North American Home Building, Sales, and Prices ; Madison’s Timber Preview ; Western Forest Products’ Ladysmith Mill ; Tembec Shares Soar on Outlook ; Japan’s Wood-Framed Building Promotion ; TimberWest Forest Announces ; 2010 Forest Products Annual Symposium ; Kiln Dried Western Fir Shaken ; RBC Economics’ Latest Economic Outlook Report ; Japan Housing Starts ; Fireproof 2×4 Buildings ; Canada-US Trade; Madison’s Timber Preview ; Conifex Completes Mackenzie Pulp Mill Purchase ; US Pending Home Sales ; 2009 Log Supply and Demand in Japan ; Abitibi-Bowater Announces ; Pulp and Paper ; More Layoffs at BC’s Ministry of Forests and Range ; Canadian Paper Products Industry Profitable in 2011; Montana Lumber Subsidy ;
June 28, 2010
North American Home Building, Sales, and Prices
Disappointing US May housing starts out this week, as well as home sale figures
and home prices, are examined.
‘Operation Stolen Dreams’ by US prosecutors has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than US
$2.3 billion in mortgage fraud losses.
Canadian May housing starts are also down, but for different reasons. Canadian
home prices responded downward to an increase in for-sale inventory due to rising home
prices in the past several months.
Home Building
North America
Housing starts figures in the US and
Canada for May are both down, but for
very different reasons.
The US Commerce Department said
Wednesday that home construction and
applications for
building permits
slumped in May
following the end of a homebuyer tax
credit in April. Meanwhile up north, the
Canada Mortgage and Housing Corp
reported June 8 that the annual rate of
housing starts dropped last month, with
starts in both single- and multiple-family units down. Tougher mortgage rules
imposed by the Canadian government
in mid-April prompted buyers to act
sooner, causing house prices to drop, the
Canadian Real Estate Association said
Wednesday.
In the US, construction of new homes
and apartments fell 10 per cent from
April to an annual rate of 593,000. Construction of single-family homes fell 17
per cent to a seasonally adjusted rate of
468,000, the largest percentage decline
in single-family starts since 1991. Applications for building permits fell 5.9 per
cent to the lowest level in a year.
US starts on multifamily dwellings
jumped 33 per cent in May, while permits
for apartments and condos rose 10 per
cent. Within that multi-family category,
groundbreakings of homes with five or
more units were up by 38.3 per cent.
Despite May’s drop, housing starts,
year over year, were up 7.8 per cent. The
Commerce Department said revised
April starts rose 3.9 per cent.
The disappointing data mirror results
of a survey of US home builders this
week. The National Association of Home
Builders said Monday that its index of
confidence took a sharp dive. Analyst
Mike Larson, of Weiss Research, said that
report reminded him “of what happens
when an athlete stops taking steroids.”
Builders face tough competition from
foreclosures of existing homes, and buyers remain cautious about the job market.
In some areas, prices are still falling.
In Canada, May housing starts were
189,100 units, down from a revised
201,800 in April. Starts in both single- and
multiple-family units were down. Urban
starts fell 9.5 per cent to 165,200 units in
May. Urban multiple starts decreased 5.6
per cent to 92,800 units, while single urban starts dropped 14.1, to 72,400 units.
The latest Canadian home sale figures indicate that tens of thousands of
homeowners have seen the rampant demand recently, and listed their houses
for sale to take advantage of high prices.
Sales fell to 8.5 per cent, or 40,393 units,
in May compared with April. Sales remain elevated by historical markers,
but are 15 per lower than last the peak
last autumn. The number of new listings dropped 4 per cent to 76,201, from
79,367, the Canadian Real Estate Association said Wednesday.
“Life in the fast lane is over for Can-ada’s housing market,” said Douglas
Porter, deputy chief economist at BMO
Capital Markets.
Canadian house prices were essentially flat in May, gaining 0.5 per cent
to an average national resale price of
$346,881 – the highest on record.
In the US, low housing start figures
raised concerns that weaker demand for
homes will derail an economic rebound,
pushing Treasury Bills higher and interest rates lower.
The yield on the 10-year Treasury
note, a widely used benchmark for mortgages and other consumer loans, fell to
below 3.3 per cent late Tuesday. The
price of the note maturing in May 2020
rose 31.25 cents to $101.97.
Despite the projected dips in home
building over the next months and years,
an end is in sight. An April report on the
Fiserv-Case Shiller home price indeces
says a prolonged recovery will begin
early next year, and some markets are
poised for a relatively fast recovery, including those that did not see large price
declines, such as Pittsburgh, Columbia,
SC, and metro areas in Texas, Washington state, and upstate New York.
On Tuesday, Bank of America said
that since January, 2008, it has provided
more than 630,000 contract modifications
designed to help financially distressed
homeowners, according to Bloomberg.
This includes 70,000 conversions from
trial to permanent contracts under the
federal government’s Home Affordable
Modification Program.
“Mortgage rates were little changed
this week amid preliminary signs that
the expiration of the homebuyer tax
credit in April may have led to a slowdown in new construction,” Frank Nothaft, Freddie Mac’s chief economist, said
in a statement Thursday.
Meanwhile, the US Justice Department said Thursday it charged more
than 1,200 perpetrators, including 485
arrests, with mortgage fraud in a major
nationwide crackdown involving more
than $2.3-billion in losses, stemming
from the real estate collapse leading to
the foreclosure crisis.
The staggering
totals from the sweep identify a clear
history of mortgage fraud that has transcended to every corridor of the US
economy, pulling housing prices lower
in the over-whelming majority of the
country, devastating the US economy.
In terms of foreclosures, Bill Cheney,
chief economist of MFC Global Investment Management, an arm of Manulife
Financial Corp. said, “It always seemed
that it should be in the bank’s own interest to do something other than to foreclose.”
“When you think about the outlook,
it all comes back to employment. Things
could change faster than people expect.”
The demand for homes could soar once
the job market improves, he explained.
The low rate of new home building
is still less than half the rate of household formation – families being established – which is estimated at 1.5 million
based on age groups, said Sal Guatieri,
a senior economist with BMO Nesbitt
Burns Inc.
“There is certainly some pent-up demand, but there was excess supply in
the housing market,” Mr. Guatieri said.
For almost three years, the US housing
industry was constructing new homes at
an annual rate of two million a year.
“House prices have largely stabilized
and are rising in some areas of the country not hit hard by the housing crisis,”
Mr. Guatieri said.
News reports also
suggest that house construction is pick-
ing up even in those states hit hardest,
such as Florida, Arizona and Nevada,
because home builders can buy land
cheaply and profitably construct new
homes, he said.
Sellers lowered asking prices at least
once on 22 per cent of homes listed as of
June 1, up from 20 per cent of homes two
months ago, San Francisco-based Trulia said in a report provided to Reuters
Wednesday. A year ago, prices had been
cut on 23.6 per cent of listed properties.
Sellers slashed a total of US$26.7 billion
in May from asking prices, more than
the US$25 billion in April and US$22.8
billion in March, according to Trulia.
The average discount on the reduced
homes held at 10 per cent from the original listing.
In other economic news, the Federal
Reserve reported that industrial production jumped 1.2 per cent in May, the largest gain since August 2009, boosted by
broad-based gains from most manufacturing industries.
Also, the US Labor Department said
wholesale prices fell 0.3 per cent in May,
while core prices (which exclude food
and energy) rose 0.2 per cent.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines a push by a major distributor of Western Forest Products’ and Mill & Timber’s cedar into the lucrative Texas market.
Contact us any time for a subscription.
Western Forest Products’ Ladysmith Mill
Rumours abound regarding the possible reopening of Western Forest Products’ Ladysmith cedar mill. That location had been closed due to market conditions leading to a continuing loss. Negotiations have been complicated by the Pulp, Paper and Woodworkers Union’s expectations that it should be able to land a contract equal to that of BC central interior unions. However, the negotiators have come to acknowledge the differences between interior and coastal logging, transport and milling. Specifically, coastal operations are encumbered by a rain forest climate with wet snow and soggy forest roads, extreme terrain, mudslides, and the mix of species that are taken out of the forest. Sources are confident that a deal will be reached.
The reopening of the Ladysmith mill was part of the package when the deal was negotiated to start-up the long-idled Somass mill at Port Alberni, BC. There was a further bundle of other aspects also included in the negotiations. The deadline for finalizing the Ladysmith portion of this contract was Tuesday, June 15. An announcement is expected within days.
Calls to the PPW and to WFP yielded no further details by press time.
Tembec Shares Soar on Outlook
Tembec Inc. said today it expects liquidity in the 3Q 2010 to nearly double sequentially, following the recent sale of two pulp mills, sending its shares up as much as 26 per cent. The company will also talk with certain investors in a bid to boost liquidity.
Tembec Rebounds
Tembec’s shares surged Friday after the forestry products company signalled that its operating performance is gaining steam as it holds discussions with certain investors about debt maturities resulting from its 2008 recapitalization.
The Quebec-based company. which operates in North America and France, forecast early Friday that its operational earnings for the period ending June 26 will be up at least 42 per cent from the prior three-month period.
Tembec shares gained 41 cents or nearly 24 per cent in early trading, rising to $2.15 – their highest since mid-May. The stock hit a 52-week high of $3.09 on April 20.
Tembec expects third quarter ending in June 30 liquidity to rise to C$250 million from C$138 million in the second quarter.
Dundee Capital Markets upgraded the stock to “neutral” from “sell,” but said the stock has some downside over the next few months as the market pulp rally is starting to slow down.
“We recommend coming back in after another 5 per cent to 10 per cent correction over the next few months,” analyst Richard Kelertas said.
The company also forecast third-quarter earnings before income tax, depreciation and amortization of C$47 million to C$53 million, compared with a loss before income tax, depreciation and amortization of C$42 million last year.
Japan’s Wood-Framed Building Promotion
On May 13, a bill concerning the promotion of utilization of lumber in public buildings, to promote the use of lumber widely but not limiting it to public buildings, was unanimously approved in both Committee on Agriculture, Forestry and Fisheries in the Lower House, and the plenary session, according to the Japan Lumber Journal.
Japan Wood-Frame Building Legislation
The main contents of the government’s original plan were that the Minister of Agriculture, Forestry and Fisheries is to map out basic policies to promote the usage of lumber in public buildings and that the minister is to accredit projects which will improve facilities which supply lumber suited to be used in public buildings, according to the Journal.
Against the original plan, Liberal Democratic Party and New Komeito made a counterproposal which includes promotion of utilization of lumber in private-section housing and wooden biomass not only in public buildings.
In addition, it stipulates that the government is to take necessary measures to use energy taken from wooden biomass products and wooden biomass in public facilities.
TimberWest Forest Announces
TimberWest Forest Corp. is pleased to announce the appointment of Robert (Bob) Allen to the position of VP Finance and Chief Financial Officer effective June 14, 2010.
Bob joins TimberWest with a strong background in both the BC forestry industry and financial management with 20 plus years of experience building, leading, and advising corporations through complex restructurings, acquisitions/divestitures, and capital market transactions. He is the former Chief Financial Officer of Ainsworth, where he worked for some six years. He has also occupied senior roles at Skeena and Western Forest Products. He started his career in 1986 with PriceWaterhouseCoopers, where he worked for five years as Senior Audit Supervisor.
A Vancouver native, Bob is a Chartered Accountant and he also holds a BSc in Agriculture from the University of British Columbia.
Bev Park, Executive Vice President and CFO of TimberWest and President and Chief Operating Officer of Couverdon Real Estate will move full-time into the real estate role.
June 21, 2010
2010 Forest Products Annual Symposium
This year’s Forest Products Industry Annual Symposium, sponsored by Northwest Farm Credit Services, was held at the World Forestry Center in Portland, Oregon on June 10. Readers wishing to see the slideshow of Madison’s presentation can request a copy by email.
Portland, Oregon
Northwest is the leading agricultural lender and crop insurance provider for Washington State, Oregon, Montana and Idaho. This year’s event was held on June 10, to a solid turn-out of lumber producers, timberland owners, tree farm operators and other industry specialists.
Madison’s was invited to speak about the Canadian lumber industry, and give details about the differences between forestry in Canada and the US.
Other speakers included two RISI economists, whose presentations were cheekily titled “North American Wood Products Markets: Inching Out of the Abyss.”
Lynn Michaelis is President of Strategic Analysis for RISI. Michaelis focussed on the US housing starts cycle and projections, and an outlook of the lumber market. The key points to take away from that presentation are:
• The US economy suffered two bubbles in one decade; in the stock market and with home building. As the financial system imploded, the US economy truly approached a depression.
• The recovery of US home building after the recession of the mid-80’s came about due to a lowering of interest rates. But the peak of 2005 was not caused by tight funding, it was caused by excesses.
• With a US$1.4 trillion defecit, the US government is consuming all its credit growth today. It seems to be on the same track as Greece.
• In the past five quarters, US GDP growth has been at about 5-6 per cent. But a large part of that growth for 2Q 2010 is because inventory liquidation grew less slowly.
• Whenever GDP growth reaches 4 per cent, the US Fed raises interest rates the following quarter.
• US housing starts have bounced off the bottom but are effectively staying at those levels. Single-family starts are looking better but the multi-family side is caught up in commercial real estate foreclosures.
• While US home sales are not improving very quickly, home prices have stopped falling.
• 65 per cent of US mortgages owe more than the house is worth. People simply stop making payments.
• The median house price in Detroit is now US$7,000 while in California house prices have dropped by US$200,000.
• Foreclosures seem to be peaking and vacancy rates for rent are still high, together making 1.4 million excess units of vacant stock. It will be difficult to drive sustained home building until this inventory is worked through.
• After changes in US policy, there is now effectively no private mortgage system. Mortgages go through Fannie Mae, Freddie Mac, or the FHA.
• With the crash in US home building, a major production decline for the lumber industry was needed. Lumber prices fell to below cost because producers did not shut down capacity fast enough. The unknown here is what happens when production levels decline by such a degree? There will surely be supply issues when demand for lumber returns.
• In Canada it is even more difficult to close a mill, there are usually about 18 months in severance costs. On either side of the border nobody believed demand would fall so far so fast, companies became cash negative.
• 2Q 2010 lumber demand is still not up significantly but inventories are finally down so prices have responded. Customers had to wait for wood for the first time in two years.
• Currently operating rates at the mills are flatlining, the recovery is very slow.
• In Canada lumber costs dropped from about $270 per mfbm in 2005 to about $200 in 2009 due to reduced logging and stumage costs and an increase in chip prices. However the beetle kill in BC is affecting utilization, and the high Canadian dollar are taking away some of that improvement.
• Delivered sawtimber prices in the US west and south have suffered in response to the decline of lumber prices. If lumber prices don’t sustain highs then log prices cannot sustain either.
• In the near term lumber price recovery will be painfully slow into 2011 due to continued short-term imbalances.
“Don’t use price rallies to make business change, at least until after next year,” said Michaelis.
• In the long term, demand to capacity ratio improvement must come first before lumber prices can recovery properly, likely in 2014.
Bernard Fuller is President of Cambridge Forest Products Associates and Principle Economist, Wood Panels for RISI. Fuller focussed on the outlook for structural panel and LVL, timber markets, and demand out of China.
• With the hard lessons of recent years, the majority of panel producers are paranoid about responding too quickly to temporarily improving market conditions. Recently 3/8” OSB went from US$400 per msf to US$200 in a month.
• Capacity and operating rate numbers are being reworked as panel mills go along.
• North American structural panel consumption fell 43 per cent in 2009 compared to 2005, to 26 billion sq. ft.
• Long term supply of plywood is falling in absolute terms and as a share of the North American structual panel market.
• Capacity is extremely difficult to calculate. How much capacity is lost? It depends on how long a mill is closed, the magnitude of permanent closures is unknown.
• Should housing starts return, data on permanently lost capacity will come out 10 years later. Timber owners will be the last to see improvement.
• While plywood imports from Chile fell drastically immediately following the earthquake, that country has decided to import lower grades from Uraguay and other neighbours while continuing to export good quality Radiata Pine plywood into the US.
• The first western-style OSB mill will open this August in China, mostly for packaging and crating. Likely a new business model to watch out for in the next decade.
• Because log supply is becoming a problem, panel production levels in 1Q 2010 were lower than they would have been.
• Plywood prices in the US south wer below cost floors through much of 2009. There was a drop in fibre cost, and a drop in resin cost.
• OSB profitibility has struggled back into positive territory in 2010 after three years of losses.
• US softwood sawtimber harvest levels are undercut, there is an excess of timber — close to one year’s supply — due to an accumulation of timber that would have been harvestd had the market not crashed in the past four years.
• Mills do not see a problem with sawlog availability in the US, just with the price.
• There was a fourfold bounce in log exports from the US west coast into China from 2000, to 136 million cubic meters. in 2009.
• Over the past three years, the amount of Russian log imports into China have dropped from 90 per cent of all logs to 50 per cent on the threat of additional export duties.
• While Russia’s share of softwood log imports into China are dropping, New Zealand is coming close to capacity.
• Domestic lumber production numbers in China are unknown.
Kiln Dried Western Fir Shaken
One of the basic premises of physics is that a vacuum will be filled, often with the most unexpected contents. In the spirit of something coming from nothing, off shore customers were gradually coming to the realization that wood could be a viable building material if they could acquire it cheaply enough. As their currencies were progressively more valued against the US dollar, they saw an opportunity to buy into northwest saw logs.
By early 2010, when the US home building industry began to see daylight, would-be customers tried to buy back into the KD fir market. What buyers found was that at the price levels where the mills could sell their lumber, they could not replace the logs to make more. Forest operators that the mills had depended on for more cheap logs had gone out of the business. In some cases, the banks that had held the paper on the mega-expensive logging equipment had grabbed the cranes and loaders when the logging companies could keep up their payments. Nobody in North America wanted the specialized forest equipment and, in many cases, the behemoths were dismantled and sold offshore to new competitors of the dying US logging operators. Let’s hope their operators’ manuals are available in Russian and Mandarin.
RBC Economics’ Latest Economic Outlook Report
Canada’s economy is set for rapid growth in 2010 with real GDP projected to grow by 3.6 per cent reflecting strong domestic demand and increased job creation, according to the Economic Outlook report released June 10 by RBC Economics. Canada’s real GDP grew at 6.1 per cent in the first quarter, the fastest pace in over a decade.
The economy should continue to show gradual improvement as businesses rebuild inventories following a sharp reduction during the recession.
Unemployment rates are expected to average 8 per cent in 2010 (down from 8.4 per cent in the previous Outlook) before falling to 7.3 per cent in 2011 (down from 7.7 in the previous Outlook).
RBC Forestry Forecast
“Canada’s economy continued to surge ahead as domestic demand was backed by increases in consumer, housing and government spending,” said Craig Wright, senior vice-president and chief economist, RBC.
RBC expects core inflation rates to remain just below two per cent, as the Bank of Canada slowly reduces the amount of policy stimulus and raises interest rates.
RBC expects US GDP to increase by 3.1 per cent in 2010 and 3.4 per cent in 2011. The report notes that a surge in consumer spending and continued business investment in the US fuelled a 3 per cent increase in the first quarter, at an annualized rate.
BC’s economy is on the rebound, and a gradual turnaround in the province’s depressed forestry sector is helping.
The report projects the BC economy will grow 3.5 per cent this year, which is the strongest growth rate since 2006.
“The global economic recovery and improving US housing sector are expected to go a long way in helping repair BC’s export performance,” said Wright.
BC and Quebec will share the same level of growth in 2010, giving the two provinces the country’s third-fastest growth rates this year behind Newfoundland’s 4.1 per cent expansion and the 3.8 per cent growth foreseen for each of Ontario and Saskatchewan, RBC said.
RBC said the dollar will be close to parity with the US dollar later in the year.
However, it said the loonie could go gradually lower in 2011.
Japan Housing Starts
April housing starts in Japan rose by 0.6 per cent on an annualized rate compared to 2009, to 66,568 units, marking the first increase in 17 months according to the Japan Lumber Reports. Despite this improvement, levels are still lower than in 2008.
Seasonally adjusted annual starts were at 793,000 units, down 7.1 per cent compared to March.
Home Building, Japan
April building permits were 44,406 units, 10.6 per cent higher than one year ago, a six consecutive months increase.
Homes built for owners increased for six straight months, and condominium building increased for the first time in 16 months, but units built for rent declined for 17 consecutive months, says the Reports.
Floor space increased by 5.7 per cent from one year ago, a consecutive two month gain.
Wood based units were 34,425 units, a 51.7 per cent share of the total, down 0.5 points from March due to an increase in condominium building. 2×4 units increased by 0.9 per cent however, a three straight months increase.
Fireproof 2×4 Buildings
There are currently more than 1,200 fireproof 2×4 units constructed in Japan says the Chair of the Home Builders Association, according to the Japan Lumber Reports.
The Association is coping with a law to promote the use of wood for public buildings, and is expanding the variation of fireproof exterior materials. It is possible to use domestic wood for interior and exterior materials if it has enough fire resistance, says the Reports.
Currently only 25 such fireproof units are welfare facilities like nursing homes but the number is growing, so demand in the non-residential field seems promising. The Association will help make guidelines for building more such welfare facilities because wood based units are less costly and give a comfortable atmosphere, says the Reports.
June 13, 2010
Canada-US Trade
There is finally word out of Canada’s Department of Foreign Affairs and International Trade about action to rectify the incorrect calculation of additional duty at the US border affecting Option B provinces, Quebec, Ontario, Manitoba and Saskatchewan. As explained in the October 9, 2009 issue of your Madison’s Reporter, the federal government tabled, then revoked, a Ways and Means motion that would enable it to slap US$68 million worth of export duties on wood destined for the United States, as required by the recent international trade tribunal ruling. Madison’s has fervently been trying to get details from DFAIT about this motion, and about what — if anything — Canada was doing to correct the US duty collection, since that date.
Softwood Lumber Agreement
On May 28, 2010, the Office of the United States Trade Representative posted a ‘Notice and Request for Comments: Canada–Compliance With Softwood Lumber Agreement’, which stated, in part, “The Government of Canada, however, is now taking steps toward adopting its own measure to address Canada’s breach of the SLA, in the form of legislation requiring the collection of an additional 10 percent charge on exports from the provinces of Ontario, Quebec, Manitoba, and Saskatchewan. [ . . . ] the Trade Representative may modify or terminate the April 2009 action.”
The US was not satisfied with the speed of Canada’s action in the collection of the penalty so the Trade Representative’s department issued instructions to customs brokers to calculate an additional 10 per cent duty on lumber coming out of the Option B provinces, which is allowed under the 2006 SLA. But these instructions required the additional duty be calculated on the Export Price rather than the First Mill price, and ignored the US$500 mfbm cap, which is contrary to the terms of the 2006 SLA.
Pleas and requests to both governments could affect no change. Until now.
The US announcement can be found here:
http://edocket.access.gpo.gov/2010/2010-12951.htm
“The Committee invites comments from interested persons with respect to the possible modification or termination of the April 2009 action in the event the Government of Canada adopts a law imposing an additional 10 percent export charge on softwood lumber from the provinces. [ . . . ] To be assured of consideration, comments should be submitted by no later than 5 pm on June 14, 2010, although USTR will continue to accept comments after that date.”
Contact information is provided in the link above.
For its part, Canada has posted the contents of Bill C-9, tabled in Parliament on March 4 and having its first reading on March 29, 2010. Among changes to the Pension Act, requirements for the registration of new credit unions and other items, is a small section dedicated to amendments to the Softwood Lumber Products Export Charge Act, 2006. The document is large and cumbersome; brave readers may wish to click the link:
http://www2.parl.gc.ca/Content/HOC/Bills/403/Government/C-9/C-9_1/C-9.html
To help decipher what all this means, Madison’s requested clarification from the media department of DFAIT, and enlisted the trusted help of Michael Jones, President of Jones & Jones Customs Brokers and Trade Consultants. The confusion about this additional duty is extreme; some people in the lumber business didn’t know the general lumber export duty was going to change from 15 per cent to 10 per cent then to 0 per cent for June; others didn’t even know there was a duty, and a lot of people were confused about the 10 per cent additional duty to the Option B provinces.
Laura Dalby, Spokesperson for International Trade Media Relations Division, detailed in an email to Madison’s the work Canada has been doing to take over collection of the additional duty from the US, “Canadian and United States officials have held discussions towards the implementation of the adjustment factor arbitration ruling. As a first step towards the lifting of their Section 301 duties, the United States has published the Federal Register notice. [ . . . ] Canada is committed to implementing the Tribunal’s ruling. On September 30, 2009, within days of the Tribunal ruling, the government introduced the necessary Notice of Ways and Means Motion in the House of Commons to begin the process.”
In reference to the July 1 transition, Dalby wrote, “Minister Peter Van Loan has consistently raised this issue with USTR Ron Kirk in correspondence and during a meeting while visiting Washington in April. The Canada Revenue Agency will be responsible for the administration of the temporary additional export charge. Ongoing discussions with the United States are seeking to establish the terms of the transition from the US customs duties to the Canadian export charge. The Canada Revenue Agency will start to collect the export charge once the US customs duties are lifted. Canada will collect the remainder of the amount established by the arbitration ruling.”
Jones broke down the amendments to the Canadian Act in an email to Madison’s, explaining, “I looked at the excerpt you provided and feel that everything points to the conclusion that the present 10% U.S. Duty Surcharge being assessed Option B Provinces will be taken over by the Canada Revenue Agency effective July 1st, at which time its collection will be administered as an Export Tax in the same manner as the other regular Export Taxes are being assessed and collected. This would mean the 10% applicable to the surge, in paying off the remainder of the $68 million order by the London Court, would be assessed against the ‘Export Price’ instead of the ‘Selling Price’.”
In short, the penalty will be collected by Canada as it should be, and according to the terms of the 2006 SLA. It seems this change will take effect July 1, 2010.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines the transition of SFK Pulp Fund to a corporation, called Fibrek. Changes to Canadian tax laws to take effect in 2011 prompted the company transition.
Contact us any time for a subscription.
Conifex Completes Mackenzie Pulp Mill Purchase
Conifex Timber Inc, out of Fort St. James, announced Friday that it has completed the acquisition of certain sawmill and related assets located at or near Mackenzie, BC, from Abitibi-Consolidated Company, as well as a related equity financing and an arrangement with DTR Wood Acquisitionco Ltd.
The common shares of Conifex are expected to commence trading on the TSX Venture Exchange at the open of the market on June 8, 2010 under the new trading symbol “CFF”.
The Mackenzie Assets included two sawmills, including planer mills, with a combined annual production capacity of 445 million board feet of lumber on a two-shift basis, a forest licence with an annual allowable cut of approximately 932,500 cubic metres, a steam/power plant and associated turbine and boiler, and a paper mill.
Conifex intends to dispose of the paper mill assets but will retain the power generation assets.
US Pending Home Sales
Pending sales of previously owned US homes rose more than expected in April, scaling a six-month high as prospective home owners took advantage of a popular homebuyer tax credit, a survey showed on Wednesday.
Home Sales, US
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in April, increased 6 per cent to 110.9, the highest since October.
It was the third straight month of gains in the index, which leads existing home sales by a month or two. Pending home sales rose by a revised 7.1 per cent in March, a figure previously reported as a 5.3 per cent increase.
Compared to April 2009, the index was 22.4 per cent higher.
“The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs,” said Lawrence Yun, chief economist with the NAR.
This index is based on contracts signed in August, and that’s how the credit was set up; buyers had to sign their contract by April 30th and close by June 30th in order to get $8000 if they are first time buyers and $6500 if they are move up buyers.
2009 Log Supply and Demand in Japan
According to Lumber Statistics for 2009 recently compiled by Japan’s Ministry of Agriculture, Forestry and Fisheries, the amount of log demand in 2009 was 22.803 million m3, a 12.4 per cent decrease compared to the previous year. Demand decreased for the third consecutive year due to the drop in housing demand, says the Japan Lumber Journal.
In detail, demand for lumber was 15.279 million m3, a 13 per cent decrease compared to 2008, for plywood was 3.107 million m3, a 22 per cent decrease, and for wood chips was 4.417 million m3, a 1.5 per cent decrease.
Japan Logs, 2009
2009 log demand in Japan dropped to 6.184 million m3, a 25.7 per cent decrease from 2008, due to the decrease in Russian and North American material, according to the Japan Lumber Journal.
The log supply amount dropped to 3.732 million m3 for North American material, a 15.4 per cent decrease compared to 2008, 1.117 million m3 for Russian material, a 48.4 per cent decrease, and 0.634 million m3 for New Zealand material, a 26.8 per cent decrease.
The amount of shipments of lumber products totalled 9.291 million m3, a 14.6 per cent decrease over 2008.
Material used for construction, which accounts for over 80 per cent of the total, decreased to 7.671 million m3, a 13.2 per cent decrease, and material used for civil engineering construction decreased to 0.357 million m3, a 14.6 per cent decrease, says the Journal.
Abitibi-Bowater Announces
AbitibiBowater Inc. announced Thursday the appointment of Richard Garneau to serve on its Board of Directors, effective June 3, 2010, and the departure of Anthony F. Griffiths as a member of the Board.
Richard Garneau most recently served as President and CEO of Catalyst Paper Corporation from March 2007 to May 2010. Prior to his tenure at Catalyst, Mr. Garneau was Senior Vice President for the Forest Products Group of Domtar then Executive Vice President, Operations for the overall Company.
Mr. Griffiths has been a member of the AbitibiBowater Board since April 15, 2008, as a result of Fairfax Financial Holdings Limited exercising its right to appoint two directors to the Board.
June 06, 2010
Pulp and Paper
Apparently fed up with inordinately high taxing of the economically depressed Vancouver Island forest industry, Catalyst Paper is entertaining an offer by Chinese officials from Yangcheng to relocate, potentially taking with them the mainstay to the Port Alberni economy. In a letter to the paper mill, Chinese business delegates stated their local government favours such a move.
Recent movements globally in pulp and paper are throwing some uncertainty into the industry.
While global market pulp prices did not suffer as greatly as solid wood products in 2009 from the downturn, paper prices have struggled since early 2008. This week European NBSK cash price is US$956 per metric ton, up almost US$4 since last week and US$158 since the beginning of 2010, according to foex.fi. North American market pulp prices are enjoying a similar trend.
New US Tariffs
Newsprint prices, however, are not yet improved over 2008 levels. In Europe newsprint is down €100 since the beginning of this year, to €408 per metric ton, according to foex.fi. In North America there are inklings of a recovery in newsprint prices, which have jumped US$56 since the beginning of the year to US$575 per metric ton.
Paper grades in general are showing signs of improvement globally, says the feox.fi May 25 edition; “Overcapacity in the coated paper sector has dampened the hopes of getting prices up as much as cost increases would require. [ . . . ] The packaging sector shows the clearest improvement, almost regardless of the region. This was to be expected as industrial production and international trade tend to recover quite early in the business cycle.”
Senior paper analysts at DeutscheBank Securities also expect a steady recovery in paper grades. In containerboard, an early indicator of product shipments, DeutscheBank analysts wonder if there will be another price increase.
“Leading containerboard producers will likely attempt a third price hike for 2010, by US$40 to $50 per metric ton, effective mid/late summer. Domestic & most offshore paper markets are very tight. The only soft spot is China, with Chinese mills taking downtime,” says DeutscheBank’s May 21 Paper Wrap-up.
“The next containerboard price hike implementation is slated for between July 15 and September 1. Industry fundamentals remain strong: box shipments are up 4.8 per cent compared to April 2009, with an average operating rate of 95 per cent, and both domestic and offshore supplies tight,” says DeutscheBank’s May 26 Pulse on Paper & Packaging.
In late April the US Department of Commerce announced tariffs may be imposed on imports of certain coated paper to offset the impact of the unfair advantage caused by the dumped products. The determination placed dumping margins on Chinese coated paper ranging from 30.82 to 89.71 per cent, with an all China rate of 135.80 per cent. The Department also found that a single rate of 10.62 per cent should apply to all Indonesian coated paper producers. Appleton Coated, NewPage Corporation, and Sappi Fine Paper North America – together with the United Steelworkers — commended the move.
These companies and the USW filed unfair trade cases on September 23, 2009 with the US International Trade Commission and the Commerce Department alleging that certain coated paper from China and Indonesia had been dumped and subsidized resulting in injury to the domestic industry and its employees. The petitions show that unfairly traded imports from China and Indonesia are a significant contributor to that underutilization of capacity, mill closures and resultant job loss. The three companies employ about 6,000 production workers represented by the USW at 20 paper mills operating in seven states. The Commerce Department is scheduled to make its final determinations in July 2010.
On May 12, the European Association of Fine Paper Manufacturers (CEPIFINE) said the recent decision by the US should weigh heavily with the EU and its investigations into the dumping of coated paper imports from China.
“The EU must take action now that the US has determined that certain Chinese producers are dumping coated fine paper in the US market at margins ranging from 30 to 135 per cent,” said Frank Leerkotte, managing director of CEPIFINE. “The same Chinese companies found to be dumping in the US are under investigation for dumping production in the EU, and destroying European industry and jobs.”
On May 22, the Indonesian government released a statement seeking clarification for the additional duties imposed by the US.
“They have imposed countervailing duties of 17 per cent on our paper products based on allegations that we subsidize our coated paper manufacturers. It’s totally baseless, and we have submitted our complaint,” Director General of International Trade Cooperation, Gusmardi Bustami, told The Jakarta Post. Gusmardi said the new duties targetted all coated paper products entering the US, in particular those from China. He said the US trade authorities had wrongly placed Indonesian paper products in that category.
“Our paper producers actually don’t export coated paper,” he said.
The Chinese market seems to be fully recovered from earlier economic downturns and players are gearing up for new growth, says a May 21 article in Pulp & Paper International.
“China’s paper production reached 22.846 million tonnes during January to March in 2010, up 23 per cent compared to the same period last year. In March alone, China produced 8.644 million tonnes of paper, up 17 per cent year on year” explained Guo Yongxin, assistant director and senior engineer of China National Information Center of Light Industry.
“We are building our 12-5 plans (in the year of 2011-2015) now and aim to expand our capacity to 3 million tonnes by 2015,” says Hong Jun, secretary of Chengtong Group, a central government controlled organization focussed on asset management, logistics and international trade, which has taken over five paper companies in the industry so far.
Meanwhile back in the US, a February 12 decision from the IRS’ Office of Chief Counsel, which became public in late April, states that all of black liquor, not just the portion that is burned to generate electricity at kraft pulp mills, is eligible for the 50-cent-per-gallon ‘alternative fuel mixture credit’, according to Dead Tree Edition. This means that pulp and paper companies will not have to pay back several billion dollars in black liquor tax credits. As a result of the ruling, at least six companies booked additional credits for First Quarter 2010 even though the controversial eco-credits expired on December 31, 2009.
More Layoffs at BC’s Ministry of Forests and Range
The BC government has issued layoff notices to 42 workers in its Forests Ministry — 17 of whom are from Victoria — as it continues to downsize the civil service in the wake of budget cutbacks.
Most of the jobs, 37 positions, are from the ministry’s corporate services division. Minister Pat Bell said those corporate duties, such as accounting, are being amalgamated with other resource ministries to save money. The layoffs are spread among Prince George, Nanaimo, Kamloops and Victoria. Bell said he’s hopeful the employees will find other jobs within government.
It was the second time in six weeks the government slashed jobs as it grapples with cutbacks caused by deficit budgets expected to stretch until 2013. In April, the government laid off 294 civil servants in resource ministries, including 204 in the Forests Ministry. Three of those people found new jobs in the ministry, Bell said Thursday.
Canadian Paper Products Industry Profitable in 2011
Canada’s paper products industry is starting to recover after eight consecutive years of losses and should post a profit next year. But that’s not cause for celebration, according to a Conference Board of Canada report that says margins will “remain thin.”
Rising energy costs, a strong Canadian dollar, increased foreign competition and coming interest rate increases are some of the factors weighing on an industry which had been struggling even before the recession cut a huge chunk out of demand for its products.
“After recording a cumulative loss of more than $5 billion over the past seven years, the financial performance of the paper products industry is expected to gradually improve, but it will be 2011 before the industry records a profit,” writes report author Michael Burt. “Improved pricing, the removal of higher cost capacity, and a modest recovery in demand will all contribute to the turnaround — but margins are expected to remain thin.”
Canadian Paper Industry Forecast
Rebounding pulp and containerboard sectors are expected to drive a 3.2 per cent increase in revenues in 2010, while increases in prices and production should result in an average 3.6 per cent annual growth between 2011 and 2014, the Conference Board report says — enough to eventually make a profit, but “revenues will barely recover to their already depressed 2008 level by the end of the forecast period.”
Corporate cost-cutting during the recession meant less spending on advertising and other printed services. While companies are beginning to spend again, “the recovery in paper demand will be much more muted than the increase in corporate profitability,” the report says.
Production cuts and reductions in inventories during the economic downturn helped increase prices in the short-term, but that advantage will be mitigated as production rises this year for the first time since 2005.
“New uses for cellulose fibre, such as bio-chemicals and materials, will be the primary driver of North American demand growth in the coming years, and Canadian companies will need to continue to invest if they are to fully benefit,” the report said.
Meanwhile, Scotiabank’s monthly commodity price index climbed 4.2 per cent in April, with forest products also higher. Both building materials and pulp and paper prices gathering steam in April.
NB Export Growth, 2010
New Brunswick’s exports are expected to increase by 18 per cent in 2010, the best in the country, and another 8 per cent in 2011 according to a provincial export forecast released Friday by Export Development Canada. New Brunswick’s exports dropped by 22 per cent in 2009.
“Powered by higher energy prices and the first full year of production at the LNG regasification plant, exports out of New Brunswick should post the most sizable gains in Canada this year,” said Peter Hall, Chief Economist of EDC.
The forestry sector represents 12.7 per cent of the province’s total exports, and EDC forecasts the sector to rebound by 24 per cent in 2010, followed by another 9 per cent in 2011.
“Exports from the forestry sector will also see strong growth this year, as a result of higher prices for various commodities and better demand prospects”, said Mr. Hall. “Of the main sub-sectors, pulp exports will record the largest increase in 2010, with pulp prices advancing firmly. Some capacity expansion is still in the cards for AV Cell and AV Nackawic in 2012, which would lead to temporary shutdowns next year for the upgrades.”
“With the province now out of the newsprint business, paper exports will outperform the national average this year and next, improving on better US demand. In addition, New England’s housing sector is relatively better off than the US average, positioning New Brunswick wood product exporters to outshine the rest of Canada.”
Montana Lumber Subsidy
The US Department of Labor announced May 24 a $1.8 million grant to assist around 450 workers affected by layoffs at Plum Creek Timber Co. and Smurfit-Stone Container Corp. in western Montana.
Awarded to the Montana Department of Labor and Industry, this grant will be operated by the Statewide Workforce Programs and Oversight Bureau.
Plum Creek laid off workers between January 8 and June 25, 2009. Smurfit-Stone laid off workers following the facility’s closure on December 31, 2009.
National Emergency Grants are part of the secretary of labor’s discretionary fund and are awarded based on a state’s ability to meet specific guidelines.