Lumber Demand 2009 ; Calling All Canadian Lumber, Panel and Pulp Producers . . . ; US Housing Starts ; Bioenergy Collaboration ; Maritime Lumber Bureau Responds ;Genetically Engineered Eucalyptus ; Madison’s Timber Preview ; Canadian Housing Starts and Trade Figures ; Japan Housing Starts and 2009 Lumber Statistics ; Coalition for Fair Lumber Imports Release ; Biomass Fuel ; Tolko president Al Thorlakson steps down ; 4Q 2009 ; Value of Canadian Residential Permits Up ; BC Labour Issues ; Softwood Imports in India ; Madison’s Timber Preview; Mackenzie Pulp Mill Offer ; US Existing Home Sales ; North Pacific in Receivership
February 28, 2010
Lumber Demand 2009
An article released Thursday on the Dow Jones newswire has lumber mills “screaming bloody murder”, according to a source close to Madison’s. The world has suddenly taken notice of the lumber business, as commodity prices enjoyed a healthy price hike and the futures market responded. A spokesperson for the US National Association of Home Builders, usually a friend to North American lumber producers, is quoted as saying that an increase in lumber prices “is the last thing we need right now.” While it is clear that the recent jump in lumber prices has been due to a shortage of supply, there has also been an increase in demand, admittedly still weak. Regardless, even a small uptick in real demand for lumber is a step in the right direction.
Statistics and Figures
Lumber producers across North America are generally acknowledging that demand out of China, up sharply from 2008, is what reduced or staved off losses last year. That country is the world’s largest importer of wood pulp and logs, and was the second largest importer of softwood lumber in the world in the 2Q 2009, according to Wood Resource Quarterly. Imports of softwood logs were 51 per cent higher in the 2Q than the 1Q, and 27 per cent higher than in the 2Q 2008, a sign of improved operating rates in the sawmilling and plywood industry. The biggest increases in imports originated from Russia and New Zealand. Although Russia is still the largest supplier of logs, New Zealand has increased its market share from 10 per cent in 2Q 2009 to 23 per cent the same quarter this year, says WRQ. The average import value for softwood logs has been in decline for three consecutive quarters and was, in the 2Q 2009, down 25 per cent from its peak in the 3Q 2008. So far this year, Russian logs have cost substantially more than have logs from New Zealand and Australia.
Put another way, during the first nine months of 2009, China imported 81 per cent more lumber than during the same period in 2008. Canadian sawmills have been the major beneficiaries of this new fast-growing market, with exports up 135 per cent for the first nine months of 2009, says WRQ.
The US Forest Service found an increase in log and lumber exports for the coastal US 2Q 2009, after a drop in the first quarter. A total of 239.5 million board feet of softwood logs and 80.2 million board feet of softwood lumber was exported from Washington, Oregon, northern California, and Alaska in April, May, and June 2009. “The volume of softwood log exports was up 65.2 per cent from the first-quarter volume of 145 million board feet, while the volume of softwood lumber exports was up 17.9 per cent from 68 million board feet,” said Debra Warren, a US Forest Service economist.
Lumber exports for the second quarter of 2009 from Oregon and Washington totalled 75.8 million board feet, up 21.9 per cent from 1Q 2009 volume of 62.2 million board feet. Broken down into regional demand, 35.3 per cent of the west coast second quarter softwood lumber exports in 2009 went to Canada, 28.8 per cent to Japan, 11.3 per cent to the Philippines, and 7.1 per cent to China. Douglas fir accounted for 48.5 per cent of 2Q 2009 softwood lumber exports, western hemlock and cedars, each were 13.1 per cent, and other softwoods made up the remaining 25.3 per cent.
According to preliminary statistics from China’s State Forestry Administration, released February 11, the value of China’s forest industry output in 2009 was up around 10 per cent from 2008. The growth in timber processing is estimated to have risen 17 per cent over 2008, the furniture industry is estimated to have grown 8 per cent in 2009.
In circumstances such as these it does not take long for analysts to start making calls, whether bullish or bearish. Myra Saefong, MarketWatch assistant global markets editor based in Tokyo, released a report February 14 cautioning, “It’s tough to say that lumber’s climb to its highest price level in more than two years is built on solid ground.” Saefong goes on to explain that there is a bigger story here that involves everything from actual and expected demand from China and Haiti, to the impact of global stimulus measures and production cutbacks in a market that has supposedly suffered along with the globe’s major economies.
Part of the reason prices reached a more than two year high recently is production across the board has been reduced by an estimated 30 per cent — and while demand is off at a much greater percentage, so are carried inventories, according to Brian Leonard, a lumber analyst at Rosenthal Collins Group in Chicago.
The main rationale, however, for lumber’s rally to multi-month highs hinges on the belief that the US construction industry “is on the upswing,” said Jim Wyckoff, a senior market analyst at TraderPlanet.com.
Speculation continues as to whether that upswing in US construction will be sustained through the 2010 building season. On the face of it, the horrible downturn of 2009 is apparently behind us. Those who projected, in 3Q 2009, that the lack of demand would continue into mid 2010 are now happily proven wrong.
Calling All Canadian Lumber, Panel and Pulp Producers . . .
Madison’s is in the process of updating our Live Online Lumber Producer listings. Mills, reloads, transporters, wholesalers and exporters are invited to contact our office to ensure the information we have for your company is accurate.
Contact us to update your free listing.
US Housing Starts
The US Commerce Department said Wednesday that construction of new homes and apartments in the US rose 2.8 per cent in January to a seasonally adjusted annual rate of 591,000 units. Applications for building permits, considered a good barometer of future activity, fell 4.9 per cent to a rate of 621,000, but that was after two months of large increases.
In another sign of strength, Wednesday’s report revised up activity in December to show builders were starting construction at an annual pace of 575,000 units during that month. The strength last month was led by a 10 per cent jump in activity in the Northeast and an 8 9 per cent increase in the West.
The strength in January pushed construction activity up by 21.1 per cent from the pace in January, 2009. Last month’s building rate the fastest pace since July.
US Real Estate
The Commerce Department also said single-family housing starts increased by 1.5 per cent to 484,000 units in January, while the more volatile multi-family segment rose by 9.2 per cent to 107,000.
It also revised upwards housing starts in December to 575,000.
In a separate report, the Federal Reserve said industrial production rose 0.9 per cent, with manufacturing, mining and utilities all posting gains.
“The data is very solid and very strong,” said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut. “The economy gets no respect but it is doing significantly better and we see that on the production side in particular.”
The reports and better-than-expected earnings from Deere & Co., the world’s largest maker of agricultural equipment, gave a lift to US stocks. Deere, seen as a bellwether for the global economy, raised its outlook for fiscal 2010 machinery sales growth to a range of 6 per cent to 8 per cent from a previous estimate that sales would fall 1.0 per cent.
Kathleen Madigan, at Dow Jones Newswires, published a note Thursday saying that US housing must move beyond government help.
“A significant chunk of future home buying will be satisfied by cheaper foreclosed and distressed homes, Madigan explains.
First American CoreLogic estimates this shadow inventory totals about 1.7 million. Standard & Poor’s calculates that it will take 33 months to clear out these properties.
Bioenergy Collaboration
Lignol Energy Corporation and Novozymes have announced a plan to collaborate on making biofuel from wood. Lignol plans to construct large-scale biorefineries for the production of cellulosic biofuel from wood chips and forestry residues. Novozymes supplies enzymes that convert cellulosic biomass into sugars that can then be fermented into ethanol.
Refer to the May 22, 2009 issue of your Madison’s Reporter for technical details on the process.
The parties plan to use Lignol’s fully integrated industrial-scale pilot plant in Burnaby, BC, to optimize enzyme performance across a range of cellulosic feedstocks in Lignol’s unique process.
Lignol president and CEO, Ross MacLachlan said in a statement, “Our integrated plant is perfectly suited for this type of collaboration in which our industrial process is coupled with Novozymes’ biological technology to make cellulosic ethanol a commercial reality.”
Maritime Lumber Bureau Responds
The Maritime Lumber Bureau dismissed Monday the US Coalition for Fair Lumber Imports’ complaint that government aid to Miramichi Lumber Products violates a bilateral softwood lumber agreement.
Diana Blenkhorn, president and CEO of the Amherst, NS-based industry association, said she plans to reach out to the pwerful Washington lobby group to ensure the organization understands her group’s position.
Business New Brunswick Minister Victor Boudreau said his department ensured its assistance to Miramichi Lumber Products would not contravene any bilateral agreement on lumber.
“In this case … this is an interest-bearing loan with a full guarantee in place so there’s no subsidy, there’s no break being given,” Boudreau said.
February 21, 2010
Genetically Engineered Eucalyptus
Efforts by International Paper and MeadWestvaco to push through approval for large eucalyptus plantations in the southern US are, even as Madison’s goes to press on Friday, receiving a loud outcry from various scientific groups.
IP and MeadWestvaco
Two industry giants, International Paper and MeadWestvaco, are planning to transform plantation forests of the southeastern United States by replacing native pine with genetically engineered eucalyptus, a rapidly growing Australian tree, that in its conventional strains, already dominates the tropical timber industry. The two companies are banking on a controversial gene splice that restricts trees’ ability to reproduce, meant to allay fears of bioengineered eucalyptus turning invasive and overtaking native forests. If such a fertility control technology, which has come under fire in farming for fear seed firms will exploit it, is proven effective, it could open the door to many varieties of wild plants, including weedy grasses, to be genetically engineered for use in energy applications like biomass and next-generation biofuels without fear of invasiveness.
Yet many questions remain about the effectiveness of the fertility modification concept, which, according to leading scientists, has not yet been rigorously studied in multi-year trials to prove that it can effectively control plants’ spread. More research must be conducted before such systems may be relied upon to restrict pollen and seed spread over the long term, they say.
In the best-case scenario, growers using the presumably expensive seeds would see huge gains in productivity and become the preferred tree stock for a new generation of bioenergy refineries. The US South would become the new Appalachia; timber would serve as its coal. Inklings of such progress have already arisen, including recent word that the German utility RWE AG would build the world’s largest wood-pellet plant in the state of Georgia to supplement its coal habits.
A species’ struggle to adapt and survive can make attempts to control the fertility of plants difficult. The process relies on what has been the most popular system for restricting plant pollen, conventionally using a bacterial gene to produce a toxic enzyme called barnase that slices apart genetic material in a cell, causing death. Through genetic trickery, the enzyme is only produced in the pollen-spreading parts of the tree, destroying its ability to reproduce — at least most of the time. Given the number of trees that could be produced, there would likely be enough genetic instability to allow a very small number of the freeze-tolerant eucalyptuses to reproduce, according to Steve Strauss, a tree geneticist at Oregon State University who has consulted with the companies. Rather than an absolute containment system, barnase should be thought of as a mitigation strategy, he added in an interview with Scientific American.
“There haven’t been really too much studies of what would be impact of transgene escape from perennials,” said Hong Luo, a molecular biologist at Clemson University who has developed a gene containment system for another wild plant, turfgrass. “We will be cautious in this respect.”
Unlike the pine trees used in Southern plantations — which have quietly helped displace tobacco in the region’s economy — eucalyptus can deploy a full canopy of leaves within a few years, which will steal light from native ground-cover plants. It is greedy for carbon, and within 27 months can grow to 55 feet in height. The ultimate benefit of eucalyptus plantations would be the ability to grow more wood on less land, according to IP and MeadWestvaco.
It’s not yet clear how the public will feel about genetically modified forests. But scientists note that some trees that have been genetically tweaked to prevent disease have already gained widespread acceptance. Two examples are papaya trees in Hawaii that have been modified to be less susceptible to the ringspot virus, and American chestnuts that resist a deadly fungus.
According to London-based The Institute of Science in Society, the US forest companies had considerable success in getting permission from USDA to undertake open field trials of the companies’ genetically modified eucalyptus. The first field test of modified eucalyptus was undertaken in Alabama and reached a Finding of No Significant Impact (FONSI).
The marker gene engineered into the trees is accepted as being safe. In a number of instances, plants transformed with this gene have been deregulated (e.g. corn, rapeseed, cotton, and papaya in past petitions). The Institute pointed out in a release February 8, 2010 that the food and feed crops deregulated were not labelled and there has been no effort to study the impact of the antibiotic resistance gene on the human population or farm animals. Therefore, the gene is essentially untested, and US agencies have no grounds for assuming that the use of that gene has no significant impact.
The Institute’s report goes on to say that in greenhouse tests using tobacco and an early flowering model eucalyptus, the companies’ research found that the barnase gene demonstrated 100 per cent efficacy in preventing pollen formation. In developing flower buds from field grown transgenic eucalyptus lines containing this cassette, 90 per cent of lines showed complete pollen ablation. Recent observations from the replicated field study being conducted in Alabama confirm that cold tolerant trees grown at the site and allowed to flower did not produce any viable pollen, therefore US government regulators concluded that barnase will have no significant impact on the environment.
However The Institute is concerned because the product of the barnase gene is barnase ribonuclease, a powerful cell toxin poisoning humans, small mammals and birds. The same toxin has been engineered to kill cancer cells.
In countries that are already suffering the impacts of large-scale eucalyptus plantations, people have organized massive campaigns against them. Anne Petermann, Executive Director of Global Justice Ecology Project and North American representative of the Global Forest Coalition explained, “This is because eucalyptus plantations have devastated forests and communities. In Brazil, the Mata Atlantica forest has been all but wiped out by eucalyptus plantations. In Chile, communities living near eucalyptus plantations have lost their access to fresh water.”
Other new information in the assessment reveals that some of the supposedly infertile engineered eucalyptus trees in existing field trials produced fertile seeds. This new eucalyptus has been engineered to tolerate colder temperatures giving it the potential for invading forest ecosystems throughout the South.
On February 11, 2010 the US Department of Agriculture re-released their draft environmental assessment regarding a request by timber giants International Paper and MeadWestvaco, to plant over a quarter of a million genetically engineered eucalyptus trees in so-called “test plots” across seven southern US states. The environmental assessment was re-released after concerned groups pointed out that the assessment was missing key hydrological studies and that the US Forest Service studies found that eucalyptus trees have heavy water requirements and can seriously impact ground and surface water reserves. Deadline for submissions and comments on the draft environmental assessment is February 18th, 2010.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines 2009 4Q and year end financial results from several North American solid wood companies, and also takes a look at the latest supply and demand figures for pulp and paper products. Contact us any time for a subscription.
Canadian Housing Starts and Trade Figures
Canadian housing starts for January 2010 were at the second-highest level in the past four months, with 186,300 units seasonally-adjusted and annualized, according to Canada Mortgage and Housing Corp. One has to go back to October 2008 (209,000 units) to find a more elevated level of starts.
The latest 186,000 figure is a remarkably strong recovery from some of the low monthly numbers that were recorded last year. For example, in April 2009, annualized national housing starts were only 112,000 units.
The official estimate for 2009 as a whole was 149,081 units. That was 29.4 per cent lower than 2008’s level of 211,056 units. For the seven years 2002 to 2008 inclusive, the annual average was 222,000 units.
Canadian Trade
Canada posted a $4.8-billion trade deficit for 2009, compared with a surplus of $46.9 billion in 2008, Statistics Canada said Wednesday. In December, the country’s deficit hit $246-million from a revised $201-million a month earlier, Statscan said. Imports rose 1.8 per cent while exports advanced 1.7 per cent. November’s deficit was originally pegged at $344-million.
The trade deficit, which is unadjusted for inflation and therefore takes in the benefits Canada is reaping from the rebound in oil and other commodity prices, could well be back in surplus this year, said economist Marc Pinsonneault at the National Bank. The trend had already begun to improve last year, despite a minor case of backsliding in December.
Exports rose to $32.2-billion, the fourth month in a row of gains as volumes rose 2.1 per cent. Auto products accounted for almost two-thirds of the growth, followed by growth in cars and parts.
Imports increased to $32.4-billion on higher volumes and prices. Auto products led the gain, followed by auto parts, cars, trucks and iron ores.
Canada’s trade surplus with the US, it’s largest trading partner by far, grew to $3.7-billion from $3.4-billion in November as exports to the country rose 2.9 per cent, outstripping a 2-per-cent gain in imports. Canada’s trade deficit with countries other than the U.S. widened to $3.9-billion from $3.6-billion in November as exports fell and imports rose.
Japan Housing Starts and 2009 Lumber Statistics
Total housing starts in Japan for 2009 were down 27.9 per cent over 2008, at 787,410 units, according to the Japan Lumber Report. These figures are a historical low since 1964, with 751,429 units. Housing starts in Japan have been over one million units annually starting in 1968 and continuing straight through 2008, says the Report.
Wood based starts were 430,121 units, 16.8 per cent less than in 2008, while the percentage of wood based units was 54.6 per cent, up 7.3 points over 2008, according to the Report.
Japan Lumber Demand
2009 demand of logs for lumber in Japan was 15,356 million cubic meters, down 13.6 per cent from 2008, according to preliminary figures from Japan’s Ministry of Agriculture, Forestry and Fisheries.
The largest drop was in imported logs, meaning the share of domestic wood jumped 69 per cent. 3Q 2009 log receipt was the lowest for the year, down by 83 per cent compared to 2Q, but then recovering in 4Q by 87 per cent.
North America was the largest source of logs due to the sharp drop in Russian log import, but demand still declined over 2008 at 2.5 million cubic meters.
Many domestic mills have closed or shifted from Douglas Fir to domestic species, which resulted in a decrease in demand for coastal North American species.
Coalition for Fair Lumber Imports Release
The US Coalition for Fair Lumber Imports said Friday that the latest announcement of New Brunswick government support programs provided explicitly to re-open the Miramichi Lumber Products mill are in direct contravention of the 2006 Softwood Lumber Trade Agreement.
The New Brunswick government indicated this week it will provide a $1.5 million loan and another $1.5-million loan guarantee, as well as an increase in Crown Timber Allocation to 150,000 cubic meters (up from 83,000 cubic meters) to ensure the now-closed mill can resume production of lumber.
The SLA specifically forbids these types of Canadian provincial government subsidies because they circumvent the SLA’s disciplines designed to promote fair trade in lumber. By using subsidies to open production facilities that otherwise could not obtain financing on the market, New Brunswick’s actions will prolong the severe depression in the North American lumber market, at the expense of American lumber producers who operate in an open-market and fair timber pricing system.
An arbitration decision is expected later this year on US claims that similar support programs by the Ontario and Quebec governments violate the SLA.
February 15, 2010
Biomass Fuel
A new report issued by the Forest Products Asociation of Canada this week adds information, about Canadian biomass fuel from forest residue, to a report issued by FPInnovations in 2009 on biomass volumes in British Columbia’s coastal region.
Canadian Potential
The Forest Products Association of Canada this week released a biomass fuel report, in partnership with FPInnovations, aimed at helping the forest products industry understand how to “build on its world-class forest management practices [ . . .] as an engine of growth in the bio-economy.” Another report, released by the FERIC division of FPInnovations in May of 2009 also examined this topic but with specific focus on the coastal forests of British Columbia.
For its report, “Assessment of Economically Accessible Biomass”, FPInnovations calculated the amount of forest biomass generated by timber harvesting operations on Vancouver Island and south coast mainland. Roadside residue volumes for the entire study area were calculated by applying the biomass ratio to the planned timber harvesting volumes for 110 supply areas. Comminution (grinding) and transportation costs were calculated, and volume reductions were made to account for accessibility and transportation costs.
That report concludes, “Of the 19.6 M m3 of annual harvest, about 10.3 M m3 is potentially available for biomass recovery after reductions for areas that have limited accessibility by semi-trailer chip vans, or that require water transport, or that have long haul distances.. The 10.3 M m3 generated about 250 000 ODt/year of roadside residues and 280 000 ODt/year of dispersed residue. [ . . . ] This study generally found biomass ratios between 3 and 6 per cent in contrast to the 20 per cent or more biomass ratios found in BC Interior and Alberta. Not only is the total volume of roadside residue lower than expected, the residue is distributed across a wide geographical area, with few opportunities to move biomass economically between the sites to achieve economies of scale.”
Report author Jack MacDonald explained to Madison’s Thursday that the study “identified a number of places on Vancouver Island and the south coast of the mainland where biomass could be hauled directly to pulp mills. [ . . . ] The lower amount of residue on the coast, as compared to the BC interior, is mainly due to old growth logging.”
Now that this study of costing and productivity of forest residue is complete, MacDonald is in the process of tackling validation. Using software developed in eastern Canada and adapted for use in BC, MacDonald is creating a model to predict “what we will see.”
In contrast, a separate report published by the Western Silviculture Contractors Association in October 2009 determined, “within the 1.8-million hectares of Wildland-Urban Interface recognized in the BC Ministry of Forests and Range Strategic Wildfire Threat analysis that there is 540-million m3 of biomass and that at least 30 per cent of that biomass may have no other commercial value.”
The FPAC report, “Transforming Canada’s Forest Products Industry”, which involved more than 65 top Canadian experts, determined that integrating the production of bio-products into existing forestry operations would provide five times as many jobs as a stand-alone bio-operation.
The report points out, “There is an increasing opportunity to convert biomass – wood-fibre – into everything from electricity and heat to transportation fuels, bio-chemicals for solvents and plastics and next generation bio-materials. That potential is already being seized by countries around the world [ . . . ] such as the U.S., Europe and China. Those countries are retooling their economies to secure technology expertise, create employment, attract investments
and capture fast-growing markets for more ‘natural’ products.” Refer to the September 11, 2009 issue of your Madison’s Lumber Reporter for information on global demand for green energy, in various forms, made from wood cellulose.
Focussed heavily on employment, the FPAC report explains, “The following charts highlight the positive impacts of integrating the traditional industry with the emerging technologies.”
The report concludes, “The forest products industry is poised to contribute significantly to the greening of the economy – and become the source of everything from wood-framing, paper, clean energy, rubber, plastic and drugs. FPAC will build on this effort to explore new approaches to: managing the value chain; opportunities to develop cross-sectoral partnerships; completion of the carbon footprint analysis, and gauge the market potential for wood-fibre based bio-products.”
Tolko president Al Thorlakson steps down
Well known BC lumberman Al Thorlakson stepped down Thursday as president of Tolko Industies, formed more than half a century ago by his father. Thorlakson, 70, is being replaced by his son, Brad Thorlakson, maintaining the family grip on the Vernon-based forest company into the third generation, according to the Vancouver Sun.
Thorlakson is to remain active in the company as executive chair of the board. Successor Brad Thorlakson has been in the company since 1978 and heads Tolko Marketing and Sales. Ltd.
4Q 2009
Domtar is reporting a quarterly net profit of $124 million in 4Q 2009. In comparison, Domtar reported a net loss of $676 million in its 4Q 2008. In 4Q 2009, Domtar received a tax credit of $162 million through alternative bio fuel mixture programs.
In 4Q 2009, International Paper reported a net loss of US$101 million compared with a net loss of US$1.8 billion in 4Q 2008. Amounts in all periods include special items. During 2009, International Paper generated US$4.1 billion of free cash flow, compared with US$1.7 billion in 2008, as well as US$1.7 billion received from alternative fuel mixture credits. The company also repaid US$3.1 billion of debt during 2009. At year end, the company had US$1.9 billion in cash and $2.5 billion in committed liquidity facilities.
Value of Canadian Residential Permits Up
The value of Canadian building permits rose by 2.4 per cent in December from November and ended the year having largely recouped losses suffered during the recession, Statistics Canada said Thursday.
The overall value of permits in December was $6.2 billion, 32.6 per cent higher than in December 2008. The sharp slide in permits started after September 2008, a month when the overall value hit $6.5 billion.
Canadian Building Permits
The nonresidential sector rose by 6.8 per cent in December from November. The residential sector fell by 0.1 percent, ending a run of nine straight monthly increases, but was 47.3 per cent higher than in December 2008.
“In recent months, the value of (residential) permits has started to approach the peak reached before the economic slowdown,” Statscan said in its daily commentary.
The value of commercial building permits increased for the third straight month, advancing 29.2 per cent to $1.5 billion in December. The consecutive gains raised the level of construction intentions for commercial buildings to their highest point in 2009.
In the institutional component, municipalities issued permits worth $514 million in December, down 21.9 per cent. It was the second consecutive decline.
BC Labour Issues
On January 29, 2010 the United Steelworkers released a notice stating, “Despite assurances that West Fraser was prepared to lead the forest industry into a new collective agreement, the BC Interior Bargaining Committee did not see their bargaining approach as a productive exercise.
Despite this, the BC Interior Bargaining Committee remains committed to negotiating with West Fraser to reach a progressive agreement. The bargaining committee is waiting to hear from West Fraser on their plans to resume bargaining.”
Bob Matters of the Steelworkers told Madison’s Friday that negotiations with Canfor have been proceeding all week, and are scheduled to continue next week.” We have made limited progress with Canfor and will be back at the bargaining table in Prince George Monday,” said Matters.
February 07, 2010
Softwood Imports in India
A simple clerical error with reference to phytosanitary requirements for log and lumber imports into India may be all that is keeping millions of board feet of Canadian wood out of that country annually. Last week at the Truck Loggers Association AGM an attendee asked Pat Bell, BC Minister of Forests and Range, and Integrated Land Management why there is no concerted effort being put into promoting exports of BC wood into India similar to the one for exports to China.
Pat Bell explained, “There are some arbitrary health and safety standards that are currently keeping Canadian wood out of India. We are working on this. We expect growth of wood exports to that country to be a ten year effort.”
Upon hearing this statement, several parties contacted Madison’s wondering at the seeming incongruity. The common belief among those experienced in exporting to India is that there is no such restriction, at least not any more so than exists in China.
Wood Use in India
Madison’s checked the Pacific Lumber Inspection Bureau website, here, http://plib.org/index.php?option=com_content&task=view&id=33&Itemid=35 but could find no insurmountable international phytosanitary restrictions for importing North American lumber into India. According to the PLIB, India has the same conditions as other lumber importing countries. Its website states: “Effective November 1, 2004. India will also accept phytosanitary certificates covering packaging.”
To confirm this Madison’s spoke with Will Moore, PLIB District Supervisor for BC and Alberta. Moore could not immediately think of a reason why it would be difficult for customers in India to import Canadian lumber, but directed Madison’s to the Canadian Food Inspection Agency for more information.
“Exporting to South Korea is tough,” said Moore “because that government requires both treatment and phytosanitary certificates to be presented at the dock before the wood can be unloaded. But as far as I know there is no such requirement in India. It is no different than shipping to China.” Moore did qualify that statement, however, by saying that none of the mills he represents ship to India.
Madison’s waded through the CFIA website forestry section here http://www.inspection.gc.ca/english/plaveg/for/fore.shtml to discover any extenuating requirements. In researching many of the links on the site, not one reference to restrictions on lumber exports to India was found.
The BC Ministry of Forests media representative’s reply to a request for more information this week did shed some light on the issue. Cheekwan Ho stated: “In June 2008, it was identified that India’s plant health regulations did not list Canadian spruce or cedar species as approved. [ . . . ] until such time that these species are added to India’s approved import list, they are in essence barred from shipment to India.
The Canadian Food Inspection Agency, the Canada Wood Group, Natural Resources Canada, and the Canadian High Commission in India have been working cooperatively to resolve this issue.
India recently published a draft notification proposing the addition of the outstanding spruce component to India’s plant health regulations.”
In the quest for clarification, Madison’s spoke to Gordon Wilson at Maradadi Pacific.
“For seven years from the beginning of 2000 there were a number of Canadian companies moving wood product into India,” said Wilson. “Having put significant effort into increasing a customer base in India myself, it is my experience that there are no health issues in India that don’t exist in China. The difficulty was not in India, but was with regulatory agencies in Canada.”
Wilson explained that the real issue in India was one of language, that Indian customers did not understand the term ‘softwood’, thinking it meant the wood was rotten.
“We did a lot of work in rebranding, calling it Canadian Brightwood instead, since most of the wood Indian customers are used to seeing is dark hardwoods like teak.”
Madison’s checked the actual wording of India’s requirements, available here http://www.plantquarantineindia.org/docfiles/Schedule-VIe.HTM Item 315, the requirement states: “Spruce (Picea abies), Wood without bark from North America must be Fumigated with Methyl bormide at 48 g. per cubic meter for 24 hrs. at 21C and above or equivalent thereof or heat treatment at 56C (core temperature) for 30 minutes or any other treatment approved by PPA. The treatment should be endorsed on Phytosanitary Certificate issed at the country of origin/ re-export.”
Is it possible that this confusion could be resolved simply by heat treatment or kiln drying the lumber? Another email to the Ministry of Forests inspired this explanation: “The Ministry of Agriculture in India currently allows for the Picea abies species, or Norway Spruce, which is not yet a commercial species in Canada. Here, we have picea glauca or picea engelmannii spruce, which is not yet listed on their allowable species.”
Madison’s then uncovered several related documents by a variety of sources including the Canadian Wood Council, the USDA, Oregon State University and BC’s own Ministry of Forests.
“Lumber and Wood Products Market in India” prepared by BC’s Trade and Investment Officer in January 1999 makes no mention of phytosanitary restrictions. Find the full report here http://www.llbc.leg.bc.ca/public/pubdocs/bcdocs/332000/indiawood.pdf According to this report: “The main challenges to entering the Indian market are the lack of knowledge of BC softwood products and an underdeveloped local distribution system. [ . . . ] There was a great deal of interest shown in BC solid wood flooring which was displayed by BCWSG at Showcase ’98. [ . . . ] While there is little or no awareness of softwood lumber and wood products in India there is growing demand for finished wood products in the market.”
“Exporting US softwoods to India: facts and findings” prepared by forestry professionals at Oregon State University in May 2007 for the US Softwood Export council states: “Key characteristics of the marketplace include a very tight and cohesive relationship among traders and the presence of a very few key players who dominate the market. This report is based on findings from such key importers of softwoods in India. [ . . . ] There is literally no knowledge about US softwoods. Key importers need more awareness and education about US softwood species.” That report is available here http://owic.oregonstate.edu/pubs/india.pdf
“Road to India Wood Market Feasibility Study” prepared for the Canadian Wood Council in December 2006 and available here http://www.cwc.ca/NR/rdonlyres/2C640351-76C0-4E03-BC35-7C8DF3730698/0/RoadtoIndiaWoodMarketFeasibilityStudy_modified.pdf states: “Canadian forest products exporters continue to face several challenges in the Indian market, including the price sensitivity of the Indian market, lack of knowledge of Canadian wood, and a tariff structure designed to discriminate against the import of higher value-added wood products.”
Finally, and most recently, “Wood and Wood Products in India”, prepared by the USDA in December 2009 states only: “Until 2007-08, imports of softwood lumber did not exceed $262,223. However, in 2008-09, softwood imports reached an all time high of $1.18 million, accounting for almost 9 per cent of India’s imports of US wood. The growth of softwood lumber imports is significant because it indicates potential demand for American softwoods in high end residential and commercial architectural, design and construction sectors.” That report can be found here http://www.stat-usa.gov/agworld.nsf/505c55d16b88351a852567010058449b/1cc684692cbc1d2285257641000e3b2d/$FILE/IN20090916A.PDF
No where among these detailed studies, covering a wide scope of issues including species and domestic Indian demand, is there mention of a restriction on North American white wood spruce. Readers are invited to contact us with further relevant information. Apparently the restriction is no more than a clerical error or bureaucratic oversight. If this is the case, those in the industry who wish to expand their export business should run, not walk, to their nearest Canadian Food Inspection Agency, the Canada Wood Group, Natural Resources Canada or BC Ministry of Forests office and demand immediate action to rectify this relatively insignificant clerical issue.
– additional research provided by Rob Scagel at Pacific Phytometric Consultants
Madison’s Timber Preview
Attendance at the US National Association of Home Builders’ annual International Builders’ Show, held at the Las Vegas Convention Center last week, was down significantly from 2009 and 2008. The presence, however, of private equity funds willing to bankroll building projects at high interest rates increased over previous years. It seems US builders, even those with contracts from qualified buyers, are having trouble securing funds from traditional sources like banks and thrifts.
More on this, and the latest US home building and home financing statistics, are featured in this week’s Madison’s Timber Preview.
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Mackenzie Pulp Mill Offer
BC’s Minister of Forests and Range, and Integrated Land Management, Pat Bell, told the CBC this week that one of Asia’s biggest pulp companies is showing interest in a Mackenzie mothballed pulp mill.
The Indonesian firm Sinar Mas, already running a Canadian mill in Saskatchewan, is considering taking over the former Pope & Talbot mill, according to Bell. The company is currently conducting due diligence and Bell says he’ll likely know more within 45 days.
Indonesia’s Sinar Mas
Asia Pulp & Paper, a subsidiary of Sinar Mas, is also showing interest in one of Tembec’s closed Quebec pulp mills, in Saint-Gaudens, according to La Dépêche du Midi.
Sinar Mas is continually accused of poor forest management practices in Indonesia, including deforestation. The Indonesian forest products giant is perhaps best known in North America for defaulting on US$14 billion worth of debt in 2001 — the largest default in Asian history.
Its US creditors agreed to a debt-revamp plan. APP’s default was a consequence of the 1997 Asian financial meltdown. Its sales were in the Indonesian rupiah, which collapsed in the crisis, but its debt was in US dollars, making it impossible to repay debt from cash flow.
US Existing Home Sales
December sales of previously occupied homes in the US took their biggest monthly drop in more than 40 years, the National Association of Realtors said Monday. The drop came despite a move by Congress to extend the time for homebuyers to use a tax credit.
Sales in December fell 16.7 per cent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the Washington-based association said.
US Real Estate
For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 per cent higher than 2008’s total. That was the first annual sales gain since 2005.
In November, the planned tax credit expiration helped existing home sales gain 7.4 per cent — and that followed a 10 per cent surge the previous month.
First-time home buyers accounted for 43 per cent of sales in December, down from 51 per cent the previous month. Distressed transactions made up 32 per cent of the sales.
Sales of previously owned single-family homes, the largest segment of the housing market, tumbled 16.8 per cent last month. Sales of existing condominiums and co-ops dropped 15.4 per cent.
North Pacific in Receivership
Tigard, OR, based North Pacific Group Inc., one of the largest wholesale distributors of wood products in the US, defaulted on US$42 million in debt late last week. Today the company set a Friday deadline to accept bids for its business units.
North Pacific has sold offices and holdings, including nine distribution centres, to Atlas Holdings. Some smaller Canadian cedar operators were using North Pacific facilities as reloads. Some truck operators, contracted to pay $60,000 in wood products, were left holding the bag as trucks en route to customers were suddenly placed in receivership.
North Pacific Group has been a major sponsor of the annual NAWLA convention.