Forestry Week 2015: Vancouver

Last week the Pulp and Paper Products Council and PwC held their annual forestry conferences in Vancouver, BC. As always the events were jam-packed with great speakers providing up-to-the minute information on the latest developments with the forest products industry in North America and internationally. Numerous networking sessions gave the over-capacity crowd a chance to mill about making connections, exchanging information, and just generally catching up with each other.
As always, Madison’s took in all the speeches and interfaced with as many attendees as possible.
The downturn in US new home building and macro-economic conditions now behind us, Canadian and US sawmill operators, pulp manufacturers, as well as suppliers and service providers, have been showing improved financial results for over a year. Sentiment among conference participants was quite high; the worrisome volatility of demand and also uncertainty provided by capricious government decisions seem to have worked themselves out — by and large — so players are now more confident in making investment plans and decisions for company growth.
As detailed in Madison’s coverage of various forestry events in the past year and a half, the projections by industry and analysts have come much more in line with each other, indicating even more confidence in near-term growth of sales volumes — whether solid wood or pulp and paper.
There are, however, significant constraints remain. Some are the same as they always were, others are brand-new. The global forest products industry is facing a brave new world and there remain worrisome unknowns. While some of these can lead to exciting opportunities, others will bring only frustration.

PwC and Pulp and Paper Products Council

The most important development, and the one inspiring the greatest breadth of scuttlebutt and gossip, was of course the looming expiration of the 2006 Softwood Lumber Agreement and what will transpire next with this important trade issue between Canada and the US.
The US Lumber Coalition made a brief explanation of their position at the Thursday Global Softwood Log & Lumber Conference; suffice to say it struck fear in the hearts of all Canadians present. The rumours were already flying fast and furious in the days leading up to that conference session.
Madison’s requested a statement from the US Lumber Coalition at writing Thursday:
“After careful and extensive review and analysis, the U.S. Lumber Coalition has determined that the current Softwood Lumber Agreement should not be renewed on its current terms.  The Coalition urges both the U.S. and Canadian governments to engage in pro-active negotiations to bring about a new, effective, stable and sustainable Softwood Lumber Agreement.  The Coalition has, some time ago, clearly communicated its position as well as proposed approaches to a new agreement to the U.S. government, and remains hopeful that Canadian industry and government will soon engage in a similar comprehensive process so as to allow both governments to find long-lasting solutions in the form of a new trade agreement.”

“The U.S. Lumber Coalition has, some time ago, clearly communicated its position as well as proposed approaches to a new agreement to the U.S. government, and remains hopeful […] of a new trade agreement.”

-U.S. Lumber Coalition, May 14, 2015

On the Canadian side, there is no new information coming out of the events. However conversation among industry players and government representatives strongly suggests the recent position of “renew the Agreement as-is” is no longer as solidly in place as it was even two weeks ago. Madison’s has requested an interview with Martin Moen, Director, North America Commercial Affairs, Department of Foreign Affairs and International Trade, who also spoke at the Thursday conference.
The conference presentations give an excellent snapshot of company positions currently and some insight into future plans.
International Pulp Week, put on by the Pulp and Paper Products Council out of Montreal, QC, kicked off with a great speech by Yogesh Agrawal, Managing Director and CEO of India’s BILT Paper, titled “India – Once in a Lifetime Opportunity”.
It is unquestionable that emerging markets, specifically India and China, are poised for significant growth of consumption of a wide range of consumer goods. Paper products, specifically in the personal hygiene subsector, as well as solid wood will be in high demand in these emerging markets within the next five years.
As most people know by now, demographic shifts in India mean that 65 per cent of the population is under 35 years old, and life expectancy is going to increase by 14 years over the next 20 years (from 66 to 80 years old), explained Agrawal in a very dynamic and fact-filled presentation.
“Agricultural yield must go up, India will catch up with the rest of the world,” detailed Agrawal. “This means more industrialization [at farms]. Currently 75 per cent of the population has access to electricity and/or power, but it is not always available 24 hours a day.”
There is a real challenge for fibre supply in India, with wood costs in the highest quadrant, continued Agrawal. Also logistics and supply chain continue to be huge issues.
“The average distance to plant [from major transportation hubs] is 1,500 km,” said Agrawal. “There are about 500 pulp mills in India, 400 of them are not in compliance with international environmental standards. The average order size is for 5 metric tonnes, or 1/4 or a truck.”

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Next up was Haidong Weng, Head of Strategy at China’s Xiamen C&D Paper and Pulp, with a great presentation titled “The ‘New Normal’ of Chinese Pulp Market”.
Xiamen C&D Paper and Pulp has 1.49 million tons of annual paper sales and 1.48 million tons of pulp. Company revenue (2014) is US$2.2 billion, according to Weng’s presentation.
Not surprisingly, one of the first topic’s in Weng’s speech was demographics in China.
“The aging population is a problem,” said Weng. “There is a decline of 3.5 million working age people per year. China must keep GDP at 6.5 or 7 per cent. If real GDP falls to 5 or 6 per cent there will be a real problem of deflation.”
“The paper industry in China contributes less than 0.5 per cent to GDP but is the largest industrial user of water.”

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Access to water and protection of water resources was a running theme throughout the conference. This important environmental issue is at the forefront of the pulp and the paper sectors, and does affect solid wood operators as stewards of the forests.
Next week: coverage of the PwC Forestry and Paper conference, as well as more on softwood lumber agreement negotiations.