At the beginning of April was held the Council of Forest Industries of British Columbia convention in Kelowna, BC. Founded in 1960 by various logger and lumber manufacturer organizations, COFI is now a “CEO-lead organization”, as Ted Seraphim, CEO of West Fraser Timber, put it during his speech.
The convention was attended by over 400 delegates representing senior industry, government, and customer representatives, as well as elected officials from local, provincial, and federal governments. This year the trade show floor and speaker sessions were equally packed.
Sentiment was positive however a general feeling of continued forest industry uncertainty for the next couple of years permeated most conversations.
Annual General Meeting
There were so many speakers on such a wide range of topics; this week Madison’s will focus on industry projections and macroeconomic forecasts.
In contrast to three short years ago, the US housing starts and North American lumber production forecasts of various analysts are relatively close to each other. At the same time, all speakers cautioned about continued future constraints for solid wood manufacturers in the near- to medium-term future. Specifically, transportation, labour, and fibre supply issues were most often mentioned.
In a fitting start to the busy event, Patricia Mohr, VP, Economics & Commodity Market Specialist at Scotiabank Group, gave a measured and in-depth presentation not just on wood products but on commodities in general.
Both China and the US’s economies are stable or improving, explained Mohr, although a recent drop in the Purchasing Managers Index (PMI) for China could indicate a possible slowdown this year for that country.
COFI Convention
“Global PMI is a very nice indicator to commodity markets,” Mohr detailed. “China’s share of global consumption of the four key base metals is now four times bigger than that of the US.
“Copper prices will mount a nice recovery in the second half of 2014.”
As for lumber, “One hundred and forty sawmills have closed across Canada and the US since 2007,” said Mohr. “Supplies are limited, especially in OSB which experienced almost panic buying in 2012. Scotiabank is optimistic for spring lumber buying in 2014. We project US housing starts to be 1.14 million annualized this year and 1.4 – 1.5 million in 2015.
“However the multi-family segment will have a higher share of total than in 2005-06,” Mohr cautioned. “US bankers will be providing new financing for new home buyers, but not so much re-financing.”
Up next was Glen Hodgson, Senior VP and Chief Economist at Conference Board of Canada, with an ‘Economic Outlook for BC & Forest Sector.’
“Emerging markets now make up half the world,” began Hodgson. “Future economic growth is in emerging markets.
“Housing starts represent 6 per cent of US GDP, while consumer products represent 70 per cent. In 2014, we project US housing starts to be 1.1 million annualized, 1.4 million next year, and more than 1.5 million in 2016.”
As for macroeconomic conditions, “Neither the US nor Canada has seen zero per cent interest rates for more than five years, which is why the Bank of Canada is worried about deflation,” Hodgson explained.
“In British Columbia, forestry output has levelled off, thus producers must attract more value from the forest. The BC forest products industry should think really hard about value-added products.”
The next day’s morning session started off with an examination of lumber markets. Chris McIver, VP of Lumber Sales and Corporate Development at West Fraser, spoke about ‘North American Markets’.
“The slow 2.5 months at the start of this year are going to keep US housing starts around 1 million annualized for 2014,” explained McIver. “Canada’s annual lumber shipments to China are now the equivalent of 300,000 new US houses.”
“Producers in BC have a problem getting our product to market as 2,000 independent operators have gone out of business since the US housing boom and crash. Transportation of all types: rail, truck, and vessel, as well as labour and employment, are huge problems.
“Demand for wood products will improve more slowly than forecast, especially the ‘super-cycle’ forecast,” concluded McIver. “Fibre supply is only going to get tighter and tighter for North American producers.”
Exciting presentations on the future of the BC bioeconomy and alarming data about tight labour conditions for the forestry sector and the industries which serve it, as well as the always-fascinating CEO panel, will be examined in an upcoming issue of your Madison’s Lumber Reporter.