British Columbia’s New Forestry Critic ; Madison’s Timber Preview ; Catalyst Reopens Mill ; US Senator Baucus and Trade Representative Kirk ; Economists Predict US Home Building Recovery ; BC Labour Issues ; Canada/US Trade Entanglements ; Japan Housing Starts ; US Housing Starts and Home Sales ; Wildfire Season; Stora Enso Closing Mills in Finland ; Chinese Lumber Imports 2008 ;Forest Industry Globally ; Madison’s Timber Preview ; Home Sales ; Canadian Housing Starts ; BC Labour Issues UN Annual Forest Products Review ; Fraser Papers Edmunston Mill ; Forest Fire Season ; BC Tree Species Migration ; Madison’s Timber Preview ; Forest Fires; Ainsworth Earthquake Test ; BC Labour Issues ;
September 06 , 2009
British Columbia’s New Forestry Critic
Newly appointed NDP Forestry Critic Norm Macdonald, who will be sharing the portfolio with newly elected MLA Bill Routley, spoke to Madison’s this week about the NDP’s future plans in tackling the BC government’s handling of forestry issues.
Both men are from small Vancouver Island towns, and recognize the importance of forestry to BC’s rural communities and to the retail sector.
BC Forest Critic
Norm Macdonald, MLA for Columbia-Revelstoke since 2005, has taken over as the NDP’s Forestry Critic from Bob Simpson, who is now opposition critic for Aboriginal Relations and Reconciliation. Macdonald shares the Forestry portfolio with Bill Routley, who was elected for the first time this year as Cowichan Valley MLA. Bill Routley has a long history in the BC wood products industry, having started on the mill floor, then moving on to union leadership. He also served on the local school board in the 1980’s. Together Macdonald and Routley toured the province this summer to speak to workers, executives and contractors in the forestry industry, and to rural communities.
Macdonald took time out from a busy first week of this Legislative Session to talk to Madison’s.
“You have to listen to people on the ground, people with experience you have to respect,” Macdonald explained about the purpose of the recent tour of BC.
Originally an educator, Macdonald was elected mayor of Golden in 1996. Then, after becoming an MLA, Macdonald was formerly critic of Municipals Affairs, Tourism and Education. Having been born and raised in a small BC town, Macdonald is sensitive to how much “lumber is critical to small communities, also to the retail sector.” He maintains that the province is ignoring the “problems of the forest industry at their peril”, making a point to mention attitudes in the city of Vancouver. A quick glance through BC’s latest financial information shows the great hole left by lack of activity in the forest products sector.
Macdonald explained that current NDP strategy involves not only a partnership between himself and Bill Routley as forest critic, but also the party’s Rural Caucus. With Macdonald serving as chair, the Rural Caucus has an agenda of “keeping in touch with rural communities,” and bringing “issues of rural BC into the Legislature.” Former NDP Forest Critic Bob Simpson is also a “big part of the rural caucus,” and the team will be working closely together to bring the concerns of BC’s resource communities forward in the Legislature.
Still getting his feet wet with the central stream of forestry issues in BC, Macdonald explained that “forestry is complex, but politics is more suited to simplistic solutions.” The NDP team has been focussed on gathering information, and speaking to those involved in all aspects of the industry in order to properly advance solutions.
After the extensive tour of the BC interior and the coast and meetings with forestry executives in Vancouver, Macdonald found that “while there is a range of views, there is consistency in what concerns people.” At the top of the list of concerns, which Macdonald found was volunteered without prompting, was raw log exports. Citing the town of Mackenzie as an example, with seven mills almost entirely shut, Macdonald said there is “a strong desire to have the rich resource used by the communities.”
The second most pressing issue brought forward by BC’s forest industry was “displaced workers and the level of support” offered by the provincial government. Macdonald’s team will be “calling for the Province to at least match Federal funds for education and transition [bridging retirement].” The Federal government provided $129 million in a Job Opportunity Fund but there has been no similar aid from the Province, according to Macdonald.
The next most important issue mentioned to Macdonald’s was forest health. Most pressing in the Prince George and Kamloops areas, Macdonald said that all levels of the industry, from lumber executives to workers to local governments are concerned about the health of the forests. Specifically, the extent of the beetle kill, how to replant after salvage harvests, and making sure these things actually get done is high on peoples’ minds, according to Macdonald.
Rounding out the list of major concerns to the forest industry is the issue of fuel management, specifically in terms of “interface fires, and jobs for forest workers clearing fuel from the ground,” said Macdonald.
When asked, “What is the plan?” Macdonald told Madison’s that the long-term plan is to “get the forest industry back on its feet.” He said that almost everyone he spoke to expressed a “strong sense of being ignored, that there is [feeling of] lack of leadership, that there is no plan,” from the BC government. Macdonald was careful to say that his team does not “underestimate the market challenges” faced by the lumber industry.
The NDP’s ideas that were “floated during the election” have been tested on people, and “discussions continue” said Macdonald. He said that the team has “not yet formulated” a concrete plan going forward because it wants to be careful to avoid “any unintended consequences.” Macdonald said that the “budget will be interesting, what the direction will be for forestry,” and that we have to wait and see what will come out.
In terms of the Throne Speech and discussions in the Legislature so far, Macdonald said that there has been tabled some lien protection for contractors. When asked if this would affect clients of Forest & Marine Financial Corporation, which Wednesday was halted trading on the Toronto Stock Exchange due to a takeover by creditor Asset Engineering last week, Macdonald said this is precisely the scenario that the lien protection legislation is “intended to help.” Without this new lien protection, clients of Forest & Marine would be required to find other sources of financing or risk having their equipment repossessed by Asset Engineering.
Otherwise most of the attention at the beginning of this year’s Legislative Session was focussed on the HST. Macdonald will wait for the budget to be tabled in autumn before releasing a finalized action plan, and in the meantime will continue speaking to all aspects of the industry as mentioned above, as well as First Nations, in order to present working solutions to the BC government.
Madison’s Timber Preview
This week’s isssue of Madison’s Timber Preview examines Brookfield Properties, a subsidiary of Brookfield Asset Management, which recently made serious moves in acquiring distressed properties globally, and has partnered with Export Development Canada to provide bridge loans to Canadian businesses.
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Catalyst Reopens Mill
Catalyst Paper said Monday it will restart one line of pulp production at its Crofton pulp mill on Vancouver Island, which was was indefinitely curtailed in February, putting 104 employees back on the job for the mill restart in early October.
However chief executive Richard Garneau cautioned that chip supply is limited and fibre availability is expected to remain challenging. Restart on the one line will add 210,000 tonnes of pulp capacity on an annualized basis.
Catalyst makes specialty printing papers, newsprint and pulp.
US Senator Baucus and Trade Representative Kirk
In a move that seems to signal an intention to put Canada/US softwood lumber trade issues at the top of the agenda when US Congress reconvenes after Labour Day, Montana Senator and Chair of Senate Finance Committee Max Baucus and US Trade Representative Ron Kirk made some very strong statements when visiting mills in Montana Wednesday.
Both men reiterated their commitment to ensuring Canada remains in strict compliance with the 2006 Softwood Lumber Agreement, with Kirk going so far as to promise he will, “hold Canada’s feet to the fire” when enforcing the Softwood Lumber Agreement (SLA).
Madison’s contacted Zoltan van Heyningen, media representative for the Coalition for Fair Lumber Imports, for details.
Softwood Lumber Trade
Baucus and Kirk toured the F.H. Stoltze Land and Lumber Company in Columbia Falls, talking with workers during their lunch break. Baucus said he brought Kirk to Montana because he needed to understand the realities of the recession’s effects on lumber mills.
At the lumber mill, Kirk and Baucus took turns assuring workers that Canadian compliance would secure jobs in Montana and that the workers had not been forgotten in Washington, DC. The agreement could mean the difference between open and closed mills, Kirk said.
“To be honest, they haven’t been living up to it the way they should,” Baucus said about Canada’s “history of finding clever ways to get around the terms of the agreement.”
Kirk added that imposing the extra 10 per cent tarriff on Canada’s Option B provinces earlier this year is “only the beginning” of ensuring vigilant enforcement of the softwood lumber agreement.
“I just want you to know we got your back,” Kirk told hte mill employees.
Madison’s contacted the US Coalition for Fair Lumber Imports media representative Zoltan van Heyningen Thursday to find out if there are any hearings or arbitration scheduled.
“There are no hearings pending,” said van Heyningen, adding that if there were, he would know.
When asked about the Coalition’s next step in terms of its list of complaints about the BC stumpage system, van Heyningen said that the Coalition is “still looking into BC stumpage.”
With most of Washington, DC, away for summer holidays, van Heyningen expects movement on this issue sometime after Congress reconvenes following Labour Day.
Economists Predict US Home Building Recovery
Scotiabank commodities specialist Patricia Mohr released a report Thursday pointing to a a recovery in commodity prices. Commodity prices slipped in July after two months of gains but are expected to rebound as some G7 countries join China in the economic recovery, Scotiabank said in its monthly commodities report.
US forest economist Henry Spelter, in his monthly report, indicated that US housing declines are now behind us.
Analyst Predictions
The forest product index slid 0.3 per cent, although Ms. Mohr said the sub-index appears to be in the process of bottoming.
Mohr’s bullish take on the forest sector, which has been flat-lined by the collapse of the US housing market, indicates that the industry may be on the road to recovery.
Mohr said modest signs of recovery have surfaced since April, when US housing bottomed at 479,000 starts on an annual basis. By July they had climbed to 584,000. Mohr is forecasting 780,000 starts in 2010.
“That’s still not very high but it will be an improvement on 2009, when starts are probably going to average at most 580,000,” she said.
In his own report, US forest economist Henry Spelter forecast 652,000 housing starts in 2010.
He cited the huge overhang of unsold and vacant homes in the US for his more conservative estimate.
August 30, 2009
BC Labour Issues
Talks broke off this week between the CONIFER employer group and the United Steelworkers Union. Both sides say they are looking forward to getting back to the bargaining table.
Labour Contract Talks in BC
A slight hiccup occurred in the difficult bargaining process between the Wood Council of United Steelworkers Union, representing almost 10,000 forestry workers in the BC Interior, and the CONIFER employer group, representing smaller, independent lumber producers. The two sides are far apart on the critical issues of contract duration and wages. The Union has already stated it wants wage increases while the employers are looking for significant concessions. In addition the employers are asking for a long term contract while the Union prefers something much shorter.
Bargaining had been scheduled in Prince George from August 18 to 20 but broke off abruptly quite early Wednesday morning. According to the Steelworkers, the employer group tabled the issue of vacation pay but was dissatisfied with the Union’s response and walked out saying, “when your committee is prepared to address what is important to us (industry) in a substantive manner, we are prepared to resume the process.”
Madison’s contacted both the Steelworkers’ and CONIFER representatives on Thursday. Michael Bryce, Executive Director of CONIFER told Madison’s that talks have not broken off, rather the two sides are in a “time out”. He said there is a “need for the Union to put attention on things important to industry in a substantive manner.” Bryce explained that the employer group had taken a “good faith step” the previous week by agreeing to Union proposals regarding seniority and job retention and “expected a similar response.” Bryce maintains that the Union brought its most important agenda item forward last week and the employer group approached the subject seriously, but when CONIFER brought up its own most important agenda item the Union did not respond in kind.
Bob Matters, Chair of the Wood Council of the Steelworkers explained to Madison’s that the Union has been “asking for the proper tools so they can do costing but have not been provided with the data” by CONIFER. Matters stated that CONIFER “did provide limited costing data on some items.”
Bryce maintains that the Union was “given comprehensive information on the collective agreement but wanted more that had no bearing” to the negotiations. However Bryce said that the employer group will be “giving it anyway.”
Matters confirmed that the Union is waiting for more hard information, going on to say that that they made the first request “months ago.”
In response to CONIFER’s statement that the Union is “failing to take the talks seriously,” Matters asks, “How can we be serious if we don’t have the tools” to find cost cutting measures in the previous contract.
Matters explained that the negotiations came across a “road block,” that the two sides had “agreed to an industry proposal on how to bargain. The industry yesterday changed that agreement.”
Getting real information out of both sides is difficult. They have each been clear in saying they will “not negotiate through the media.”
Bryce took some extra time to say to Madison’s that the employer group is “working on issues of sacred importance to their membership, indeed the Steelworkers’ membership, and is very sensitive to that.”
Both sides expect talks to resume, however neither side will currently take responsibility for making the call to reschedule. Matters said the Union is “waiting to hear” from the employer group, and “taking it day by day,” while Bryce said there is “no scheduled time to resume talks,” no firm plan, but that CONIFER would “prefer to continue.”
As US home sales continue to show strong signs of recovery, with home building in the US sure to follow suit within a matter of months, it doesn’t seem likely that the Union will agree to deep wage concessions and a lengthy collective agreement.
Canada/US Trade Entanglements
A major meeting on Customs and Border issues in Seattle Monday lacked any Canadian presence due to an unfortunate bureaucratic oversight.
US Border Discussions
Continuing their valiant fight to get the US Commerce Department to clarify recent changes to US Customs documents for Canadian softwood lumber imports from Option B provinces (Quebec, Ontario, Manitoba and Saskatchewan), Jones & Jones Customs Brokers and Trade Consultants out of Blaine, WA, were invited to a special meeting in Seattle,WA, Monday to discuss border and trade issues.
Michael Jones, President of Jones & Jones, reported that the meeting topics were “General Border Issues”, specifically to do with the “Free Flow of Commerce”. In attendance were representatives from Washington Congressional Representative Rick Larson’s office, Senator Patti Murray’s office and Senator Maria Cantwell’s office. Washington State Representative Kelli Linville, Whatcom County Executive Pete Kremen, Security Assistant Secretary for International Affairs & Special Representative for Border Affairs Alan Bersin, District Director of Customs from Seattle, and Blaine’s Port Director and Assistant Port Director were also present. Various Washington State municipal officials attended, including the mayors of Blaine and Bellingham, Blaine’s Chief of Police, Blaine’s Tourism Board, representatives from the area First Nations, the IMTC (International Mobility Trade Corridor), legislative aids, and one furniture importer/manufacture with offices in Bellingham and Vancouver.
While Counsel General of Canada Peter Lloyd, working out of the Canadian Counsel’s Seattle office, was invited, there was no representative at all from Canada’s Federal Government present at the meeting.
Senator Cantwell’s office responded to a request for clarification as to why there was no Canadian presence by saying, “We were told by the Department of Homeland Security that he [Peter Lloyd] had been invited. I really don’t know why he wasn’t there. I am very sorry that there was no Canadian representation at the meeting.”
Laura Dalby, spokesperson for the Media Relations Division of Canada’s Department of International Trade confirmed twice to Madison’s that “Canadian Consul General in Seattle did not receive an invitation or attend the meeting in question on Monday, August 17, 2009.”
Given the gravity of the meeting and its relevance to Canadian lumber exporters, it is indeed unfortunate that there was no Canadian representative present.
In terms of progress Michael Jones brought up the issues of “’Poorly Drafted Legislation’ – which segued into the examples of the Softwood Lumber Act of 2008 and the Lacey Act” to the table. Specifically he talked about “mandates brought about by the Lacey Act, in particular, that resulted in an undue hardship on the [lumber] Trade, which includes exporters, importers, Customs Brokers and CBP.”
From all accounts, various US federal and Washington State departments plan to work together to expedite the flow of commerce and trade across the Canada/US border. The lack of Canadian presence at the meeting, thus missing such a great opportunity to keep an open dialogue and untangle the confusing new US Customs documents regarding Canadian lumber imports, is a significant disappointment.
Japan Housing Starts
New home building in Japan fell in June, with the third straight monthly decrease of over 30 per cent compared to one year ago. This is the lowest June figure since statistics started in 1965, according to Japan’s Ministry of Land, Infrastructure, Transport and Tourism. The total was the fifth consecutive month of new home starts below 60,000 units. The number of building permits in June declined by 13.5 per cent, but the decline margin is getting smaller month on month.
Wood framed construction fell by 16 per cent over June 2008. However, the share of total wooden home building rose to 45 per cent, from 36 per cent one year ago.
The floor surface area also decreased, by 28 per cent from June 2008.
Japan continues to look for economic recovery, with unemployment still high and financial institutions reluctant to lend money.
US Housing Starts and Home Sales
Ground-breaking for new US single family homes rose for a fifth straight month in July and producer prices tumbled, keeping hopes for an economic recovery alive. Single family home starts, which make up 75 per cent of construction, rose 1.7 per cent. Total home construction in the US decreased 1 per cent in July because multifamily home starts fell sharply in the Northeast.
Building permits fell 1.8 per cent in July to a 560,000 annual pace, from 570,000 in June. However, single-family home permits rose 5.8 per cent.
“We’ve formed a bottom but probably only have limited upside, with unemployment too high to boost demand” much higher than current levels, Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, NC.
Confidence among builders rose to its highest level in the past year this month, although it is still weak, a National Association of Home Builders/Wells Fargo index showed Tuesday.
US Real Estate
The US National Association of Realtors reported Friday that existing home sales in July rose 7.2 per cent compared to June, to 5.24 million units, ahead of expectations for 5.00 million. The sales rate set a four-month rally for the first time in five years Total sales up 5 per cent over July 2008. Single family sales rose 6.5 per cent compared to June, and up 5 per cent compared to one year ago.
NAR noted that the last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.
‘The housing market has decisively turned for the better,’ Lawrence Yun, NAR chief economist, said in the statement.
‘A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,’ he said.
The median sales price was US$178,400, down 15 per cent from US$210,100 in the same month last year. Despite the rise in sales, inventories remained flat at 9.4 months supply.
Copper futures rallied Friday with equity markets after US existing home sales came in stronger than expected, traders said. Copper prices are a leading indicator of future US home building.
Wildfire Season
California Gov. Arnold Schwarzenegger declared a state of emergency Friday in Yuba County, in Northern California, after a wildfire burned nearly 4,000 acres, or six square miles. The fire was 90 per cent contained early Friday. A fire in the Santa Cruz Mountains that charred more than 7,500 acres, or about 11.9 square miles, is also 90 per cent contained.
Meanwhile, a wildfire that damaged buildings near Athens and sent people fleeing for safety abated on Friday as weaker winds helped Greek firefighters tackle the blaze, officials said.
Forest Fires
More than 300 firefighters with 50 fire trucks, four aircraft and five helicopters were battling the flames in an industrial area near Magoula, 20 km (12 miles) northwest of Athens.
Gale-force winds fanned more than 100 fires across Greece in less than 24 hours, the fire brigade said. Another fire that damaged homes in central Greece, near the town of Astakos, was under control, officials said.
Meanwhile, Yukon fire officials said Monday they hope this year’s busy wildfire season will start to wind down, now that rain is in the forecast for much of this week.
A total 118 fires have burned 283,826 hectares of Yukon forest so far this season. By comparison, 67 wildfires burning more than 18,000 hectares of forest were reported by the end of last summer.
Rainfall and cooler temperatures across the territory brought the fire danger rating to low across the territory on Monday. The lone exception is in the Watson Lake area, where it is moderate.
After the first quiet forest fire week in almost two months, evacution orders were once again issued in BC on Thursday. The Kelly Creek fire, in the southern Interior west of the village of Clinton nearly 400 kilometres northeast of Vancouver, has been burning since August 1, but almost doubled in size on Thursday.
The BC Forest Service says the Kelly Creek fire has been fuelled by gusty winds and is uncontained, despite the efforts of 49 firefighters and seven helicopters.
Stora Enso Closing Mills in Finland
Stora Enso Oyj said Wednesday it will lay off up to 1,100 workers, cut production and close mills in Finland as the Nordic paper maker continues to struggle with dwindling revenue.
Stora Enso said it will close a pulp mill by the end of the year and a sawmill in 2010. Also, cutbacks and reorganization at other mills will be made to save costs, it added.
Earlier this year, Stora forecast a weak third quarter and warned of layoffs, plant closures and production cuts.
Stora Enso is one of the world’s largest forest product companies making magazine paper, newsprint, fine paper, pulp and packaging boards. The group has 29,000 employees.
The Finnish Paper Workers’ Union threatened strikes following hte Stora Enso announcement.
In the summer of 2005 Finnish pulp and paper producers experienced significant labour disruptions as 24,000 workers went on strike for weeks. It took the global pulp market several months to recover from the supply interruption.
Chinese Lumber Imports 2008
Chinese lumber imports rose by 8.7 per cent, or 0.56 million cubic meters, to 7 million cubic meters in 2008, according to the Japan Lumber Journal.
While volumes remain relatively small, the growth rate is remarkable, with North America jumping to the top of the pack, said the Journal.
The average unit price of imported lumber was stable.
Canadian lumber imports into China jumped by 460,000 cubic meters, or 68 per cent, in 2008 compared to 2007.
US lumber imports fell by 30,000 cubic meters, or 3 per cent, for the same time period.
Only Russian and Thai imports rose, with the latter focussed on tropical broadleaf species. Imports from all other countries fell in 2008.
The increase in Russian lumber imports were by 380,000 cubic meters, or 24 per cent, in 2008 compared to 2007, according to the Journal.
August 23, 2009
Forest Industry Globally
Once again Ontario’s Sino-Forest Products has outperformed expectations on the stock market. First studied in one year ago in Madison’s, Sino-Forest has just posted financial results significantly higher than expected.
Deltic Timber, Plum Creek and Domtar have all seen a rebound in share prices in the past two months.
The Continued Changing Face of the Lumber Business
First highlighted in the August 14, 2008 issue of your Madison’s Reporter, Mississauga, ON, based Sino-Forest Products is once again making news for big moves forward on the stock market. As the largest forest operator in China, Sino-Forest owns and manages about 434,000 hectares of plantation trees in China and derives most of its revenue from there, selling wood products needed for infrastructure investment and the rebounding housing market. The company surpassed analysts’ expectations with second quarter profit of US$45 million, or 23 cents a share, compared with US$43 million a year earlier. Revenue increased by more than 21 per cent to $224 million, the company said in its earnings report Monday.
Sino-Forest’s stock gained 22 cents, or 1.36 per cent, after the earnings release. In the past year, the shares have ranged from a low of $5.25 to a high of $20.03. The company has a market capitalization of a little over $3 billion. At Thursday’s close, Sino-Forest shares were trading at $15.99.
While headquartered in Canada, Sino-Forest has significant operations in China and is well positioned to take advantage of recovery in the Chinese economy, expected to be in the very near future. Goldman Sachs has raised its forecast for Asian economic growth this year and next, projecting that China’s gross domestic product will grow by 9.4 per cent this year and 12 per cent in 2010. China had earlier announced a 4 trillion yuan (US$585 billion) stimulus package, aimed at providing an impetus to its domestic economy. The plan included initiatives such as construction of low-cost houses and rail projects that could boost demand for wooden logs. Sino-Forest said that while fibre prices remained steady during the quarter, it anticipates log prices will return to 2008 levels by the end of this year.
The company, which operates in nine provinces in China, expects wood log prices to rebound about 5 per cent to 10 per cent in the latter part of this year, from their low level in 2008, it said in a presentation on its website. Sino-Forest’s advantages globally include the strength of the Chinese economy, the Russian log export tax, currency exchange rates, and oceangoing freight rates. The company earns about 70 per cent of its annual earnings in the second half of the year, mainly due to its harvesting cycle.
Two other timber companies being closely watched on the stock market, this time out of the US, are Plum Creek Timber and Deltic Timber. According to financial analysts at TheStreet.com, “Housing starts will eventually recover. Soleil’s Anna Torma believes she is conservative in hoping for starts to return to 1 million or so in 2012. That would drive demand for lumber. The catalyst is that about one-third of US lumber needs have historically come from Canada, and half of that comes from British Columbia, where there is a terrible infestation of mountain pine beetles. Significant capacity has been closed in Canada, and this infestation will affect the harvest for decades. [ . . . ] These stocks have limited downside risk and over the next two years could show more-than-acceptable appreciation with any sort of US economic recovery,” according to TheStreet.com.
A Canadian company that is finally seeing the positive results of difficult financial decisions in 2008 is paper producer Cascades Inc., which this week announced second quarter profit of $30 million, or 30 cents a share, on Tuesday. Profit for the quarter ended June 30 rebounded from a loss of $25 million in the second quarter of 2008. “Our results have shown significant progress since the trough experienced in the first half of 2008,” Alain Lemaire, chief executive of Cascades, said. “Results improved in all our sectors as we benefited from a favourable variable cost environment.” Based in Quebec, Cascades produces packaging and tissue products mainly from recycled material. The company employs almost 13,000 people in North America and Europe.
Last week, US hardwood flooring retailer Lumber Liquidators Inc. said its profit grew 18 per cent in the second quarter as consumers snapped up the company’s products and gravitated to stores in new markets. Sales for the quarter ended June 30 increased 12 per cent to US$143 million from US$128 million. Lumber Liquidators attributed the rise to its ability to drive increases in traffic by leveraging the appeal of its value proposition.
The company opened eight new stores during the quarter and said sales at its new locations grew US$17 million over the same period one year ago. Lumber Liquidators is the largest specialty retailer of hardwood flooring in the US.
While, for the moment, most solid wood commodity prices continue to be depressed, strict adherence to mill closure and curtailment policies by the large-volume, low-cost producers until demand comes back seems to be serving most company financial positions well.
Lumber and panel inventories, at the mill level as well as with stocking wholesalers and retail yards, are currently very low. All eyes are watching the US real estate market, which may be showing the first signs of hiccuping back into gear. Once home sale activity returns, the inventory of unsold homes, both new and existing, will disappear very quickly. Simultaneously, US new home building will resurge, demand for solid wood products will rise sharply, and North American lumber mills will start up with a vengeance.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines the recent upswing in share prices for several North American forest products companies. Among others, West Fraser Timber and Canfor had inexplicable rebounds on the stock market, all the more puzzling given dismal 2Q results.
Contact us any time for a subscription.
Home Sales
Pending home sales in the US, considered a leading indicator because closings typically follow a month or two later, rose 3.6 per cent in June, compared to May—the fifth consecutive monthly increase. That’s the longest streak of increases in six years. Signed home-purchase agreements in the US rose in June to the highest monthly level in two years, according to the National Association of Realtors’ pending home sales index that was released on August 4.
Meanwhile, the national median home price fell 16 per cent from a year earlier to $174,100, the National Association of Realtors said Wednesday. Distressed homes, which accounted for 36 per cent the deals in the quarter, typically sell for 15 to 20 per cent less than traditional homes, skewing the median prices.
Total existing-home sales, including single-family and condominium sales, were at a seasonally adjusted annual rate of 4.76 million units in the second quarter, down 3 per cent from last year and up 4 per cent sequentially.
In other news, Toronto-based Brookfield Asset Management is betting the real estate market has hit bottom, and announced plans Tuesday to back its contrarian wager by raising a stunning $4.9 billion to buy homes, office towers and shopping malls around the globe.
Brookfield’s Big US Real Estate Buy
There are 3,200 unfinished McMansions sitting in a suburban Los Angeles neighbourhood, where developers spent more than US$150 million to build sewers, grade lots and pave roads for an upscale development, only to see the market crash.
These homes are at the heart of the real estate meltdown and Brookfield recently bought this Riverside, CA, development out of bankruptcy – for 20 cents on the dollar.
Calling a bottom to the real estate market is not for the faint-of-heart. Brookfield is planning to buy at a time when US house prices continue to fall, and mall and office building owners are struggling to keep tenants and collect rent.
“We do know this is currently one of the worst residential markets in the US,” Brookfield chief executive officer Bruce Flatt said in explaining the Riverside project during a conference call last Friday. “However, just to put it into perspective, the lots are within an hour of Los Angeles [and] were purchased for less than 10 per cent of the value attributed to land and infrastructure at the peak. … So these are at pretty low values.”
Canadian Housing Starts
Housing starts in Canada fell in July to a seasonally-adjusted annual rate of 132,100 from 137,800 in June, Canada Mortgage and Housing Corp. said Tuesday. In urban areas, housing starts fell 5.5 per cent in July, driven largely by the 9 per-cent drop in the “multiple starts” segment. Construction of single homes edged down 1.1 per cent.
“The slight decline in July’s housing starts is mostly attributable to the volatile multiple starts segment,” said Bub Dugan, chief economist of the agency’s Market Analysis Centre. “Although July registered a decline, housing starts are expected to improve throughout 2009.”
Canadian Home Building
“The setback in Canadian residential construction activity in July is likely a temporary bump on the road to recovery, especially when taken in combination with surging permits and home sales,” said BMO Nesbitt Burns economist Robert Kavcic. “Still, housing starts will likely remain below the 175,000 rate of housing formation through 2010, a far cry from pre-recession levels that consistently ran in the 225,000 range for six years.”
Housing starts are expected over the next several years to reach an annual rate of 175,000, which the CMHC said more closely matches demand.
In Quebec, which has shown surprising resilience during the recession, construction starts increased 16.6 per cent. The prairies, Ontario, British Columbia and Atlantic Canada all registered declines.
The slump in the real estate industry, though over all now clearly on the rebound, has had a widespread ripple effect.
Meanwhile, Canadians are still in the housing market, as more homes were sold last month than any previous July on record.
The Canadian Real Estate Association said Friday that 50,270 homes traded hands on the Multiple Listing Service in July. That’s 18.2 per cent more than in July, 2008.
On a seasonally adjusted basis, resales are only 1.4 per cent below the peak reached in May, 2007.
The average price rose by 7.6 per cent to $362,800 over 12 months.
BC Labour Issues
After a brief break, the United Steelworkers were back at the negotiating table with the CONIFER employer group this week.
Bob Matters, Wood Council Chair for the Steelworkers told Madison’s on Friday that the two sides are still talking, which he sees as a good sign. The next round of talks is scheduled for three days next week, which Matters also find encouraging.
He did say that so far “there is only agreement on a couple of items, which were on the union agenda.” Specifically these items are related to job security issues, which the is high on the union’s list of priorities.
Matters said that the union strategy is to “take small steps in addressing key issues of job security, and to keep attention there.”
August 18 , 2009
UN Annual Forest Products Review
The UN Economic Commission for Europe on Tuesday released its 2008-2009 review of the solid wood and pulp, paper and paperboard industries in Europe, Russia and North America.
While results were gloomy, the Commission points to several factors which will soon bring a recovery to the industry, including stimulus packages in the US and strong government encouragment of biomass fuel projects in Europe.
2008 – 2009
Wood and paper consumption fell by 8.5 per cent last year in Europe, North America and the former republics of the Soviet Union (the Commonwealth of Independent States, or CIS) as a sharp decline in US housing construction took its toll on the industry, the UN Economic Commission for Europe said Tuesday. The UN body, which also monitors the US, Canada and Russia, said real prices in building materials have fallen to their lowest levels since the 1940s (graph 3) amid a sharp fall in demand. It said government-driven demand for renewable energy from wood is offsetting some of the pain.
It is the sharpest year-on-year decline in consumption since the first oil shock of 1973, but with marked differences between the three subregions: consumption fell by 13 per cent in North America and 6 per cent in Europe but grew by 3 per cent in the CIS(see graph 1). In in the CIS, the construction of new houses rose again in 2008, but at a pace only half that of the 10 per cent average growth from 2001-2007. Timber-framed housing in the Russian Federation is growing rapidly and has tripled in the last 10 years, albeit from a low level.
Linked directly with demand, production fell accordingly, resulting in mill closures and job losses. Production tumbled 17 per cent last year in Europe and North America, and the outlook for the global industry has yet to brighten. The 56 nations covered by the UN body contain 42 per cent of the world’s forests, and produce 60 per cent of global wood and paper products. From record levels of forest products consumption, production and trade in 2006, the slight downturn for the region in 2007 escalated rapidly in 2008 and continued in the first half of 2009.
“The Canadian industry has been devastated because 90 per cent of its lumber goes to the US,” said Ed Pepke, a UNECE specialist on the subject.
He said Europe also has been hurt, in part due to Russian export taxes on raw materials that have led the industry to limit production and close mills. Housing construction also fell by nearly 14 per cent in Europe in 2008, and a similar decline is expected this year.
The paper industry continued deeper into crisis: production in Europe and North America decreased some 17 per cent in 2008. (graph 4) In the CIS the decline has been smaller thus far but Russia’s negative trade balance in paper products continued to escalate (imports of higher quality and more expensive paper exceed the value of exports of lower value paper such as newsprint).
The wood and paper industries across the region have rationalized production in line with reduced demand: many mills have been permanently shut down. Forest landowners and managers have reduced harvests accordingly, and have sought alternative markets. This means less employment, less income and less tax revenues from forests throughout the UNECE region.
The wood energy sector seems to have been immune to the global economic crisis. Demand for renewable energy sources, including wood biomass, continues to grow steadily due to Governments’ incentive policies fostering climate change mitigation efforts and energy security.
World wood fuel pellet markets grew by approximately 20 per cent in 2008 and are expected to double by 2012. Production capacity has increased faster than consumption, anticipating strong growth in demand. Europe is the largest consumer and producer of wood fuel pellets, while Canada is the single largest exporter (mainly to Europe). Asia could also become an important consumer of wood fuel pellets, as the first large-scale industrial projects to co-fire coal with wood biomass took place in Japan in 2008.
China’s forest products output continued rising strongly in 2008 (+23 per cent) driven by economic growth and a multi-billion dollar investment plan in the forest sector launched by the Government as part of a package to stimulate domestic demand.
While most of China’s production of wood and paper is consumed locally, China is also a major exporter of wood products. The sector registered a trade surplus of $8.7 billion in 2008, but export volumes were down 14 per cent due to the global economic slowdown and the fall of imports from the US (see graph 8).
In particular, China has become the world’s largest exporter of furniture (importing wooden raw material and exporting final products). More than half of its furniture exports go to the US market.
In terms of the future, the report found that economic stimulus measures initiated on both sides of the Atlantic should help the forest sector, especially in the US, where a number of steps are being taken to reinvigorate home financing and house construction and remodelling.
Fraser Papers Edmunston Mill
On Thursday Fraser Papers Inc. reported a loss of US$8 million or 36 cents a share for the quarter ended June 30, down from US$15.6 million or 31 cents a share for the same 2008 period. During the quarter, Fraser Papers operated its lumber mills at only 12 per cent of capacity. Late Thursday, the company’s chief executive Peter Gordon announced that more than 200 unionized workers at Fraser Papers’ Edmundston mill will be laid off becasue the sulphite pulp operation will remain closed.
Union members voted against a new four-year contract, which involved a four per cent pay cut, with 54 per cent rejecting the offer because they haven’t had a wage increase since 2005. The company had said before the vote it would have to close the sulphite operation in Edmundston, which employs more than two thirds of the 294 unionized workers, if the union rejected the offer.
“There were big concessions,” Communications, Energy and Paperworkers union local president Doris Lavoie said in French after the vote. “Since 2005 we haven’t had a raise.”
“It was entirely avoidable and regrettable,” Gordon said after the vote. “I’m sick and saddened for the city of Edmundston.”
The sulphite operation would have resumed by the end of August had the union accepted the offer, he said.
Mill Remains Closed
Fraser Papers employed 2,600 people at the end of 2007. The company, controlled by the Brookfield Asset Management investment company, formerly Brascan, also has four lumber mills in Quebec and New Brunswick.
Fraser Papers is restructuring under the federal Companies Creditors Arrangement Act in Canada and Chapter 15 of the US Bankruptcy Code in the US.
Other Canadian forestry companies, including newsprint giant AbitibiBowater, and Tembec, are or have restructured to deal with huge, unsustainable debts. But the industry continues to shed jobs and face a tough market, marked by reduced demand, technological change and a high dollar that has made it more difficult to compete in the US.
Forest Fire Season
As British Columbia greets cooler temperatures and international fire fighting aid, other regions of the world fight their own forest fires.
Spain’s La Palma island security counselor Jose Miguel Ruano said Tuesday that a two week long fire in Catalonia has been contained. The blaze in the southern part of the island has destroyed some 3,000 hectares (7,400 acres) and burned some 50 houses. Up to 4,000 people were evacuated from the island of La Palma in Spain’s Canary archipelago on Saturday to escape another forest fire, authorities said.
Oregon state has reported 22 incidents, the Interagency Communications Center in Pendleton said this weekend, burning mostly on private land, along with county and Forest Service acreage.
Yukon wildfire officials issued an evacuation alert for Little Salmon Lake on Tuesday, putting several dozen residents on notice that they may have to flee if the 18,500-hectare blaze makes a run into the area.
Forest Fires
Ontario, New Zealand and Australia all sent more fire fighting experts to BC this week, to help with the extreme fire danger.
Ontario currently has approximately 570 fire personnel working in BC. Ontario and BC have started planning for the rotation of fire fighting staff out of BC and replacing them with fresh staff. This will continue through August as long as Ontario’s fire season remains quiet and BC requires assistance.
In addition, Alberta will send 150 firefighters who specialize in forest fires to British Columbia to join the battle against the blazes raging through that province. With the recent rain, especially in southern Alberta, MacDonnell said the fire hazard here has improved, but if the situation takes a turn for the worse, the firefighters could return.
30 firefighters from Australia and New Zealand arrived in BC Thursday and will be assigned to firefighting duties by next weekend. The crews will free up BC workers for other duties or to take a take a few days off.
The firefighters from down under are returning the favour of a BC firefighters lending assitance in recent Australian wildfires. The two countries are currently experiencing winter weather, so fire risk is low.
BC has already called in about 850 firefighters from elsewhere in Canada to help the province’s own forest fighting contingent, which includes two thousand members of the forest service and 750 contractors.
In Oregon, the Randall Canyon Fire erupted Sunday afternoon and has blackened more than 400 acres of grassy terrain four miles south of Ukiah.
Lightning is responsible for a 850-acre complex of fires in and adjacent to the North Fork John Day Wilderness Area. The fires, seven in all, triggered an area closure in the northwest portion of the wilderness area.
In Yukon, the Little Salmon Lake blaze is burning about 65 kilometres northeast of Carmacks, and about 40 kilometres from the closest property along the lake and the Magundy River.
As many as four helicopters and 44 firefighters were working on the wildfire Tuesday. Hot, dry and windy weather persisted across the Yukon.
As of Tuesday afternoon, the fire danger rating was extremely high in the Carmacks, Dawson and Whitehorse areas, and high in the rest of the territory.
The Little Salmon Lake fire is one of 59 wildfires currently burning across Yukon.
August 09 , 2009
BC Tree Species Migration Due to Climate Change
In a happy accident, researchers at the Centre for Forest Gene Conservation out of the UBC Forestry Department are able to use hard data gathered from an obscure silviculture study begun in 1974 by Keith Illingworth.
Using the information, researchers are able to design a computer model which shows how tree species’ habitat will change over the next 65 years.
Climate Change
In an amusing twist of fate, an obscure lodgepole pine silviculture study in British Columbia started 35 years ago is serving to assist scientists in building models for the future health of tree species threatened by climate change. The lodgepole pine provenance testing program, established by Keith Illingworth in 1974, includes 140 sources of lodgepole pine grown at 60 locations in 12 regions of the province. This initial attempt used 3-year to 20-year height and diameter measurements taken from five test sites representing the Kootenay region.
When a digital climate model becomes available for BC, it will be possible to specify a modified target climate and generate appropriately modified seed-suitability areas. In this way forest managers will be able to predict where genetically improved seed from today’s orchards will perform best under tomorrow’s predicted climates.
A partnership study out the the BC Ministry of Forests and Range and the UBC Department of Forestry is using data gathered from the Illingworth provenance test to study the future of tree growth in the province and the effects of climate change. Expectations are that by 2060, temperatures in British Columbia will rise to the point that current tree species would have to move north by 100 km per decade in order to remain healthy.There is concern that more adaptive species, like Douglas-fir, Ponderosa pine and many small broadleaves are expected to benefit, while commercial species and many high elevation or boreal species are expected to lose substantial portions of suitable habitat/climate.
On another front, the Assisted Migration Adaptation Trial (AMAT) is a long term Research Branch field trial that examines the climatic tolerance of 40 of BC’s most important tree populations (seedlots) from 16 species. It also includes 9 USA seedlots that may become important in southern BC in the future. According to a joint report produced by the Saskatchewan Research Council, the Canadian Forest Service and the BC Ministry of Forests, “Trees that are adapted to the climate at the time of establishment may be considerably maladapted to the climate at harvest time, displaying reduced productivity and increased frequency of pest attack.” Meaning, by the time native trees grow to full size, usually 80 years, their species may no longer be adapted to the climate. By experimenting with planting some southern species, and planting native species further north than they currently grow, researchers hope to find the best silviculture practices for the future of BC’s forests.
The AMAT report goes on to say that, “Assisted migration will probably be an important management response to species-level impacts, increasing the likelihood that future populations are established in locations in which the future climate will be suitable.” To this end, the Centre for Forest Gene Conservation (CFGC) out of the UBC Forestry Department is involved in research related to climate change and its impact on forests. According to the CFGC website, “The mountain pine beetle epidemic has provided an early warning signal of the speed and magnitude with which climate-related disturbances can strike.”
Tongli Wang, Ph. D., Associate Director at the CFGC provided Madison’s with some fascinating graphics generated by the model predicting the effect of climate change on BC’s native tree species. While White Spruce does not fare well, losing an estimated 68 per cent of its habitat and 77 per cent of its overall frequency by 2085, Douglas Fir is expected to gain 124 per cent of habitat and 77 per cent of frequency over the same time period.
Also of interest is Western Red Cedar, which is expected to gain 124 per cent of new habitat, and 32 per cent overall frequency by 2085, spreading much further north and into the centre of BC than it has traditionally grown.
Grand Fir, Hazelnut and Western Larch are all expected to gain 500 per cent or more new habitat, according to Wang’s 2006 report.
Since then, Wang has been able to create a more accurate model using data from the Illingworth provenance test. Wang explained to Madison’s that “the predictions for Douglas-fir is a bit too aggressive based on our new predictions. As the new ones have not been released yet, I could not send them to you now. A better modeling approach has been developed and more precise predictions will be available soon.”
As this information about the future growth of tree species in BC will be critical for forestry companies to plan their business, Madison’s will publish the update upon receiving it.
Madison’s Timber Preview
The Forest & Marine Group’s court-ordered three month extension for creditor protection expires Friday. The company has not been able to secure a source of financing therefore is not eligable for loan guarantees from Business Development Canada. Forest & Marine released a statement Wednesday that it expects it can no longer operate its business and plans to pursue self-liquidation initiatives to pay out its secured creditor Asset Engineering Limited Partnership.
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Forest Fires
Fire crews are busy with three separate fires in the Sea to Sky region–including one on Blackcomb Mountain which spread quickly and forced the evacuation of hikers and tourists near the Rendezvous Lodge. A lightning strike Thursday afternoon triggered the fire on Blackcomb, which is being called ‘vigorous’ by crews on the mountain, and had spread to 75 hectares on Thursday. Early Friday morning the Ministry of Forests and Range reported that aerial surveys determined the fire to be 30 hectares.
Two other forest fires could force people from at least 50 houses in an area north of Pemberton.
The forest fire at Mount McLean, west of Lillooet, first reported last week in Madison’s, continues to burn out of control. That fire is now at 2,200 hectares and 0% contained, according to the Ministry of Forests website.
Fire Season
A 125 hectare fire was discovered Monday at Back Mountain, by Cache Creek, BC which is currently 0% contained. This fire is described as a “vigorous ground fire” by the Ministry of Forests.
A rash of dry lightning Thursday in the Watson Lake district resulted in 18 new fires in the southern portion of Yukon. The activity was in addition to three new fires elsewhere in Yukon Thursday. Hot and dry conditions combined with minimal precipitation and dry lightning activity early in the evening is what triggered the rash of new starts.
With the recent activity, there have now been 89 fires this season in Yukon burning more than 110,000 hectares of forest.
The forest fires which raged across the Mediterranean region of southern Europe last week are currently largely contained.
There are 74 forest and plantation fires burning in various regions of Indonesia, in particular Riau Province, according to the meteorological, climatological, and geophysics office.
Forest fires in Indonesia have become an international concern as they release carbon emissions, which could worsen global warming, and haze.
Indonesia has received United States assistance to conduct a fire-fighting exercise and Malaysian aid to organize a course on tackling forest and plantation fires.
During the El Nino of 1982-83, fires burned about 3.7 million hectares of forest degraded by commercial logging and agriculture in Kalimantan. In 1987, another 2 million hectares of forest went up in smoke in Kalimantan, East Timor, Sumatra, Sulawesi, and Java.
Ainsworth Earthquake Test
OSB provided by Vancouver, BC’s, Ainsworth Lumber Company was used in a full-scale seven-storey 40- by 60-foot condominium with 23 one and two bedroom living units and two retail shops on the ground floor for a simulated 7.5 magnitude earthquake.
Japanese Shake Table
The results of the test, conducted July 14 at the Hyogo Earthquake Engineering Research Centre in Japan, proved that wood-frame construction is suitable for higher mid-rise structures in areas subject to earthquakes.
Test results showed that the building could stand a load of 1.8 times greater than the seismic intensity recorded at the North Ridge, CA, earthquake in 1994 which had a magnitude of 6.7.
These latest results are in addition to another earthquake test conducted in September 2008, which was also very successful, and used OSB supplied by Ainsworth for a bearing wall. In that test the building proved safe to a seismic intensity 1.5 times greater than the Kobe earthquake of 1995, which had a magnitude of 7.3.
Ainsworth is one of the largest OSB suppliers to Japan.
BC Labour Issues
After a long bargaining session on July 21, the United Steelworkers union and the CONIFER employer group decided to use the next day, previously scheduled for more bargaining, to caucus individually.
Bargaining is scheduled to resume August 11 in Williams Lake.
Frank Everett of the Steelworkers told Madison’s Wednesday that the proposals of the union and employers were a “fair ways apart”.
He did, however, say that there is “genuine understanding on both sides”, which “bodes well”.
When asked about the delay in bargaining, Everett said that it was due to previously scheduled holiday time on the part of various bargaining committee members.
Everett explained that “it is better to have good substance” to an agreement than to set a “quick pace”.
Both parties are currently reviewing the respective proposals.