Log Prices Globally ; Timber Preview ; Quebec Forest Industry Stimulus; US Economic Indicators; Buchanan Forest Products; New Technology in Wood Processing ; New Brunswick Provides More Aid to Forest Workers ; Lumber Production ; AbitibiBowater Midnight Deadline; January Housing Starts in Japan ; US Housing Starts Forestry Roundtable ; Madison’s Timber Preview; Canadian Housing Starts; Wood Home Building in Japan; Biomass Fuel ; Wood Fibre Prices Globally ; Mill Down Time; US Pending Home Sales
March 27 , 2009
Log Pricing
While at the Truck Logger’s Association annual convention in January this year, Madison’s was alarmed at the announcement by the Coalition for Fair Lumber Imports that they will not be satisfied in their complaints against the Canadian lumber industry until the US has “full access to BC logs”. In later discussions with two primary members of the Coalition, Madison’s learned that a combination of drastically reduced stumpage on beetle-kill logs in the BC Interior, and the supposed “cooking” of good wood to produce cracks thereby rendering it eligible for the discounted stumpage, prompted the hard line attitude. Madison’s suspects further that the unexpected announcement of a 70 per cent reduction in stumpage on the coast by BC Premier Gordon Campbell at the TLA convention further entrenched the Coalition in its position.
Madison’s then researched the processes other regions use to value their timber. In British Columbia the old model was for the government to determine what its next annual budget was going to be and, taking into account the Annual Allowable Cut, set a stumpage rate based simply on receiving the forest industry’s portion of the budgetary needs. A move towards a more market-based system in recent years, directly in response to the US complaints of subsidies, created the current system of using log costs at auction for the large producers to set the price for a pre-determined time period. The US is still not happy with this new system, claiming that unless the market is open fully, not just to large BC-based producers, it is still a form of subsidizing.
The US’s Pacific Northwest is a region geographically similar to British Columbia, with corresponding species and terrain. Largely the purview of private land owners, timber prices in the US northwest are clearly posted on the US Forest Service website. For the state of Washington, the price list goes all the way back to 1977.
Four billion board feet of timber was harvested in Washington State in 2007. In 2Q 2008, the average (by distance) price for Zone 6 and 7 high quality Douglas Fir logs was US$210 mfbm (Scribner’s log scale). The average price for high quality Spruce-Pine-Fir logs was US$182 mfbm (Scribner’s log scale). This compares to harvests in Louisana, where 1.2 billion board feet of timber was harvested in 2007; the state-wide average price for Southern Yellow Pine sawtimber was US$290 mfbm. (Source: USDA Forest Service ).
From that point, determining timber values got a bit complicated. Quebec, Canada’s second-largest lumber producing province by far, is in the process of switching from a complex system of charging per hectare for timber depending on the region (or zone) to an auction-based system. This effort is being made despite having been found by the Coalition to be subsidized by only 0.1 per cent under the old system. In 1997, harvesters in Quebec paid US$42 per cubic meter (US$126 mfbm) according to Wood Markets International (http://www.woodmarkets.com/PDF/q3984-5.pdf).
Out of curiosity Madison’s sought comparable information from lumber producing areas overseas. The UK also has a complicated method to calculate timber costs, made all the more cryptic with a price index based on previous years. However the fact is that 9 million green tonnes (50 million board feet) of timber was harvested in the UK in 2007. According to the UK Department of Forestry, “The softwood sawlog price index was 14 per cent higher in real terms in the six months to March 2008, compared with the corresponding period in the previous year.” (UK Forestry Dept).
Given these trends and statistics worldwide, when looking at British Columbia where, it is important to remember, there is the densest concentration of some of the highest quality trees in the world, it is puzzling that timber costs (or stumpage) have fallen recently. The $0.25 stumpage on beetle-kill wood in the Interior is a good policy in terms of taking down infested trees while there is still time to process them into lumber. However the temptation for forest products companies to take advantage of this opportunity to claim the reduced stumpage has been too great for some operators. Instances of harvesting healthy trees around stands of beetle kill then claiming the $0.25 stumpage, while leaving the dead trees behind, are well known, in addition to the specialized kiln drying to create checks, as already mentioned.
However, on the coast, where the most valuable trees grow, the BC government deemed it necessary to cut coastal stumpage rates by more than 70 per cent to reflect tough economic times in the forest industry, bringing the average sawlog stumpage price on the coast to less than $5 per cubic meter, compared to a rate of $18.56 per cubic meter one year ago. When asked by the mainstream media about a potential angry response to the reduction in stumpage by the Coalition, Premier Campbell shot back, “They should be happy. It’s a reflection of market conditions.”
Such an attitude begs the question: is this an appropriate response to the market? Or is it a feint attempt to provide a quick solution to mill closures and job losses? Frankly, to truly be a response to market conditions, the price of timber in British Columbia would have to go up, as it is in the rest of the world, not down. Given that the timber is on crown land, with the proceeds meant to be placed in the public trust and used to run the province, the obvious query jumps to mind, “Who exactly is benefitting from the reduced stumpage?”
Quebec Forest Industry Stimulus
The Province of Québec announced a $15 billion stimulus package in its 2009-2010 budget this week. The Minister of Finance, Claude Béchard, explained that higher spending and falling revenues mean Québec will post a $3.9 billion deficit in 2009-10, its first deficit in a decade, and the province won’t balance its budget again before 2013-14.
In terms of the forest industry, a $22 million program will help finance the planting of 35 million trees this year. According to the ministry, an additional $26 million will be spent on preparing seedlings to be planted in 2010. Over the next two years, $2 million will go towards upgrading forestry roads in controlled hunting and fishing zones. The province will also invest $15 million in the development of value-added forestry products over the next two years.
Béchard also noted the provincial government and the Québec Federation of Labour Solidarity Fund are co-sponsoring a $500 million emergency financing fund available to the forestry sector. Additionally, under the Québec employment pact, the forestry industry also has access to $518 million to protect jobs.
US Economic Indicators
While unemployment figures still grow, almost all other important economic indicators in the US are showing signs of hitting bottom, if not actually starting to rise.
US Economy
Sales of existing homes in the United States rose by 5 per cent in February to a seasonally adjusted annual rate of 4.72 million units, the fastest increase since April last year, the National Association of Realtors reported Monday.
Regionally, existing home sales in the Northeast jumped 15.6 per cent in February, but are 15 per cent below February 2008. In the Midwest increased by 1 per cent in February but are 14 per cent lower than a year ago. In the South, existing home sales rose 6 per cent in February but are 11 per cent below February 2008. In the West increased 2.6 per cent in February and remain 30.4 per cent higher than a year ago.
Total housing inventory at the end of February rose 5.2 per cent to 3.80 million existing homes available for sale, which represents a 9.7 month supply at the current sales pace, unchanged from January.
The median price for existing homes fell by almost 15 per cent in January compared to one year ago, to US$165,400, the second largest drop on record, thus improving the affordability for potential buyers.
Lawrence Yun, NAR chief economist, said first time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges. “Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 per cent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 per cent less than the normal market price, and this naturally is drawing down the overall median price.”
New home sales in the United States rose by 4.7 per cent in February, the Commerce Department reported Wednesday.The new home sales was much better than the 323,000 units that analysts had expected. The February sales pace was down 41 per cent compared with February 2008.
The median price of a new home, a typical market price dropped to US$200,900, down a record 18 per cent compared with February 2008. This is the lowest median prices since 2003.
In a separate report issued Wednesday, the Commerce Department reported that orders for US manufactured durable goods rose unexpectedly in February after six straight months of decline.
The 3.4 per cent increase in orders for durable goods, big-ticket items expected to last at least three years, was much better than the 2 per cent decrease that had been expected.
US President Barack Obama assured Americans on Tuesday that there were “signs of progress” toward recovery, while pleaded for more time and patience.
Pierre Ellis, Senior Economist with Decision Economics said, “The rise in new home sales suggests that the drop in mortgage rates and prices has increased affordability enough to bring some buyers back to the market.”
“It’s a favorable turn of events and it looks as if builders are taking it seriously and they’re on the ground and not being foolishly optimistic anymore. New permits data show a sharp pickup in February in the single-family sector so that adds to the optimism.”
Buchanan Forest Products
Once northwestern Ontario’s biggest employer, Buchanan Forest Products Ltd., went into receivership this week. Almost all of its salaried employees, more than 40 people, have been let go. Salaried staff at eight idled sawmills located across northwestern Ontario were laid off, including managers and engineers. Only general managers and one or two support staff remain at each site. The layoffs came the same week as another northwestern Ontario forestry company announced it will shut down. About 240 employees were informed Tuesday that the owners of Marathon Pulp Inc. have decided to declare bankruptcy.
March 20 , 2009
New Technology in Wood Processing
Phillip Evans, the University of British Columbia’s new BC Leadership Chair in Advanced Forest Products Manufacturing Technology, took some time out of his busy schedule to talk with Madison’s about exciting new developments in wood processing, and his plans for future research. Sprinkling words like nanotechnology, plasma modification, micro fluidic devices and bio-memtics throughout the conversation, Evans will continue his work in studying the surface properties of finished wood products in order to make them both more durable and to maintain a good appearance longer.
Nanoparticles and Plasma Modification
Sounding like a science fiction movie, developments in wood processing, treatment and coating are moving increasingly toward new innovations and new technologies.
Phillip Evans, who this week won a gruelling global competition to become BC Leadership Chair in Advanced Forest Products Manufacturing Technology, recently published an interesting paper on the use of large-scale nanotechnology in wood preservation.
Since 2006, a number of North American chemical companies have commercialized wood preservatives that consist of copper carbonate particles, states Evans’ paper, published in the October 2008 issue of Nature Nanotechnology. Evans and his co-writers point out that the market for treated wood in North America is valued at almost US$5 billion annually, including approximately 20 million cubic meters of wood treated with aqueous, mainly copper-based, preservatives.In 2008, use of new nano-copper preservatives captured 50 per cent of the lucrative North American wood preservative market, making wood protection one of the world’s largest uses of nanoparticles.
Now publicizing his recent invention of a wildly popular machine which compresses the effective duration of deck boards air drying for 20 weeks into five days, Evans is launching a two-pronged research project at UBC. The basic premise of one aspect of his work will involve making wood more durable outside, and modifying the wood gluing process.
The other, more esoteric, aspect will involve research into “why is wood so effective at keeping trees standing, and at conducting water upward?” By finding ways to modify the surface layer of finished wood so coatings don’t wear off, Evans expects to extend the time between sanding and repainting or restaining considerably. Added benefits would include making wood more resistant to weather and insects.
These improvements would make wood more competitive against other building products. In researching a process called plasma modification, Evans plans to improve the strength of glue bonding. Glue has difficulty permeating the surface of high density species, causing low success rates in bonding. British Columbia, for example, uses Douglas Fir for glulam, however coatings and varnishes do not easily penetrate the surface.
The Industry Canada website explains that North American demand for glulam has remained relatively stable at around 700 000 cubic meters annually (300 million fbm), and that glulam is used in residential construction, office buildings, schools, and other institutional, commercial or recreational buildings as a substitute for steel.
Evans points out that, in terms of competition with other building materials, wood has great potential for growth in the future. Concrete, for example, degrades over time and is currently reinforced by bonding with steel. Wood, on the other hand, has both the porous surface of concrete and hollow tubes inside which can be used to transport glue, water or other fluids upward even long after being processed.
With the research being carried out at the Centre for Advanced Wood Processing at UBC, together with FPInnovations and the lumber industry, new and better uses for wood are sure to be found.
“As a wood scientist, I’d definitely like to see consumers and the building and construction industry use more renewable resources such as wood, instead of turning to more energy-intensive materials such as plastic, metals and concrete,” says Evans. “Our research has shown wood can be utilized in many areas where it was previously thought to be unfit.”
New Brunswick Provides More Aid to Forest Workers
Building on a program launched in February where the federal and provincial governments joined together to provide $3.1 million for retraining older workers, New Brunswick this week announced additional tax credits to aid the forestry sector. Those eligible for the Forestry Industry Investment Tax Credit will be entitled to a rebate of up to 50 per cent off the capital investment made in new qualifying equipment, and up to 50 per cent off provincial property taxes paid.
The province has also extended the tax credit for high energy users until March 31, 2010. The credit, which is available to pulp and paper mills, aims to offset energy costs and provide about $5 million in assistance to qualified businesses.
Lumber Production
A report published this week by PricewaterhouseCoopers portrays an expectedly gloomy picture of the Canadian pulp and paper industry. Generally speaking market pulp prices trend behind lumber prices, although pulp does experience its own five year price cycle as well. Pulp prices enjoyed a cyclical peak through most of 2008, but crashed badly into autumn.
Export Figures
The current down cycle in market pulp is not expected to recover until mid-2010 at the soonest, while lumber is expected to start seeing a price rebound in early 2010. This week the European price for market pulp is US$578 per metric ton, down US$46 from the beginning of 2009, according to FOEX,fi. In January 2008, market pulp was selling for US$875 per metric ton in Europe.
The PWC report found that the largest players lost more than $3.3 billion in 2008, including $1.3 billion in the fourth quarter, but noted that the net losses include one-time charges that don’t reflect the operating position of companies. Excluding adjustments by Domtar Inc. and Timber- West, the fourth-quarter loss by 13 companies would have been about $940 million. Five major forestry companies in eastern Canada had quarterly losses totalling $954 million in the three months ended December 31 – mostly because Domtar Inc. took a $700-million impairment charge. That compared to $106 million of losses a year ago.
Meanwhile, the eight western forestry companies tracked by the report had net losses totalling $641 million in the fourth quarter, although TimberWest had a $330- million profit due to a $340 million net gain from its fair value adjustment on modification of debt. In terns of sawn timber for building materials, Canadian exports have fallen from 84.5 million cubic meters in 2004 to 72 million cubic meters in 2007 and 57.3 million cubic meters in 2008.
The value of Canadian forest products exports fell by 16.5 per cent in January 2009 compared to January 2008, and 12.8 per cent from December 2008. Monthly export figures by Statistics Canada show that softwood lumber exports in January 2009 were 651,089 mfbm, falling in February to 647,394 mfbm. Refer to page five for export graphs on Canadian wood and pulp products over the past five years.
AbitibiBowater Midnight Deadline
Several US news agencies reported late Thursday that AbitibiBowater’s recapitalization plan was meeting resistance from bank creditors. US banks hold a relatively small amount of the company’s massive $6 billion debt, but the company’s fate is in their hands, given their position as secured lenders. As secured lenders, the banks’ approval is needed if Abitibi- Bowater is to go ahead with a move to restructure US$1.8 billion of debt at its Bowater Inc. subsidiary. In addition to its secured loans, Citicorp also holds some of Bowater’s unsecured debt, including a portion of a US$250 million debenture issue that comes due in August.
Abitibi’s Financial Woes
Unconfirmed reports that Abitibi was unable to meet Wednesday’s deadline related to repayment of a US$347 million term loan fuelled speculation of bankruptcy and sent company stocks sharply downward. AbitibiBowater has until midnight Friday to renegotiate its debt. The deadline has already been extended twice. Several US congressmen and senators have reportedly been appealling to the banks to loan out some of the funds recently received in US government bailouts, due to the sheer number of AbitibiBowater paper mills across the US, and Canada, that seem to be in danger of closing.
January Housing Starts in Japan
With two consecutive months of decline, housing starts in Japan fell 19 per cent in January compared to January 2008. The rate of decline for housing starts widened sharply from 5.8 percent in December after posting gains for five straight months through November in reaction to a sharp contraction caused by a new stricter building code introduced in June 2007.
Seasonally adjusted annual housing starts were 957,000 for January. Declines were in the double digits across all categories; detached units, rental units, and units built for sale. The January figure for detached units in the Tokyo was the lowest ever recorded, at 19 per cent. Wood based home construction accounted for 47 per cent of the total.
Other ministry data that came out simultaneously showed that Japan’s top 50 construction firms received building orders worth 578.9 billion yen, down 38 per cent from a year earlier, which is the sharpest fall ever.
US Housing Starts
Seasonally adjusted housing starts in the US rose by 22 per cent in February, due largely to new condo building in the northeast. Permits rose 3 per cent, and single family new h ome building rose 1.1 per cent over January 2009.
Construction of single-family homes climbed 1.1 per cent to a 357,000 rate, the report showed. Work on multifamily homes, such as townhouses and apartment buildings, surged to a 226,000 pace from 124,000 in January. Overall housing construction activity fell to a pace of 477,000 units in January – a record low – according to revised figures. US housing construction is down a whopping 47 per cent from a year ago.
All areas of the country reported an increase in February, except the West, which has been hardest hit by the housing slump. For now, mortgage borrowers are hard-pressed. Foreclosure filings climbed 30 per cent in February from a year earlier, and a total of 290,631 homes received a default or auction notice or were seized by the lender, according to RealtyTrac Inc., an Irvine, CA based seller of default data.
“We expect demand for all homes, both new and existing, to remain far below normalized levels,” Chief Executive Officer Ara Hovnanian said in a March 10 statement. Still, the Red Bank, New Jerseybased company said it contracted to sell 506 houses in February, the most in six months. As part of its continued effort to jump-start the stagnant real estate market, the US Fed said this week it would expand by $850 billion to $1.45 trillion an existing program to buy debt and securities issued by mortgage finance agencies. The expansion of the program, which already had lowered mortgage rates, immediately pushed borrowing costs down further.
Quicken Loans said rates on 30 year mortgages fell as much as 0.375 percentage point to 5 per cent. The surprise announcement jolted markets. US stocks shot higher and yields on US government bonds took their biggest one-day tumble since 1987, while the dollar plunged to a two-month low against the Euro.
Many economists say the Fed will not even contemplate interest rate increases until the unemployment rate, which soared to a 25 year high of 8 per cent in February, declines.
March 13 , 2009
BC Forestry Roundtable Report
The long awaited report by the BC Forestry Roundtable was released this week. Madison’s examines the recommedations closely. Interviews with both Minister of Forests and Range Pat Bell and NDP Forestry Critic Bob Simpson provide interesting insights into the 29 recommendations listed in the report.
Forestry’s Future Direction
Early in 2008 the BC Forestry Roundtable was created by the provincial government to address rapidly increasing problems for wood products companies in British Columbia. The 15 month, 19 member project made 29 recommendations in its report published this week. Madison’s studied the Roundtable report, finding that the loose wording and informal design format of the paper leaves a lot open to interpretation.
The most significant proposals include:
- the establishment of commercial forest land reserves,
- the creation of long-term, area-based forest tenures,
- the extension of First Nation’s tenure to 25 years,
- and the establishment of short rotation fibre plantations.
A shift in silviculture practices to provide more quality fibre from a smaller land base is suggested, such as planting short-rotation, hybrid forests with 15 year maturation (likely Poplar) on BC Hydro power lines. Apart from filling the gap until a sizable portion of beetle kill forest can be replanted, this recommendation would provide the province with afforestation credits and it will release BC Hydro from the costs of maintaining the power lines.
A pilot project will be launched soon, said Minister of Forests and Range Pat Bell in an interview with Madison’s. Extending First Nation’s tenure rights, as well as giving forest-based rural communities more control over surrounding forests, would provide immediate benefit from the surrounding area to local residents. Such communities, which traditionally rely on the forests for their livelihood, and the First Nations, with a proven stake in natural resources, would benefit by participating in the forest economy with the opportunity to manage and harvest timber to reap the resulting revenue.
The report states that, “Some Roundtable members felt that government should provide communities with a percentage of the stumpage that is collected through harvesting around their communities.”
The most discussed recommendations by far, however, are contained in number seven, the establishment of commercial forest land reserves where wood production will be a primary focus; and number 18, area-based tenure. Aimed at creating a globally competitive, market based operating climate, recommendation seven points out that for the past 20 years, BC lumber and pulp mills have earned very low returns on investment. In order to remain globally competitive, and to attract investment, efforts should be made to reduce costs of operating by streamlining interactions between government agencies and industry.
Recommendation 18 calls for the availability of “smaller area-based tenures to volume-based tenure holders making those areas more secure, provided they are willing to surrender a portion of their current volume.”
It is this final suggestion which bothers Bob Simpson, NDP Forestry Critic. In his mind, the Roundtable would effectively “give a small group of large companies access to most of the timber.” Simpson claims that this kind of corporate concentration will only encourage more overproduction of dimension lumber. In their own forest strategy proposal released at the beginning of 2008, the NDP opposition party would rather see a “complete reform of the tenure system. Take 50 per cent of the tenure back from the large licensees, create a log market, with complete control over all land use”, explained Simpson.
Pat Bell, Minister of Forests and Range, favours continuing with the current system, which has already seen a “20 per cent buy back of tenure”.
“There needs to be willing sellers and willing buyers,” explains Bell. “There is no magical pool of money to compensate licensees. There needs to be a well-defined, compensation system if there is to be a taking of tenure.” Bell’s understanding is that the report balances three main issues: 1) long-term tenure holders, companies investing $100 million in facilities and needing a stable timber supply, and medium-size manufacturers, needing more wood competitively available, will have use of 60 per cent of the available commercial forest, 2) rural forest-based communities and First Nations needing more control over surrounding resource management, will have use of 20 per cent of commercial forests; and 3) BC Timber Sales will have control over the remaining 20 per cent. Bell fully concedes, and the report states that, “The demand for forest tenure greatly exceeds the supply available.” Bell maintains that the only solution is a “balanced system which represents the values of all three issues and provides security for long term investment.”
Bob Simpson maintains, however, that the province is “over licensed for logging for the timber available,” and claims the only solution is to “lock down the rights of major licensees.” Simpson goes further in pointing to the Association of BC Forest Professionals, which claims the government’s timber inventory data is seriously flawed.
Both men declare that silviculture volumes and practices need serious assessment, and that fuel from biomass will play a huge part in the future revenues of wood products companies, indeed of forest-based communities, the First Nations and the taxpayers of BC as well. The Roundtable report devotes several pages to biofuels, suggesting the growing sector could used to provide much-needed jobs immediately. Madison’s reported last week on BC Hydro’s announcement of Phase II of its bioenergy plan, and will continue to follow any developments in the vital industry closely.
Further movement toward an even more market-based timber pricing system, including internet based sales, and a reduction in municipal taxes to forest products companies to better reflect the current financial environment, round out the report. In terms of the Coast, the report glosses over the subject, making only a few vague references to the coastal industry throughout.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines the activities of Brookfield Asset Management subsidiary Tricap Partners LLC, into Ainsworth Lumber Co.
Contact us any time for a subscription.
Canadian Housing Starts
Housing starts in Canada declined to 134,600 units in February from 153,500 units in January, according to Canada Mortgage and Housing Corporation, to the lowest level in more than eight years, because of fewer starts on multiple-family dwellings.
New home construction is slowing to more sustainable levels and starts are forecast to come in at 160,250 units, within a range of 141,000 to 180,000 units in 2009. These trends are reflected in the year-to-date actual starts. These decreases, however, should be viewed in the context that housing starts have been exceptionally strong over the past 7 years, exceeding 200,000 units per year.
Construction started on just five new homes last month, a 91 per cent drop from February of 2008. The seasonally adjusted annual rate of urban starts decreased 15 per cent to 107,800 units in February. Urban multiple starts decreased 16 per cent to 63,300 units, while urban single starts fell 11 per cent to 44,500 units in February.
“Increased listings and reduced sales in the existing home market continue to impact the new home market,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The decrease in February housing starts is partly attributable to the volatile multiple starts segment.”
In November new home starts plunged by 46 per cent, in December the drop was steeper at 78 per cent and now the first two months of 2009 show a 91 per cent decline. The CMHC expects the resale market to start turning around in 2010 and, perhaps early in 2011, to see that change start to be reflected in the number of new home starts.
Things have gotten much cheaper for those who can afford to renovate, said Rob MacCallum, president of the Canadian Home Builders Association Central Vancouver Island branch, as interest rates have fallen and contractors are looking for work. “It’s a great time to be building, to be blunt,” he said.
Wood Home Building in Japan
A report by the Japan Lumber Journal has determined that from 1998 to 2007, North America’s share of the Japanese lumber market has declined dramatically, while Europe’s share grew. Domestic Japanese lumber sales dropped from 16 per cent to 8 percent in the same time frame, finally recovering to 12 per cent.
The Japan Lumber Journal report found that North American lumber producers were supplying timber products based on a production-side logic, while European producers were supplying products more in demand with Japanese users.
The usage of green lumber in Japan declined to 22 per cent in 2001. For example, in 1995 green lumber was used for all beams, but in 2001 the precentage of green lumber for beams fell to 25 per cent, while KD lumber accounted for 34 per cent and laminated/LVL accounted for 41 per cent.
By 2007 the percentage of laminated lumber/LVL for beams was 83 per cent. In 1998, green lumber accounted for 98 per cent of all gound sills. By 2007 the breakdown was 48 per cent laminated lumber/LVL, 12 per cent KD lumber and 40 per cent green lumber for ground sills.
The trend towards more dried lumber in Japanese home building has lead to a predominance of European timber on the market. “In general, European producers have sophisticated drying technology, and their products are superior to North American products n terms of drying quality,” states the report. “Also, laminated lumber is strongly supported by field carpenters.”
Currently, the percentage of dried wood among domestic lumber products is considered to be around 20 per cent. The total amount of timber used for a traditional wooden house is 21 cubic meters.
March 06 , 2009
Biomass Fuel
This rapidly growing industry is beginning to display signs of taking off even more forcefully than previously anticipated. The development of technology and the building of facilities which use biomass to make green fuels of various types are coming to light on an almost daily basis. Just this Thursday, BC Hyrdo made an announcement of the second phase of its Bioenergy Call for Power, where any form of biomass will be eligible and it will include wood waste sourced from new forest tenure enabled through provincial legislation in May 2008. The target is to acquire 1,000 gigawatt-hours per year of energy through this stream.
Just one exciting developement in biomass fuels globally.
A Growing Enterprise
Building on previous scientific discoveries and progress in tapping the huge resource of wood residue for fuel, in August 2008 a pair of scientists at Texas A&M University announced a process that makes converting biomass to high-octane gasoline possible. (Refer to your July 17, 2008 issue of Madison’s Reporter for information on the breakthrough in making green gasoline). While most other emerging processes convert the biomass into alcohol and then blend it with gasoline, this advanced method converts biomass directly to gasoline both inexpensively and with a focus on using biomass waste streams and non-food energy crops.
Through an agreement with the Texas A&M University System, Byogy has licensed the process and hopes to have a plant using the technology up and running within 18 months to two years. The cost of such a conversion would lie between US$1.70 and US$2.00 per gallon excluding all government subsidies and tax credits. This cost range is dependent on the type and cost of feedstock as well as the size of the biorefinery.
The Province of Ontario, with its energy consumption problems and propensity towards nuclear energy, decided in November 2008 to convert an old coal mill in Nanticoke to burn biomass for fuel. Expecting an 18 month time frame for testing, the province has already begun trials; the Atikokan plant successfully burned only wood pellets in July for one day and a three-day test was conducted in early December. Atikokan will likely be the first plant converted to biomass. Its boilers are better suited to burning biomass, it can receive fuel by railcar and wood supply from forest slash and sawmill residue is plentiful in northern Ontario.
The biggest challenge, however, would be making sure there is adequate supply of biomass fuel. The province is talking with forest-product companies about supply issues, envisioning the signing of a longterm contract for biomass supply that assures stable pricing, secure supply and the economies of scale that can turn niche markets into massive industry.
Not to be left behind, Danish biotech pioneer Inbicon, already successfully operating grain-ethanol facilities, is working together with US based G-team to bring commercial-scale cellulosic ethanol to North America. Inbicon is putting the finishing touches on a new engineering and business model that incorporates its proprietary technology for converting biomass to ethanol. The G-team is a group bringing together biofuels specialists from marketing, technical, and business disciplines. A joint statement says, “Bringing Inbicon’s cellulosic technology to commercial scale will help producers start taking advantage of government mandates. We believe Inbicon can play a vital role in helping the US and Canada shift to lower-cost, cleaner, renewable fuels like ethanol–especially ethanol made from nature’s leftovers like wheat straw and corn stover. And made without using fossil fuels to power the process.”
Meanwhile, the Energy Research Centre of the Netherlands has developed a method to produce synthesis gas through the gasification of woody or grassy materials. The so-called Fischer- Tropsch process converts this gas into very clean liquid fuels; for instance diesel. F-T diesel can be used without any problem in the existing infrastructure and in cars, and it causes less environmental problems compared with diesel from fossil fuels. A recent study shows that F-T liquids can be produced for 40 Euro cents /liter. A price for wood of Euro 75 /ton dm was used.
Similar projects and developments are too numerous to detail properly: Brazil’s Petrobras Biocombustível plans to invest around US$2.4 billion in biodiesel and ethanol production over 2009 to 2013 using second generation ethanol production technologies based on residual biomass feedstock; with a £3 million grant, Birmingham’s Aston University is working on a three-year project with the Indian Institute of Technology to develop bioenergy power plants in both India and the UK which will be fueled by waste and energy crops and using both combustion and pyrolysis technology; ArboraNano, the Canadian Forest NanoProducts Network, will receive $8.9 million over four years from the Government of Canada to create a new Canadian bio-economy based on innovative, highly-engineered, carbon-neutral products containing nanomaterials derived from forest resources; BC’s Nexterra Energy will begin to upgrade syngas made by gasifying biomass so that it meets the fuel specification of GE Jenbacher’s internal combustion engines to form modular biomass combined heat and power plants; and, Lignol Energy Corporation has completed construction of its fully integrated industrialscale biorefinery pilot plant in Burnaby, BC, using various non-food feedstocks such as hardwood, softwood, and agricultural residues to produce 100,000 litres per year of cellulosic ethanol.
The biggest complaint our research could find about this rapidly-growing technology is the cost of bringing fuel materials to the facility. Clearly this issue has been circumvented with relative ease by simply building facilities close to large quantities of biomass residue. The other complaint, of the danger of removing all organic material in an effort to maximize capacity thus preventing new trees from growing is also not an issue. These companies are planning to continue operations beyond the 50 year mark and are clearly aware that a sustained source of supply is vital for success. In fact, most of the companies have plans to plant grasses and fast-growing trees in areas already harvested.
Wood Fibre Prices Globally
Global wood fibre prices in 4Q 2008 experienced the largest drop in over 20 years, according to the Wood Resource Quarterly, with the average softwood fibre price falling 12 per cent to $97.32/odmt. This substantial reduction was both the result of a stronger US dollar against all currencies in the 17 WRQ regions with the exception of Japan, and because of lower costs in the local currencies in the western hemisphere.
Wood fibre costs in Western US have fallen by 22 per cent in just six months. The average hardwood fibre cost fell 11 per cent in 4Q 2008 to US$98.38/odmt, the lowest level since 2Q 2007. Eucalyptus pulplog prices in Chile have fallen almost 40 per cent in 12 months (in US dollar terms) reaching their lowest levels in over four years.
The fourth quarter was gloomy for the global forest industry. Every price indicator pointed downward, including prices for pulp, paper, lumber and wood panels. Prices for sawlogs, pulpwood and wood chips also declined, which was good news for manufacturers but increased the reluctance by many landowners to harvest timber.
The only wood-manufacturing sector that was able to keep prices up was the wood pellet producers as demand continued to be strong, particularly in Europe. The continued decline in demand for pulp and paper worldwide will force additional capacity to close temporary or permanently and, with reduced competition for wood fibre, it can be expected that wood fibre costs will continue to slide in 2009.
Mill Down Time
Long awaited major curtailments by large, low cost producers in BC were announced this week. Expectations are that a much-needed balance of supply and demand for dimension lumber products can finally be achieved. West Fraser Timber Co. announced Monday curtailments at seven of its BC sawmills, ranging from one to two weeks in length commencing March 16, 2009.
Total production curtailed is expected to be approximately 44 million board feet. A total of 1,160 employees will be affected by these curtailments, which are in addition to production currently curtailed at the of approximately 1,120 million board feet on an annualized basis.
Canfor Corp. will be reducing workweek schedules at its Clear Lake, Rustad, Polar and Vavenby sawmills, all in BC. The Company will be taking further curtailments at its Isle Pierre and Quesnel sawmills for a one week period, beginning March 15, 2009. In addition, effective March 23, 2009, the company will remove the third shift at its Isle Pierre operation. These decisions will reduce Canfor’s annualized lumber production by approximately 284 million board feet.
Carrier Lumber Group will be shutting down its Valemount Forest Products Ltd. operation in 60 days, company president Bill Kordyban announced Monday.
Responding to the current market demand, SFK Pulp Fund announced it will stop production at its Saint-Félicien, QC mill for six weeks. The company will also halt production at its Fairmont, WV mill for one month. These measures aim to reduce production by 45,000 tonnes of NBSK pulp and 25,000 tonnes of recycled bleached kraft pulp. The shutdowns are planned to take effect this month, and will result in the temporary layoff of up to 225 workers at the Saint-Félicien mill.
US Pending Home Sales
The real estate market in the US continues to be closely watched. Levels of home sale are a leading indicator to the health of the economy in general, and point to future demand for wood products in particular.
The monthly data released by the National Association of Realtors, which reflect deals that have been signed but not completed, showed that pending home sales fell by 7.7 per cent during the month and were off 6.4 per cent on the year.
Home resales fell by 5.3 per cent to an annual rate of 4.49m in January and were off 8.6 per cent year-on-year. The median price of an existing home fell 14.8 per cent on the year to $170,300. Economists said that homeowners have been reluctant to sell their homes amid falling prices, while buyers await the impact of the government stimulus package and new incentives such as the buyer tax credit. Falling sales and prices have brought home affordability to new highs.
According to the NAR housing affordability index, buying conditions are more favourable than they have been since tracking began in 1970. A year ago a median-income family could afford a $263,300, with a 20 per cent down payment but now that same family could purchase a home costing $283,400.
“Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales,” said Lawrence Yun, the NAR’s chief economist. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit” that was included in the $787 billion American Recovery and Reinvestment Act of 2009.
“Conditions have been aligning very favourably for home buyers, with the exception of consumer confidence,” Yun said, adding: “I am hopeful that sales will turn around by late spring and early summer, because history suggests that home sales can rise even in times of job losses when housing affordability rises.”