between the US and Canada and Mexico was up 6.2 per cent in November 2012 compared to November 2011, at US$81.5 billion.
US-Canada surface transportation trade in November came in at US$46.7 billion. Michigan paced all states in surface trade with Canada in November at US$6.6 billion. BTS said the top transported commodity in November was vehicles and parts, at US$9.6 billion.
The value of US surface transportation trade with Mexico was US$34.8 billion in November. Texas led all states in surface trade with Mexico at US$12.4 billion. Electrical machinery paced all commodities transported between the NAFTA neighbors at US$7.9 billion.
For November 2012, BTS said $56.2 billion of U.S. trade with Canada and Mexico moved by truck, $14.9 billion moved by rail, and $5.9 billion moved by pipeline.
Elsewhere, January shipment volumes fell off 4.8 per cent from December and were 2.5 per cent lower than they were a year ago, according to the Cass Freight Index, a measure of North American freight volumes and expenditures, released February 6. Data within the Index is derived from US$22 billion in freight transactions processed by Cass annually on behalf of its client base of 350 large shippers.
For each of the last two years, freight shipment volumes ended the year at about the same place they began. This was the first year since the recession period that January shipments were actually lower than January of the previous year.
Total railroad carloadings in 2012 were lower than 2011 and were contracting at year end. January rail movements looked strong at the beginning of the month, but declined in each of the last two weeks, ending 2 per cent lower than in December. Similarly, truck shipments were sluggish in January.
Intermodal volume — freight moved via containers and trailers on flat cars — on the other hand, reached near record levels in 2012 and was up 3.5 per cent in January 2013 compared to December 2012.
As for the roads specifically, the TransCore DAT North American Freight Index for January 2013, released Thursday, increased 42 per cent compared to January 2012, reaching the highest-ever volume for the month of January, said the spot freight marketplace tracker. The monthly DAT Index reflects spot market freight availability of load boards in the US and Canada. Rates are derived from national averages in the Index.
Freight volume was unusually robust for the season, said TransCore DAT, exceeding December levels by 24 per cent, and marking the first time since the Freight Index began when freight availability increased from December. Over the past ten years, there has been a 13 per cent average decline in freight levels between those two months.
On a month-over-month basis, van loads increased 16 per cent and flatbed freight availability rose 28 per cent. Compared to January 2012, freight volume increased 36 per cent for vans and 7.9 per cent for flatbeds.
Despite strong freight volumes, van rates dropped 2.4 per cent and flatbed rates slipped 2 per cent, not including the fuel surcharge. On a year-over-year basis, van rates declined 2.4 per cent and flatbeds lost 5.7 per cent.
North of the border, TransCore’s Link Logistics Canadian Freight Index closed 2012 with December freight volumes down for both year-over-year and month-over-month by 16 per cent, the company said January 31.
Looking on the somewhat positive side, annual volumes for 2012 were down 11 per cent from what TransCore called “the elevated levels of 2011.” And well above 2009 recessionary levels by 53 per cent.
Load volumes for cross-border postings in December averaged 69 per cent, while intra-Canada posting averaged 28 per cent.
“Equipment postings followed the normal downward trend ending the year at its lowest,” TransCore said. “December 2012 was 19 per cent below the previous month, however, with a year-over-year increase of 7 per cent from December 2011.”
Overall, equipment postings for 2012 were 13 per cent above 2011 volumes.
And finally, Canadian railways carried 27.4 million tonnes of freight in November, a 0.8 per cent rise from November 2011 and the third consecutive year-over-year increase for the month, said Statistics Canada January 30. The gain occurred almost entirely on the strength of international rail traffic shipments.
Within Canada, combined loadings of intermodal traffic and non-intermodal traffic decreased 0.4 per cent to 24.2 million tonnes. The drop in domestic loadings was the result of reduced loadings of non-intermodal — freight moved via box cars or loaded in bulk — traffic, which offset the gains in intermodal traffic.
Domestic intermodal freight loadings rose 4.2 per cent to 2.5 million tonnes, solely attributed to increased loadings of freight in containers as freight moved via trailers on flat cars dropped.
Domestic non-intermodal freight loadings decreased 0.9 per cent to 21.7 million tonnes. Loadings declined in 33 of the 64 commodity groups, led by iron ores and concentrates, potash, wheat and canola. The decline was partially offset by gains in a number of commodity groups, most notably, fuel oils and crude petroleum.
The western division accounted for 57.7 per cent of the domestic freight loadings, virtually unchanged from the same month in 2011.
Freight traffic received from US connections advanced 10.9 per cent, to 3.2 million tonnes, driven by increases in both non-intermodal and intermodal traffic movements.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines the latest financial reports of Acadian Timber, Plum Creek, and Canfor as well as looking at 2012 timber revenues in various North American jurisdictions.
Contact us any time for this valuable and timely information.
Japan-Russia Annual Timber Conference
The Japan Russian Wood Products Conference met in early January to exchange opinions regarding the local situation of Russian timber and the trends of products in Japan, according to the Japan Lumber Journal.
As the supply of Russian logs has drastically decreased, Japanese sawmills of Russian wood have been forced to close or withdraw from their business. Japanese plywood mills have been reducing their use of Larch logs as much as possible, shifting the materials to domestic or American logs.
Attendees also discussed how Russian wood can cope with rising lumber prices of foreign species as the demand for wooden products is active in this year.
Russian Timber To Japan
Members of the Japan Russian Wood Products Conference from importing companies reported on their current situations, says the Journal:
– The arrival of Russian logs in 2012 was around 250,000 cubic meters; 109,000 cubic meters of Larch, 74,000 cubic meters of Red Pine, and 69,000 cubic meters of Yezo Spruce. There was a sharp drop since July.
– As the tariff rate for Red Pine logs dropped to 15 per cent from 25 per cent, purchase of those logs became easier even with the export quota.
– Chinese buyers have reduced their purchase of Russian logs, while on the other hand they are buying more North American and New Zealand logs. The prices to China would be around US$160 per cubic metre for Larch and US$180 per cubic metre for Yezo Spruce.
– The arrival of Russian lumber in Japan was about 560,000 to 600,000 cubic meters from January to November 2012, a drop of 10 per cent from a year ago.
– The lumber prices around the New Year rose to US$560 to $570 per cubic meter for high-grade items and US$410 to $420 for C-class items.
Japanese sawmills and wholesalers reported on their situation:
– The annual arrival of 250,000 cubic meters of logs and 550,000 cubic meters of lumber is far too little. They are expecting to see more arrival in this year.
– Although the tariff rate for Red Pine logs was lowered, the weaker yen in the exchange rate has forced the sawmills and wholesalers to engage in a bitterly-fought struggle. It is hard for them to persuade their customers to accept higher product prices. They understand that sawmills should gradually be out of business unless they renew the facilities, but still they cannot make a decision.
– With the strong yen, the product prices in Japan in 2012 were: 30,000 yen per cubic metre for green lumber; 40,000 yen for KD lumber; and 50,000 yen for laminated lumber. Among them, the price for locally- sawn lumber in Russia exceeded 60,000 yen.
– The demand in Japan is active. The prices for Russian lumber have returned to 55,000 to 56,000 yen. While the import prices are also rising, it is tough for the dealers unless the prices for studs go up by another 5,000 to 6,000 yen.
– Whitewood lumber is in shortage, and then some dealers have started to transact Red Pine lumber.
– It takes time to transport Russian lumber, which is conveyed in containers. It is the question how to achieve stable supply as is always pointed out.
Quarterly, Year-End Results
Resolute Forest Products reported its 4Q and 2012 results Tuesday. The company reported a net loss of $2 million for 2012, compared to a net income of $41 million in 2011.The net loss in 4Q was $36 million, on sales of $1.1 billion, compared to a net loss of $6 million on sales of $1.1 billion in the 4Q of 2011.
Interfor Wednesday reported net income of $3.7 million in 4Q 2012. These results compare with net earnings of $2.9 million in 3Q 2012 and a loss of $2.8 million in 4Q 2011.
Financial Results
Canfor Corporation Thursday reported a net income of $24.6 million in 4Q 2012 and $41.4 million in the 2012 fiscal year. The net income attributable to shareholders is $21.6 million in 4Q, and $32.1 million for the entire 2012 fiscal year.
West Fraser Timber reported Thursday earnings of $22 million on sales of $773 million in 4Q 2012, and earnings of $87 million on sales of $3 billion for 2012. Sales for the latest quarter rose to $773.4 million, from $650.7 million in the comparable quarter last year.
Taiga Building Products reported also Thursday net earnings of $0.4 million in its latest quarter ending December 31, 2012. Consolidated net sales for the quarter were $247.7 million, an increase of 22 per cent over the same quarter in the previous year. Net earnings for the nine months ending on December 31, 2012 are $35.4 million, compared to $28.4 million the previous year, an increase of 24.8 per cent.
West Fraser Announces . . .
Ted Seraphim, West Fraser’s President and COO, will replace Hank Ketcham as CEO on March 1.
Ketcham, who also currently serves as Chair, will assume the role of Executive Chair, the Vancouver-based company said Thursday.
February 20, 2013
Oregon Timber
A lengthy campaign by Oregon’s governor and two senators, individually and together, to increase that state’s timber harvest and timber revenues started to come to some fruition Thursday.
Early in January, Oregon Governor John Kitzhaber, Democrat, said to the Oregon Board of Forestry that the state should step up to help break the deadlock over logging on federal forests, which account for 60 per cent of Oregon’s total timber base. Kitzhaber asked the Board to offer a statement to Oregon’s congressional delegation and other federal officials about how forest issues should be resolved.
“The status quo does not work,” he said in a January 9 meeting with the Board. “The sooner we can change that, the better off Oregon is going to be.”
Funding Cuts and New Proposals
Meanwhile, a panel Kitzhaber had appointed to find a solution to harvesting more timber on the federally-managed Oregon & California Railroad (O&C ) lands released a recommendation Thursday for legislation that will try to balance the seemingly opposing needs of the timber industry, environmental protection, and local government financial stability in the 2.4 million acres of O&C lands in 18 Oregon counties spanning Western and Southwestern Oregon. There is a proposal for the state to put some parcels off-limits to logging and resume logging on others.
Originally deeded to the Oregon & California Railroad to build a rail line, the federal government reclaimed ownership of the O&C lands in 1916 after the railroad failed to meet terms of its agreement. A 1937 bill put the lands in permanent forest production, sharing revenues with O&C counties based on timber receipts. However, environmental concerns have severely curtailed harvesting on federal lands for decades — and county revenue with it. The lands are managed by the US Bureau of Land Management. When logging was booming in the 1970s, some counties did not have to charge property taxes. Since cutbacks to protect the northern spotted owl and salmon, the payments dropped precipitously, forcing many of the counties to make deep cuts, particularly in law enforcement. Voters have refused to plug the gap with new taxes.
Congress passed the Secure Rural Schools legislation for a county payment program to replace lost funding and has renewed it twice, the last time in July 2012.
Kitzhaber said he thinks options from the report can be put together that respect conservation values and still produce more than US$70 million for the O&C counties. That amounts to about double their last payment under a safety net that is expiring, and about 10 times the amount they would get from a direct sharing of federal timber revenues. It is far short of the US$110 million the counties have been shooting for.
Time is pressing; twice-renewed county timber payments — a lifeline for many O&C counties — will expire again this year after a one-year extension in 2012.
The 18 Oregon counties are supposed to receive their last cheque this month from the Secure Rural Schools program, which was created by congress to aid the timber counties. Oregon Congressman Greg Walden, Republican, said Thursday he was shocked to learn the federal government is cutting the last payment by 10 per cent.
The 94-page report offered various options, including variations on a plan from three Oregon congressmen that would split the lands in two, with half going to a trust dedicated to timber harvest, and half to be managed for fish and wildlife habitat and clean water.
Members of Oregon’s congressional delegation welcomed the report as useful.
“After looking over the materials, I’m optimistic,” Democratic Representative Peter DeFazio said in a statement. “The report confirms that there are shared goals and there is common ground among Oregon counties, environmentalists, and the timber industry.”
The American Forest Resource Council, a timber industry group, said the O&C lands have the potential to sustainably produce five times the timber they do now.
Douglas County Commissioner Doug Robertson, who served on the taskforce and is president of the Association of O&C counties, said he was happy that the report included all options considered by the taskforce, including those that would produce US$110 million for the counties while waiving environmental laws such as the Endangered Species Act.
“If these lands are not exempt in some way from some of the federal rules and regulations, the status quo will remain in place,” he said. “The only meaningful change is going to be some modification that provides an opportunity to manage these lands for their stated purposes.”
Five conservation groups that served on the taskforce said in a joint statement that while all sides moved closer together, they failed to agree on important issues, such as protecting old growth forests, designing timber sales to improve ecological conditions, protecting key salmon habitat, complying with the Endangered Species Act, and protecting clean drinking water.
An important milestone toward enacting needed funding reforms to Oregon’s private and state forest fire protection was accomplished in Kitzhaber’s proposed changes in his 2013-15 budget. The Oregon Department of Forestry will offer a bill in the 2013 Legislature to boost initial attack firefighting, phase-in increased State fire funding, and reduce Eastern Oregon landowner fire assessments. The Forestry Department joins forest stakeholders statewide who have agreed to support this bill to reform fire protection on private and state forestlands.
The governor said he hopes Oregon’s congressional delegation will use the options to produce legislation resolving the funding problem for Oregon timber counties which have struggled for nearly two decades.
The budget contains money to promote changes in how federal forests on both sides of the Cascades are managed. Some of that money would go toward implementing another proposed solution brokered by Oregon Senator Ron Wyden, Democrat, for forests east of the Cascades.
The budget also proposes US$5.4 million from bond funds to support the work of collaborative projects integrating timber production and environmental protection, and to implement changes in how O&C lands are managed.
BC Forest Practices Board Releases . . .
A report was issued Wednesday by the Forest Practices Board — BC’s independent watchdog that oversees the activities of forest licensees — about the state of privately constructed roads and bridges on Crown land.
The report said more than half of the issues found in board audits since 2005 are with roads and bridges, adding they have found five times more issues in 2010 and 2011 than in the previous five years combined. It said that the board did 58 compliance audits involving 117 licensees and 17 BC Timber Sales districts between 2005 and 2011. Of those audits, there were 37 instances of significant non-compliance, of which 22 were related to roads and bridges.
BC Forest Road Safety
“Roads and bridges are a common problem area in our audits,” Chair Al Gorley said in a Board press release, “and poorly constructed or maintained roads and bridges create risks to workers, the public, and the environment. The Board is concerned that non-compliance has increased significantly over the past few years. An audit report the board also released today is a further example of these findings.”
When asked by Madison’s if the increase in non-compliance was due to more strict audit procedures of if there was actually that much more unsafe road and bridge building, Gorley replied by email, “Our audit process has not changed significantly. Although audits only describe a sample of the companies operating in the province, we are concerned that there has been an actual increase in the incidence of non-compliance.”
And in answer to Madison’s question about whether these new figures are a result of cost-cutting measures on the part of operators due to poor market conditions, Gorley replied,
“Our auditors didn’t examine the causes of non-compliance so the Board cannot attribute it to any one issue. In fact it is likely that each case is due to a slightly different set of circumstances. We know that a number of companies have experienced changes in ownership over the past few years and that may have resulted in some managers being unaware of the requirements they inherited. We also know that the fiscal recession has created challenges in the industry and companies have had to cut costs. However it would be speculation to say that is why the non-compliances occurred. The important thing is, compliance with the legal standards is the minimum expectation for companies operating on public lands in BC.”
Canada Housing Starts
Housing starts, on a seasonally adjusted annualized basis, in Canada fell steeply in January to 160,577 units from 197,118 in December, according to the Canada Mortgage Housing Corporation Friday. The December figure was revised down from the 197,976 units reported previously.
Seasonally adjusted urban starts decreased by 22.3 per cent in January to 138,134 units, the report showed. Single urban starts fell 11.2 per cent to 59,318 units and multiple urban starts decreased by 28.9 per cent to 78,816 units.
Housing Starts, Canada
By region, Ontario and Quebec had the most dramatic drop. Urban starts fell 43.9 per cent in Ontario, 29.6 per cent in Quebec and 5.9 per cent in the Prairies, while urban starts increased 59.4 per cent in Atlantic Canada and 7.7 per cent in British Columbia.
Housing Starts, Japan
December housing starts in Japan were 75,944 units, a 10 per cent improvement over December 2011, according to the Japan Lumber Reports. Seasonally adjusted annual starts were 880,000, with wood-based units increasing their share by 7.4 per cent, to 43,552, for a 57.3 per cent share of total building.
Japan Housing Starts
Total Japan housing starts in 2012 were 882,797, 5.8 per cent more than the previous year, and the third straight year of improvement, said the Reports. Starts in the North East were highest due to restoration after the earthquake and tsunami.
US House Prices, Mortgage Lawsuit
Home prices in the US rose for a tenth consecutive month on a year-over-year basis in December, posting their biggest gain in more than six years, data analysis firm CoreLogic said on Tuesday. CoreLogic’s home price index rose 0.4 per cent from the previous month and added 8.3 per cent compared to December a year ago. The year-on-year jump marked the biggest increase in the index since May 2006.’
Excluding distressed sales, prices were up 7.5 per cent on a yearly basis and 0.9 per cent compared to the previous month.
US Mortgages
The US government is accusing the debt rating agency Standard & Poor’s of fraud for giving high ratings to risky mortgage bonds that helped bring about the financial crisis.
The government filed a civil complaint late Monday against S&P.
S&P, a unit of New York-based McGraw-Hill, has denied wrongdoing. It says the government also failed to predict the subprime mortgage crisis.
CanBio Announces . . .
The Canadian Bioenergy Association (CanBio) is recruiting Canadian companies for its technology mission to the 2013 World Biofuels Markets and Bio-Based Chemicals Conference and Exhibition on March 11-14 in Rotterdam, Finland.
Delegates will have ample opportunity to network with potential offshore partners. A pre-conference information/networking session entitled Business Opportunities in Advanced Biomass in Canada will provide a forum for Canadian organizations to meet with European companies invited by the Embassy in a small, intimate venue. The event will finish with a networking reception sponsored by the Port of Rotterdam.
World Biofuels Markets and Bio-Based Chemicals is Europe’s largest bioeconomy event. Over 260 speakers will be featured as part of the conference, and dozens of companies and organizations from around the world will be exhibiting.
For more information about the mission, visit http://www.canbio.ca/article/world-biofuels-markets-2013-361.asp
February 12, 2013
Biomass Production
The hotly contested British Columbia provincial election is not even underway but the rhetoric was already flying this week. The BC Ministry of Forests, Lands and Natural Resource Operations, as well as the Ministry of Jobs, Tourism and Skills Training, have spent the last two years looking at ways to better capitalize on the province’s stricken timber supply. Roundtables, travelling committees, discussions with communities and First Nations, and several large consultation processes have been taking place for over two years now. The reports, suggestions, and recommendations offer a dazzling array of ideas and work-arounds to get BC’s forest products industry back on track.
But what is actually being done?
For the moment the actual announcements and decisions by the BC government, and it is understood that the Legislature is just beginning to sit after a very extended break, look like a bunch of stop-gap solutions. So far it looks like the plan is to offer up as much of the remaining healthy, or marginally healthy and accessible, forest to nearby producers to make use of as quickly as possible.
Mixed Portfolio of Forests and Agricultural Land
Why are we still trying to find ways to make the highest volume of 2x4s in the shortest time? Simply providing more access to timber so sawmills can run 2x4s before dead trees become too degraded to process, or before the neighbouring mill gets their hands on it, is not the best and most viable business model.
Madison’s spent this week in New York City at the 11th annual Global Timberland Investment Summit. Timber holders and investors from around the world, as well as lenders, banks, analysts, appraisers, and innovators gathered together for three intense days of workshops and speeches. In all of this wealth of information no one from any region suggested that the best way to run a forest company is to pick out of the ground the last of the remaining fibre and process it into 2x4s. In fact quite the opposite, and these are funds which manage billions and billions of dollars across sectors.
While other jurisdictions are putting their focus on value-added or higher value products, on improved silviculture or manufacturing, on breaking into new markets, and on building relationships and partnerships to prepare for the future, BC is almost moving backwards by putting more attention on opening up previously-protected areas for timber harvesting. All Madison’s can see in the most recent BC government announcements is tiny steps to fix large problems, or changes to the existing system which would provide a quick solution at the outset but don’t solve the underlying problem.
The fastest, most obvious, way to improve lumber production or forest company sales revenues in the short term is not necessarily the best way to manage an asset that — at this moment — remains the best in the world.
Given the combined disasters of the mountain pine beetle infestation and the crash of US home building and subsequent sheer drop in lumber buying from that country, it makes sense that BC is desperate to find ways to reverse the recent epic downward trend in lumber production, sales, and prices. Some amount of lateral thinking is in order, clearly.
Luckily, some in the forest products’ sector have already done a lot of study and work to that end. One of these is Richard Boomer, Managing Director at Forest Value Investment Management. A particular section of Boomer’s presentation, “Case Study: the Cluster Approach Applied to West Romania” caught Madison’s attention.
The definition of ‘cluster development’ in today’s economy involves multiple strategies coordinated among states and their local and regional partners.
Boomer explained the current biomass fuel situation in Europe. As Madison’s has previously reported, EU 2020 renewable energy targets are for 20 per cent renewable fuels, while the 2050 ultimate target is for 80 per cent renewables in all energy consumption.
“The government has no idea how they are going to actually achieve these requirements,” said Boomer. “A minimum of 7 million hectares of energy crops are necessary to meet the 2020 goals. But relatively little has been done since the EU decision for targets was made in 2009. There is only approximately 60,000 hectares of land dedicated to woody biomass crops in Europe.
“The EU needs to do something about its energy import dependancy. There is no question the EU is going to have to plant trees, but they have no experience at this. And it would have to be short rotation/very high intensity silviculture, which they don’t know how to do.”
Using Romania as a base, Boomer’s proposal revolves around a land ownership structure which includes many, many very small land owners, a few larger landowners who are now having their title restituted by the government following Soviet occupation, and large amounts of land still owned by the government. One of Boomer’s main objectives is to ‘build multiple property clusters of around 15,000 hectares’. The model Boomer suggests involves a mixed portfolio of forests and agricultural land, simply because Romania continues to need significant farmland and also because the topsoil is incredibly deep and rich.
Obviously the interior of BC is not going to become farmland, but the same model can be applied after a little tweaking. The major difference is that there is no private timberland ownership in the BC interior. However, since the forest is managed by the government, all that is needed is for new policy to be drafted. There is no cumbersome negotiating to reach agreement between disparate landowners.
In Boomer’s model, equal sized plots of land would produce timber and agriculture, with the residues of both going to biomass production. For example: with 7,500 hectares each of timberland and farmland, the models suggests approximately 100,000 dry tons per year of biomass could be produced. At the moment, most of the talk is of pellet production. A very important element in this model is the need for long term biomass supply contracts with electricity producers, industrial users, and other users. This is important because no global energy producer is going to invest in a manufacturing plant in BC, Romania, or elsewhere, without assurance of long-term agreements, therefore returns.
Madison’s would add that the long-term agreements need to extend to the supply side as well; equally no company is going to build a large biomass energy plant, of whichever process or technology, without a long-term fibre supply agreement. A five-year renewable salvage license is not good enough. Companies will want assurances, and being told that their facility will be “grandfathered in” does not satisfy them because all it takes is one change in policy or government and that renewable license goes out the window.
The BC ‘tweak’ comes in switching out the agricultural land or farmland in Boomer’s model, for land which is targetted specifically for biomass production. BC’s former Minister of Forests and current Minister of Jobs, Tourism and Skills Training, Pat Bell, himself suggested a similar idea a couple of years ago when he said BC should plant fast-growing poplar along the thousands and thousands of kilometers of BC Hydro power lines which run through the province.
This is the same idea, except instead of planting a monoculture along vast 1 km wide stretches of previously-cleared land, the province’s existing silviculture practice, such as it is, could be adjusted to plant both spruce-pine-fir sawlogs and short rotation biomass crops. Or plant sawlogs in such a way as to allow the poplar, or hardwoods, to grow in the intermediate space.
This particular mixed land-use model is already in place in many jurisdictions, including China, so there is no reason it cannot be applied to BC. The province, and the stakeholders, just need to get away from the idea that the business of managing and harvesting timberland has to be some version of the way it has always been done. We are not living in times as they were before, and we never will be again. This is the time to step into the future and look at what might seem to be radically different ways of operating but actually are not that different from what we are used to.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview covers the proceedings at the 11th Global Timberland Investment Summit in New York City this week. Estimates of US and Canadian timber volumes, as well as projections for US housing starts, in the next five years are examined.
Contact us any time to receive this valuable and timely information.
Quarterly, Annual Results, Norbord OSB Restart
Norbord Thursday reported earnings of US$72 million for the full year of 2012. Earnings were US$38 million for 4Q 2012.
Norbord generated EBITDA of US$188 million in 2012 compared to US$45 million in 2011. North American and European operations recorded EBITDA of US$165 million and US$39 million, respectively, versus US$14 million and US$44 million, respectively, in the prior year. In 4Q 2012, Norbord delivered EBITDA of US$70 million versus US$66 million in 3Q and US$9 million in 4Q 2011.
Norbord also announced plans to restart its Jefferson, TX, mill by mid-2013 That mill has 415,000 msf of reported annual capacity. Norbord is going to invest approximately US$10 million to restart the mill.
Tembec reported, also Thursday, a net loss of $10 million in its 4Q, ending December 29, 2012, on consolidated sales of $376 million. For comparison, in 3Q, Tembec reported a net loss of $16 million on consolidated sales of $401 million.
Financial Results, Tembec Mill Sale
Tembec’s operating earnings before EBITDA was $19 million for the three-month period ended December 29, 2012, as compared to adjusted EBITDA of $12 million a year ago and adjusted EBITDA of $23 million in the prior quarter.
Tembec also announced plans to sell its pulp mill in Skookumchuck, BC, which employs about 280 workers and contributes about $150 million in annual revenues. Proceeds from the sale will be reinvested in the company, primarily in the Temiscaming project.
Domtar Corporation reported Friday a net earnings of $19 million for 4Q 2012 compared to net earnings of $66 million in 3Q. Sales in 4Q were $1.3 billion.
For Domtar’s fiscal year of 2012, net earnings were $172 million. In comparison, net earnings in 2011 were $365 million.
US Storm Season Early Start
A massive storm system raked the southeast US on Wednesday, spawning tornadoes and dangerous winds that overturned cars on a Georgia interstate and demolished homes and businesses, killing at least two people.
Storm Season, US
In recent days, people in the South and Midwest had enjoyed unseasonably balmy temperatures. A system pulling warm weather from the Gulf of Mexico was colliding with a cold front moving in from the west, creating volatility.
One other death was reported in Tennessee after an uprooted tree fell onto a storage shed where a man had taken shelter.
Powerful winds ripped through the entire region, with gusts powerful enough to topple tractor-trailers in several places.
Conditions remained ripe for tornadoes into Wednesday afternoon, and authorities were still investigating to determine if damage was caused by twisters. Since Tuesday, the system had caused damage across a swath from Missouri to Georgia.
Sawmill Restarts, Construction, Sales, Completions
Ontario’s McKenzie Forest Products and Prendiville Industries as well as Quebec’s Resolute Forest Products all announced this week mill restarts or new construction. As well, British Columbia’s Western Forest Products announced a pulp mill sale, while Fortress Paper said its Quebec cellulose mill in near completion.
Sawmill, Pulp Mill News
The McKenzie Forest Products mill in Hudson, ON, has restarted its operations, the company announced Thursday. The mill is operating with a skeleton crew right now, but by May or June more than 100 people are expected to be back at work. The mill has been closed since 2008, except for a brief opening in 2010. Sales will be handled by Buchanan Sales, out of Ontario.
Resolute Forest Products has announced the construction of a new sawmill in the area of Atikokan, ON, the company announced also Thursday.
The Atikokan project will involve the construction of a single line random length, 16-ft, sawmill with an annual capacity of 150 million board feet. Approximately 90 people will be directly employed by the operation, and additional indirect positions will be created for hauling finished lumber and residual chips. Final site selection in the Atikokan area will be completed in the next few weeks, and construction is anticipated to begin in the spring, with completion targeted for early 2014. The capital cost of the project is estimated at $50 million.
Prendiville Industries’ Kenora Forest Products stud mill would be back operating by summer production could resume, beginning with one shift, sometime between May and July, according to Northern Ontario Business Thursday.
Prendiville’s plans for Kenora is a $30-million capital expansion plan that would boost production capacity from 80 million board feet to 200 million, and could see the mill delve into manufacturing machine-stress related lumber or becoming a random- length or long-length stud mill.
Western Forest Products has entered into a conditional agreement for the sale of its former Woodfibre Pulp Mill site, located at the head of Howe Sound, southwest of Squamish, BC, the company announced Monday.
The purchase price for the site, consisting of 212 acres of industrial waterfront land, is $25.5 million. The net proceeds from the sale are expected to be approximately $17 million.
Fortress Paper‘s cogeneration project at its Fortress Specialty Cellulose Mill is nearing completion, with engineering and procurement completed and overall construction progress continuing and currently at approximately 94 per cent.
Fortress Paper now expects delivery of power to commence late in 1Q or early in 2Q 2013, and anticipates additional costs in the 10-20 per cent range for the overall cogeneration project.
February 05, 2013
TLA 2013 : Part II
Further to last week’s coverage of the first speaker sessions of the Truck Logger Association’s AGM in Victoria, BC, this week’s story is devoted to the rest of the proceedings. Please refer to the January 18 issue of your Madison’s Lumber Reporter for Part 1.
Speakers addressed the afternoon session topic, “What Business Needs from Government” with gusto. Moderated by Globe and Mail columnist Gary Mason, the presenters covered a wide range of topics and concerns for BC’s coastal forest products industry.
Nick Arkle, Chief Forester at Gorman Brothers, was not shy about laying out specific issues which industry needs government to address.
“Gorman Brothers bought the Federated Cooperatives plywood mill in Canoe, BC, and the 750,000 cubic metres of AAC attached to that mill,” began Arkle. “The fibre supply is about 75 per cent of what we need. We recognize that today we are getting into a whole new industry. There is need for stability, an extended period of stability, to reassure the banks. Since none of us can control the global economies, we really don’t need internally generated pressure from our own government. Our industry today is all about partnerships and it is important that those in power don’t mess with what we are already doing.
Truck Logger Speaker Sessions
“In the last 15 years there have been three major legislative changes which were very disruptive,” detailed Arkle. “In the 1990s the province was putting $1 billion a year or more into forest management, which has now been reduced to one-tenth of that. We need to start doing that again. The signing of the 2006 Softwood Lumber Agreement brought stability in the least, but the government doesn’t want to address issues with the stumpage system due to the Agreement. As an example of one of these issues, the Highway 97 and Highway 16 corridors were designed around an area with a glut of wood, which could provide uplift to the AAC. But this is also the area which took the brunt of the mountain pine beetle attack. So we have a system based on the incremental log, all the mills in that area are chasing the incremental log. So now that same region is very tight for fibre supply.”
Dwight Yochim, Executive Director of the TLA, also talked about this problem.
Up next was Jock Finlayson of the BC Business Council. Madison’s has seen Finlayson speak a few times at various events and he always provides really good data and an overview perspective.
“The forest products industry in BC are price takers,” stated Finlayson. “Meaning the government has imposed costs which cannot be passed on, which must be absorbed either in less manufacturing or in smaller margins. The Return On Capital Invested for BC forest products since 2000 has been less than a BC government bond.
“Cancelling the HST and reverting back to the PST will hit resource industries very hard,” continued Finlayson. “The PST will cost the forestry sector over $100 million per year, and the BC carbon tax will cost another $100 million. Together, these will give BC the worst tax structure in Canadian history.”
Back to the topic of the Highway 97 and Highway 16 corridors, Yochim said, “Further to Jock’s explanation of reduced fibre supply in a traditionally well-served area, even with that situation there is a lot of value left on the stump. The government needs to incentive that volume. There is 3 million cubic metres a year from that region that has been sold through BC Timber Sales but has not been harvested.
“On the coast, there was 41 million cubic metres in log exports compared to 58 million cubic metres not harvested. That amounts to between a $2 and $4 billion loss to the government in unrealized AAC,” said Yochim.
Yochim talked about new markets and new applications for BC wood, including: further incursions into China; Japan, and: non-residential construction in the US.
“FPInnovations is in New Zealand looking at the cost of harvesting on steep slopes,” concluded Yochim. “In Canada that is 30 per cent recovery in this difficult terrain, which in New Zealand they are getting 70 per cent recovery. So there is something we can learn from industry elsewhere.”
Thursday morning started with excitement, some confusion, and no shortage of opinions of the Minister of Forests, Lands and Natural Resource Operations, Steve Thomson’s, speech.The biggest talking point was a change to the Fee-in-Lieu mechanism. This will now include a multiplication factor so the more valuable logs carry a higher fee, as an incentive to keep those log sales domestically. Madison’s has since learned that this is part of the surplus test, that this change affects 1 or 2 per cent of BC export log sales. This is the proportion that comes under dispute between a domestic lumber producer and a log seller in a remote location on Vancouver Island. Madison’s will dig deeper into this situation in a future issue.
That morning session’s topic was, “Harvesting the Allowable Annual Cut: How Do We Get There?” The panel was moderated by BC’s Chief Forester, Dave Peterson.
“Across Canada the average harvest level since 2000 has been 25 per cent of the AAC, since 2009 it has been 50 per cent,” stated Peterson. “The coast alone has harvested 53 per cent of its AAC since 2009. When lumber prices are higher, the harvest more closely matches the AAC.”
Rick Jeffery, President and CEO of the Coast Forest Products Association, explained the current state of the coastal forest products industry and where the future opportunities are.
“Getting the harvest out is really about capitalization,” began Jeffery. “The industry is undercapitalized in all segments, and profitability is elusive. The companies can get higher margins through investment.”
Jeffery talked about: LiDAR; the forest inventory (or lack thereof); that optimization is the use of contractor resources and the deployment of contractors; investing in woodlands; re-investing in the mills, and ; new products and markets, including US non-residential construction, sound abatement walls, and building remote resource roads out of hemlock.
“India is screaming for coastal forest products,” said Jeffery. “There is a need for high-end wood, for high-end uses. India will have to replace the very high value, exotic, timber it has been using with something else [as global restrictions on the purchase of illegally harvested timber come into effect – ed]. The prices of these are very intriguing.
“In terms of regulation, profitability of the coast forest products sector is highly influenced by government policy,” said Jeffery in conclusion. “Administrative rules should not increase costs or impair access. The log scale process is cumbersome, operators should not be hauling wood as many times as they are. We should move to cruise-based permits and stand-as-a-whole sales. BC Timber Sales should have a different way of selling wood so we know it actually gets harvested. And there should be tenure and revenue sharing with the First Nations.”
Still on the topic of government regulation, Wayne Drury, CEO of Coast Tsimshian Resources based in Terrace, BC, said, “The forest operators don’t even trust our own stumpage system. The government doesn’t trust us, we are being regulated to death. Money is going to studies before it goes to the forest. For example, if the government trusted us we wouldn’t have to handle wood six times.
“We purchased the TFL and license from the old Skeena mill up in Terrace, which is about 50 per cent hemlock pulp logs. We would leave it behind but that gives us a bad name, it breaks down the trust further. At the same that lower quality fibre is a tremendous opportunity; we are going to use that hemlock to fire the LNG plant at Kitimat.”
US Residential Construction Spending, Employment
New residential construction spending in the US increased 1.2 per cent on a seasonally adjusted basis in November after soaring 3.8 per cent in October, according to a Reed Construction Data release of January 23. Although a solid gain, November marked the first time in eight months that spending increased by less than 1.5 per cent. Not seasonally adjusted year-to-date spending was up 18.7 per cent over 2011.
Single-family construction spending advanced 1.3 per cent in November after increasing 3.7 per cent in October. Multifamily construction spending moved up 0.7 per cent after jumping 4.1 per cent in October. Year-to-date, single-family construction spending was up 18.6 per cent and multifamily spending was up 19.1 per cent compared to the same period in 2011.
US Contruction Employment
December nonfarm payroll employment increased a seasonally adjusted 155,000, and November’s increase was revised up 15,000 to 161,000, said the Bureau of Labor Statistics January 18.
From the pre-recession peak in January 2008 to the recession low in February 2010, payroll employment fell by 8.8 million. Since that low, payroll employment has risen by 4.8 million, which still leaves the economy 4.0 million jobs below its previous peak level.
December’s unemployment rate held steady at 7.8 per cent, the fourth month in a row with a below 8 per cent reading. The December not seasonally adjusted unemployment rate for construction workers remained high at 13.5 per cent, but was down considerably from December 2011’s 16 per cent.
In 2012, 97,000 construction workers were hired, and the number of construction workers who were unemployed decreased by 222,000. That means 125,000 workers left construction for jobs in other sectors of the economy, retired, or sought some sort of training.
Since the construction unemployment rate peak of 27.1 per cent in February 2010, 497,000 more workers have been hired, and the number of unemployed workers has decreased 1.335 million for a reduction in the construction labor force of 838,000 workers.
US Home Sales, Prices
New US single-family home sales fell in December although the previous month’s reading was revised to show the fastest sales pace in over two years, a sign the country’s housing recovery remains on track.
The Commerce Department said Friday sales dropped 7.3 per cent last month to a seasonally adjusted 369,000-unit annual rate. That was below analysts’ forecasts of a 385,000-unit annual pace. The Commerce Department raised its estimate for sales in November by 22,000 to a 398,000-unit rate, making the pace of sales in November the fastest since April 2010.
Sales of existing homes fell 1 per cent in December to a 4.94 million annual rate, restrained by the tight supply of available properties, figures from the National Association of Realtors showed yesterday.
House Prices, US
The median price for a new home rose to US$248,900 in December from US$245,600 in November, according to the Federal Housing Finance Agency Wednesday. US new home prices rose 0.6 per cent from October on a seasonally adjusted basis.
Home values rose 7.4 per cent in November from a year earlier, the ninth straight increase and the biggest gain since May 2006, said CoreLogic last week.
Construction Activity Projection, US
Nonresidential construction activity is projected to see healthy if unspectacular gains this year, with construction spending for buildings rising by 5 per cent in 2013 before accelerating to 7.2 per cent in 2014, said Kermit Baker, Chief Economist at the American Institute of Architects January 25. The construction of commercial facilities is expected to lead the upturn, with spending gains of almost 9 per cent this year and nearly 11 per cent next year, led by double-digit gains in hotel construction. Industrial construction spending is projected to nearly match the overall nonresidential building totals this year and next, while institutional construction activity should lag behind, with modest single-digit gains over each of the next two years. Healthcare is expected to be the strongest institutional sector.
Construction Projection, US
The predictions from the American Institute of Architects (AIA’s) Consensus Construction Forecast Panel, comprised of the nation’s leading construction forecasters, are consistent with information derived from the AIA’s Architecture Billings Index (ABI). Eight of the 12 months of 2012 showed positive national ABI readings, including the final five months of the year. The ABI readings in 4Q 2012 were the strongest quarter since the downturn began in early 2008, suggesting that construction activity should begin to accelerate significantly in the first half of 2013.
The AIA Consensus Construction Forecast panelists are a bit more optimistic than architecture firms in terms of projected revenue growth. They expect the US$300 billion in spending for nonresidential structures to increase 5 per cent, to about US$315 billion in 2013. By 2014, they expect this level to increase another 7.2 per cent, or US$340 billion. While this is a reasonably healthy growth rate, that level of construction activity is still below the US$377 billion average in nonresidential construction spending seen over the past decade.
Canfor Invests
Vancouver, BC-based Canfor announced January 18 that it will be proceeding with capital improvement projects totalling approximately $40 million to increase productivity and recovery at its sawmill in Mackenzie, BC.
The investment will include modifications and upgrades to the sawmill, kilns and planer. The capital project will commence this month, with anticipated completion in November 2013.
This announcement brings the total dollar value of the company’s capital investments to ensure competitive operation of its British Columbia solid wood, pulp and paper facilities to $600 million over the last three years.
The reopening of the Vavenby and Radium, BC, mills after significant capital investments resulted in the creation of 305 direct jobs, combined with significant downstream benefits to local economies.
Interfor Buys
Rayonier has agreed to sell its wood products division and three Georgia lumber mills to a Canadian company Interfor, headquartered in Vancouver, BC. Interfor will buy the division for $80 million, which includes lumber mills in Baxley, Swainsboro and Eatonton, GA, with a total of 260 employees.
The transaction, which is subject to regulatory approval in the US, is scheduled to close in late February or early March.
The three mills produce about US$10 million in revenue, Ed Frazier, senior vice president of Rayonier, said. The sale does not include Rayonier’s four plants that produce wood chips.
Interfor also has operations in Oregon and Washington, but this will be its first move into the Southeastern United States. It reported $758 million in sales with a loss of $13 million in 2011.
Rayonier expects at after-tax gain of about $40 million from the sale.