Lumber News Archives: Mar 2010

US Infrastructure Spending ; US Housing Starts
UBC Aiming to Buy Western Forest Products Land ; Japan’s Log Use ;Chilean Radiata Pine ; Madison’s Timber Preview ; Japan Housing Starts ; January Housing Starts, Canada ; Steelworkers Ratify Canfor Deal ; Merritt Pellet Mill Grand OpeningTaller Wood Framed Buildings ; Madison’s Live Online Lumber Producer Listings ; Canadian Housing Starts ; Pacific Northwest Wood Exports ; US Home Sales ; Madison’s Timber Preview ; Steelworkers, Canfor Sign Tentative Deal ; Pulp Producers Integrate Biofuels

March 29, 2010

US Infrastructure Spending

A newly-signed stimulus package in the US will bring infrastructure spending on highways and surface transportation in that country for the next five years. An extension to the “Highway Act” to the end of 2010, and funding, tax credits and rebates, and other incentives, are now available in a new bill signed Thursday by US President Barack Obama.

“Highway Act” Job Creation

The most recent multiyear federal highway bill, SAFETEA, (the Safe, Accountable, Flexible, Efficient Transportation Equity Act) was passed in 2005, providing US$42 billion per year nationally to fund highway and bridge projects for cities, counties and states. When it expired in September 2009, Congress extended SAFETEA, but only at a $30 billion annual level. The HIRE (Hiring Incentives to Restore Employment) Act passed on Wednesday by the US Senate and signed Thursday by President Obama extends funding for SAFETEA through December 31, 2010. The bill pumps US$19.5 billion into the Highway Trust Fund to ensure its solvency just in time for the spring construction season, restores US$8.7 billion in funding for states, and restores the funding to the federal highway program’s 2009 level of US$42 billion.

In addition to the highway funding, the bill provides hiring tax incentives, extends a tax break for small businesses buying new equipment, and modestly expands an initiative that helps state and local governments finance infrastructure projects. The bill will also allow the Highway Trust Fund to collect interest in deposits and pay fuel-tax exemptions for government vehicles out of the General Fund rather than the Trust Fund.

For US$18 billion in hiring tax credits, the Congressional Budget Office predicted the bill won’t create more than 300,000 jobs. Optimistically, this moves forward US job creation by about a month and a half.

“The beauty of this bill is; it’s simple, it’s focussed on private-sector job growth and it’s paid for,” said New York Democratic Senator Charles Schumer, one of the measure’s co-authors. “It’s modest, but … it’s almost a legislative dream.”

The Senate vote came as the House Ways and Means Committee approved a bill that lawmakers hope will generate jobs through infrastructure spending and tax cuts for investing in some small businesses. This bill would exempt long-term investments in certain small businesses from capital gains taxes, and would expand the Build America Bonds program, which subsidizes interest costs paid by local governments when they borrow for construction projects. The bond program would be extended through June 2013, at a cost of US$7.6 billion. The entire bill would cost about US$17 billion over the next decade.

These are the first of several jobs bills passed that had been promised by Democrats. Optimistic estimates predict the tax break could generate perhaps 250,000 jobs through the end of 2010, but that would be just a tiny fraction of the 8.4 million jobs lost since the start of the recession.

“The impact on hiring will be small,” writes Augustine Faucher, director of macroeconomics for Moody’s “Before business will really boost payrolls they need to be convinced that the recovery will strengthen.”

According to Moody’s prediction, America’s jobless rate will peak near 10.3 per cent in the second half of 2010 – a forecast the firm said it did not change as a result of the legislation Mr. Obama signed Thursday. This is a worrisome prediction for politicians since it means unemployment rate would be in the double digits when voters go to the polls in November.

The Highway Trust Fund extension will enable states and local agencies to advance mass transit and highway projects, creating and preserving 1 million jobs, said Democratic Senator for California, Barbara Boxer, who chairs the Senate Environment and Public Works Committee, in a prepared statement. “Now … we will focus on moving forward with a transformational transportation authorization that will create jobs and build the infrastructure America needs for economic recovery and long-term prosperity,” she said.

Senator Byron Dorgan, the retiring North Dakota Democrat with a track record of economic prescience, warned that real progress in job creation will only come if the administration addresses the toll of uncontrolled globalization. Likening today’s jobs bill to opening a (small) faucet, Dorgan noted: “Even as we do that, we’ve got a wide open drain.”

But he said that the minute you start talking about protecting American jobs in this town, “you are called some sort of xenophobic isolationist stooge who just can’t see over the horizon.”

“We are delighted that the House and the Senate have reached final agreement on this significant piece of legislation,” said John Horsley, executive director of the American Association of State Highway and Transportation Officials in a statement. “It’s a win for the economy and a win for workers and the communities which will benefit from the transportation projects to be built across the country.”

“The vast majority of the public understands that a commitment to congestion relief and safety investments on our roads and bridges will help every part of America become stronger,” said Greg Cohen, president and CEO of the American Highway Users Alliance. “This bill should provide stable guaranteed funding for our highways from 2011 to 2016,” Cohen said. “But Congress also needs to prepare the American people to pay for this bill ‘as-we-go’ with adequate highway user fees on gasoline and diesel. [ . . .] Without a new six-year bill, a weak and unstable highway program will be funded only in drips and drabs – leaving thousands of projects stuck on drawing boards and motorists stuck in congestion,” Cohen said.

Matthew Lewis of the US Center for Public Integrity notes, in an excellent examination of transportation lobbying, that political support for a particular project tends to be a far higher priority than the economic benefit a particular project may bring. As a result of this need to curry political favour, rural projects tend to get an outsize return on their tax investment and the pet projects of powerful politicians tend to get precedence. More egregious examples include Alaska’s “road to nowhere”, which leads to a non-existant bridge meant to connect Ketchikan with Gravina Island, where Ketchikan International Airport is located, and John Murtha Airport, which is located in a small Pennsylvania town and receives just three commercial flights a day.

US Housing Starts

US home construction tumbled in February, with major snowstorms crippling business already hobbled by foreclosures. Housing starts decreased by 5.9 per cent to a seasonally adjusted 575,000 annual rate compared to the prior month, the US Commerce Department said Tuesday.

While that was the biggest decline in four months, it followed an upward revision in the previous month’s data, when starts staged a 6.6 per cent gain. January starts were originally reported up 2.8 per cent.
February’s homebuilding activity remained above the level of 573,000 registered in December.

US Home Building

US building permits, an indication of future construction, fell 1.6 per cent to a 612,000 annual rate.
Breaking down the figures on starts, construction of single-family homes starts decreased 0.6 per cent from the prior month to 499,000.

Apartment groundbreakings – housing with two or more units – slid 30.3 per cent, to 76,000. Within that multi-family category, starts of homes with five or more units registered their biggest drop since January 1994, falling 43.1 per cent at 58,000.

Year over year, February housing starts in the US were 0.2 per cent higher than the pace of construction in February 2009, which was the pit of the recession.

The Commerce Department said actual housing starts fell in February compared to the prior month, to 38,800 from 39,200. The seasonally unadjusted number is closely watched by the lumber and commodities markets as a sign of demand.

The National Association of Home Builders on Monday reported US homebuilder confidence fell a fourth time in six months.

“Builders of new homes are simply having a very difficult time competing against ‘nearly new’ homes being dumped on the market by burned speculators and banks,” Weiss Research analyst Mike Larson said following the NAHB report.

“There are currently 3.8 million homes for sale and that is 8.4 months of supply at current rates of sale. Moreover, we estimate that another five to six million homes may yet be foreclosed. In total, that would be 21 months of supply,’ said Paul Dales, a US economist at macroeconomic research consultancy Capital Economics.

UBC Aiming to Buy Western Forest Products Land

The University of BC remains interested in acquiring former Western Forest Products tree-farm-licence land on northern and southern Vancouver Island, but the stumbling block is a wide gap between the price UBC is willing to pay and the amount WFP is seeking, according to the Times Colonist.

Although no price is being publicly discussed, any offer would be considerably less than the $50 million offered by UBC about 18 months ago. That offer was rejected by WFP, which was looking for between $120 million and $130 million.

The situation has now changed dramatically due to the amount of logging that has taken place over the past year and the sale of some of the northern Vancouver Island parcels, said Stephen Owen, UBC vice-president of external, legal and community relations.

“The [previous] offer was based on different log prices and a different forest base,” Owen said.

UBC Eyes WFP Real Estate

The pending sale of more than 2,000 hectares to the Capital Regional District for parkland is not a problem, as areas such as the Jordan River waterfront and Sandcut Beach were earmarked for conservation in the original UBC business plan, Owen said. “I am just delighted at the CRD’s actions,” he said.

However, large numbers of clearcuts in the 28,000 hectares removed from three Vancouver Island tree-farm licences in 2007 are more of a problem.

UBC planned to use the forest lands for light logging, ensuring a sustainable stream of logs to mills, research and intensive silviculture.

Japan’s Log Use

The percentage of domestic log use in Japan has been rapidly rising, now at 69 per cent for lumber, and at 64.8 per cent for plywood. These amounts have risen 2.3 times in five years, according to the Japan Lumber Journal.

Compiled by Japan’s Ministry of Agriculture, Forestry and Fisheries, the amount of domestic logs for lumber use in 2009 was 15.356 million m3, a 13 per cent decrease compared to the previous year, and 3.103 million m3 for plywood use, a 23 per cent decrease compared to the previous year, according to the Journal.

Japan Lumber Industry

The total amount of logs for lumber use and plywood use in Japan for 2009 was 18.459 million m3, a decrease of about 7.00 million m3 in three years, says the Japan Lumber Journal.

The amount of domestic logs for lumber use decreased 8 per cent to 10.599 million m3. The amount of imported logs decreased 23 per cent to 4.757 million m3.

For plywood use, domestic logs decreased 5 per cent to 2.011 million m3, and imported logs decreased 43 per cent to 1.092 million m3.

With the move to change to domestic logs for plywood, a fierce competition for softwood logs between domestic manufacturers suddenly broke out, so the balance between the cost of domestic logs and the price will be a hot topic for the near future, according to the Journal.

March 21, 2010

Chilean Radiata Pine

Rumours and speculation about the level of damage in Chile after the 8.8 earthquake have caused some uncertainty in specialty finished wood products, particularly radiata pine boards and mouldings, and sanded panels.
The majority of sawmills and pulp mills in that country are situated close to the earthquake epicentre at Concepcion, however damage to actual mills has not been extreme. One sawmill burned down, complete with lumber inventory, and several pulp mills will take some time to start up due to chemical containment and other safety issues.

The status of infrastructure remains a question, particularly road conditions and water and electricity supply.

Threat to Supply

As Madison’s writes about a possible shortage of radiata pine boards and panel out of Chile, that country’s new president, billionaire Sebastian Pinera’s, is sworn in to office during an aftershock. The new Chilean leader arrived at the Congress building Thursday to be sworn in as a 7.2 magnitude earthquake struck the centre of the country, sending people running out into the streets in panic, according to The Independent.

Approximately half a million homes were destroyed by last month’s quake, and the cost of rebuilding Chile’s buckled roads and rubble-strewn cities has been estimated at up to US$30 billion. The earthquake interrupted power and water supply to many pulp and sawmills, and also affected wood and chemical supplies and the transport of finished product to customers. There has been a lot of talk about a threat to supply of radiata pine products due to the damage caused by the initial quake. Almost immediately after the first shake-up, various sources reported a shortage of market pulp, pronouncing that the price of that commodity was sure to rise. Through 2009 pulp prices were buoyed by a shortage of wood chips due to sawmill curtailments, which suffered from an estimated 50 per cent reduction of capacity online in North America and elsewhere.

On March 11, Bloomberg reported that Chile’s earthquake and a port workers’ strike in Finland may propel pulp prices to a record high, ratcheting the pressure on inventories after papermakers cut output. Mills have ground to a standstill in Chile and Finland, which together account for 12 per cent of world pulp output. Only one of 35 pulp plants and sawmills owned by Chile’s Celulosa Arauco is currently operating, spokesman Andres Moran said. Part of the Mutrun sawmill was swept out to sea and pools of water remain in log stores, he said. A third tidal wave also flooded an area where the company stores logs in southern Chile.

A source close to Madison’s explained Thursday, “there is a huge disruption in Chile, all industrial accounts are scrambling for radiata lumber and plywood, especially in the higher grades. However there is enough capacity in the US in other species like southern yellow pine, ponderosa pine and hemlock, to cover the reduction in radiata for the short term.” This source expects at most a 90 day disruption, then everything will “blow over.”
“US mills will not start up to cover shortage,” said the source. “Certain mills that are already running can fill this gap in the short term. This is a blip, it’s panic buying.”

Over the past 20 years there has been a gradual shift to radiata in the market for sanded panel products and various moulding stock out of Chile and Brazil. There is an expectation that New Zealand and Brazilian producers can fill the temporary gap in supply.

Another lumber trader claimed, “There has been a lot of chatter. Moulding and millwork plants in Chile have been disrupted. US or New Zealand production needs to pick up the slack. For most of these products the end user in the box stores, and the distribution network. This customer supply chain is not broken.”

On further investigation, Madison’s research revealed more insight from the financial community. An analyst with BMO Capital Markets in Toronto maintained in a phone interview with Madison’s, “The threat is real. We have reports of pulp mills damaged, many of which are situated around the epicentre of the initial quake. Mills were built to resist tremors however those mills are now idle due to a lack of water and electricity but also due to infrastructure damage for transportation. Idled mills do have inventory, although one mill burnt down complete with inventory.”

It seems that there are a lot of conflicting reports, and very little official word is coming out of Chile to date.

A west coast specialty lumber and panel wholesaler explained to Madison’s,”There is only so many producers capable of making high grade veneer. They have jammed prices up this week by US$60 or U$70 on sanded products. North American mills can not cover this loss of supply of premium sanded panel. Although it is a small niche market so the impact on the lumber market in general should not be too great.”

“Right now there are price hikes and we expect prices to keep going up in the short term. Eventually things will sort out, once we know how much damage there is for sure.”

That source told Madison’s that Louisiana-Pacific is shipping southern US logs into Chile. On March 3, L-P permanently closed its OSB mills in Silsbee, TX and Athens, GA. In South America, the company operates two of its own OSB plants in Chile and holds a 75 per cent stake in an OSB mill in the Brazilian city of Ponta Grossa. Obviously if L-P can still find a way to get logs that are no longer needed for its southern US panel mills into Chile then the transportation network has not been as profoundly disrupted by the earthquake, tidal waves and aftershocks as some might claim.

Madison’s suspects that, while there is surely a lot of damage and there will be supply problems for Chilean radiata pine in the near future, this may be a similar situation to a British Columbia forest fire Even mills nowhere near danger take advantage of the perceived threat to supply by raising prices.

On March 9, Reuters reported that two of Chile’s largest ports, which export copper and other cargo from the world’s leading copper producer, are operating at near full capacity only one week after the massive earthquake damaged some of the facilities. “There are no problems with any kind of shipments,” Luis Galleguillos, a spokesman for the San Antonio Port Company, told Reuters in a phone interview. The country’s other main export port Valparaiso was also near full capacity on Tuesday, a source at the port’s main operator told Reuters.

Pulp, however, is another story. Several pulp mills are not expected to come back online any time soon. Global pulp price tracker reported Tuesday, “The supply shock from the Chilean volume losses hit the US market both directly and indirectly. Market tightness and higher pulp prices prompted further US pulp mill re-starts. Most producers have separately announced increases by US$30 per ton for March business and the prices quoted for apparently very limited spot lots are up more.”

US NBSK pulp prices rose US$24.77 per ton over the week to US$900 per ton.

Late Thursday Madison’s received a note from Mark Wilde, of Deutsche Bank Equity Research stating, “Some niche markets like unbleached softwood kraft (the world’s biggest mill was on the Pacific coast near the quake’s epicentre) are extremely tight. Chile produces nearly 5 million metric tons/yr of market pulp, roughly 8 per cent of the world supply. Nearly 80 per cent that capacity is located with 100-150 miles of Concepcion. If the entire Chilean pulp industry is out for just 2 months, an optimistic assessment, this implies a loss of
800,000 metric tons. [ . . . ] Clean-up efforts at some of the ports appear to be moving quickly. At the same time, rail-lines between some of the largest pulp mills and the ports have been damaged. This is apt to push in-bound and out-bound freight onto roads & bridges (also damaged).”

Madison’s Timber Preview

This week Madison’s Timber Preview examines the financial performance of Claymore’s Beacon Global Timber Index Exchange Traded Fund since 2007.

Contact us any time for a subscription.

Japan Housing Starts

Housing permits in Japan have been increasing since last November, so new housing starts should move up shortly, according to Japan Lumber Reports. At 64,951 units, actual January housing starts were down 8 per cent over January 2009, a 14 month-straight decline. However, owner’s units increased for three straight months and units built for sale increased for the first time in 16 months, says the Reports.

January seasonally adjusted annual starts were 863,000 units, up 5.4 per cent from December, the fourth straight month of gains.

Japan Home Building

In the Tokyo metropolitan area, new units built for owners improved by 13 per cent over January 2009 and in the Osaka region the increase was by 11 per cent.

Wood based units increased for the first time in 16 months, with the share of wood based units resting at 53 per cent, says Japan Lumber Reports.

Seasonally-adjusted building permits in January were 33,609, a 4 per cent increase over January 2009 and a three-month straight gain since last November.

January Housing Starts, Canada

T he number of buildings upon which construction was begun in Canada rose unexpectedly during February, according to a Canada Mortgage and Housing Corp release on Monday.

Canada’s housing starts jumped a bigger-than-expected 6.1 per cent to an annualized pace of 196,700 units, lending further evidence to the pick-up in the Canadian economy and the strength of domestic consumer demand.

Cheaper borrowing costs have sparked demand for Canadian homes, helping the country’s economy recover from its first recession in 17 years. The Bank of Canada has pledged to leave its benchmark rate at a record low of 0.25 per cent through June unless the inflation outlook shifts, and said in January it expects housing to contribute 0.3 percentage point to growth this year and nothing next year.

Monday’s report follows data released on March 4 that showed Canadian building permits unexpectedly fell in January, the third straight decline. The total value of permits issued by municipalities decreased 4.9 per cent to $5.67 billion, Statistics Canada said.

Canada Real Estate

Canadian new home prices rose 0.4 per cent in January from the previous month, the seventh straight gain, government figures showed.

The advance in the new house price index was led by a 1.7 per cent gain in St. John’s, Newfoundland and Labrador, and a 0.7 per cent increase in Winnipeg, Manitoba, Statistics Canada said Thursday in Ottawa. From a year earlier, new home prices advanced for the first time since December 2008, rising 0.1 per cent in January.

Canada’s mortgage rates are close to the lowest since the Korean War, spurring home sales and prices as the country emerges from a recession. Housing starts rose to the highest since October 2008 in February, and the government-owned Canadian Mortgage and Housing Corp. predicted on March 2 housing starts will rise this year and next.

Steelworkers Ratify Canfor Deal

Canfor Corporation announced Tuesday that it has reached an agreement with the United Steelworkers union. The agreement, expiring June 30, 2013, was ratified by a majority of union members and affects 14 operations in British Columbia.

“This agreement sets a new positive tone for our industry. It provides some relief from the economic issues we are facing and a profit based performance bonus that will reward our hourly workers,” said Canfor President and CEO Jim Shepard. “This sets the stage for enhancing the teamwork approach at Canfor that will lead to high performance at all of our operations,” Shepard added.

The new agreement applies to approximately 2,300 Canfor employees.

Members in USW Locals 1-424, 1-417 and 1-405 voted in majority favour of the agreement that was reached on February 20, 2010.

The BC Interior Bargaining Committee will utilize the Canfor agreement as the pattern agreement for negotiations with employer groups in the northern and southern interiors.

The BC Bargaining Committee is currently meeting with the IFLRA.

Merritt Pellet Mill Grand Opening

Highland Pellet Manufacturing in Merritt, formerly Highland Block Sort, is pleased to announce a Grand Opening Ceremony to be held Friday, March 12, 2010.

“We hope you can join us to welcome the Honourable Stockwell Day, Member of Parliament for Okanagan-Coquihalla when he makes this very important announcement.

Rob & Jenny McDonald of Highland Pellet Manufacturing Ltd. have been working on this project for a very long time, and this opportunity will be a giant boost to Merritt’s economy. Merritt will have its own Pellet Plant and this project will generate many jobs,” says a company press release.

More than two years in the making, Highland Pellet rose out of the ashes of the long-idled Block Sort reman, which was affected by several saw mill closures in Merritt.

March 14, 2010

Taller Wood Framed Buildings

Joining Germany’s senior’s home, Japan and the UK have embarked on multi-storey wood framed buildings. Japan’s “Earthquake House” was subjected to significant seismic testing in the summer of 2009 and passed with flying colours. Residents started moving into the world’s tallest wood framed building in North London at the end of February.
Taking inspiration from these projects, Canada’s Strategic Network in Innovative Wood Products and Building Systems is working to develop new technologies that allow the use of wood as a primary building material for mid- to high-rise structures.

Seven and Nine Storey Buildings

New technology in wood processing and glue-laminating are permitting taller wood-framed building construction around the world. As detailed in the January 09, 2009 issue of your Madison’s Lumber Reporter, new methods of gluing layers of dimension lumber or panel diagonally or perpendicularly increases structural strength by a significant degree. Recent examples of this development being put to use are: an experimental seven-storey, 17,000-square-foot wood-framed condo tower in Miki City, Japan and a nine storey building in London, England, the tallest wood-framed building in the world.

Taking inspiration from these projects, Canada’s Strategic Network in Innovative Wood Products and Building Systems is working to develop new technologies that allow the use of wood as a primary building material for mid- to high-rise structures. Ying-Hei Chui, former director of University of New Brunswick’s Wood Science and Technology Centre, heads up the Network. For the last 20 years, Chui has worked to improve performance of engineered wood products and structural wood systems.

Wood’s share in the Canadian mid-rise and non-residential construction markets could grow from about 10 per cent to as high as 57 per cent, a boost of about $3 billion per year for the industry, Chui told the New Brunswick Business Journal on March 1, 2010. Technologies developed by the team would also provide cost-effective materials and methods to the construction industry, he went on to explain.

In London, the nine-storey structure was constructed using a cross-laminated timber product resulting in the world’s tallest modern wood-frame residential building. The system of horizontal beams and vertical structural wall boards was manufactured from spruce grown in sustainable forests. The spruce strips were stacked crosswise three layers thick and glued together. Architects designed the building to create a right-angled matrix in which the structural walls differ in placement on each of the nine floors. Larger apartments are located on the lower floors and smaller ones on the upper floors, allowing for the structural walls to be carefully placed to minimize the load on each individual wooden beam.

Announced in the August 09, 2009 issue of your Madison’s Reporter, the experimental building in Japan was subjected to extensive earthquake testing on July 15. While there was plenty of rattling and rolling captured on interior and exterior video cameras, the tower survived without a structural collapse, reported lead researcher John van de Lindt in Popular Mechanics.

The experimental construction methods involved changes to the pattern of nails in the building to better distribute stiffness among different floors. Tall wood buildings in an earthquake are vulnerable to ‘soft storey’, a phenomenon in which one storey does not remain as stiff as the floors above it. “It just collapses, almost pancakes,” van de Lindt said. Engineers previously took into consideration only a building’s initial stiffness, but this new model is based on measurements of how stiffness changes in a building during an earthquake. After looking at the pressure points around the building, engineers changed the nail patterns to make points of strength that coincided with the structural pressures experienced during a quake.

The researchers also used 63 anchor tiedown systems to add stability. These steel-rod systems ran from the building’s steel-frame foundation to the roof–working to prevent the building from rocking. Steel straps and plates attached adjacent levels to resist shearing, the tendency for different levels to slide sideways relative to each other and come apart.

The US building industry rarely permits wood-frame buildings in excess of five storeys in earthquake-prone areas. Data gathered from this testing could increase the height of current wood-framed multifamily buildings as well as influence the design of future wood-frame construction.

So far, building code regulations have prevented companies from using wood as a main material in mid- to high-rise buildings, mostly due to its flammability, the Strategic Network’s Chui said. But those rules are “based on old techniques,” the researcher explained. “Some of these limits may not be applicable given today’s technologies.”

“Every material has strengths and weaknesses,” Chui said. “By combining them, you cover the weaknesses of one with the strengths of another.”

Combining wood with concrete, for example, increases fire protection.

Experts in other locations are examining ways to boost wood’s resistance to fire and its acoustic performance. Since the goal is to use wood in apartment buildings, it is crucial the material block out sound, Chui said. The Strategic Network’s ties to industry mean new technologies could become available to architects and designers soon after they have been developed and tested. Researchers are working closely with FPInnovations, the national research arm of the forest products industry.

Chui said he hopes to complete many of these tools within the Network’s five-year mandate, but it’s possible the projects will take longer to conclude.

Madison’s Live Online Lumber Producer Listings

Madison’s is in the process of updating our Canadian lumber, panel and pulp producer, and wholesaler listings. As always, a listing is free.
Contact our office to ensure your listing information is up to date.

Canadian Housing Starts

Canada’s Mortgage and Housing Corp. Tuesday projected rising housing starts this year and next due to cheap borrowing costs and accelerating economic growth.
Housing starts will rise to 171,250 units in 2010 and 175,150 units in 2011, from 149,081 in 2009, CMHC said on its web site. The forecast is higher than a November prediction of 164,900 units for 2010.

“Canadian housing markets will benefit from improving economic conditions and low mortgage rates,” Bob Dugan, chief economist for CMHC, said in the statement.

But it added that it expects prices to remain stable in 2010 around the Multiple Listing Service average reached in January this year of $328,537, as the new housing stock brings balance back to the market.

Canada Housing Market

CMHC said the strong pace of existing sales over the last three quarters of 2009 will not be sustained as pent-up demand is exhausted and financing costs rise later in 2010.

It said strong sales of existing homes combined with a limited supply of listings will continue to exert upward pressure in prices in the resale market. It estimates the gain could be 3.8 per cent in 2010 and 2.6 per cent in 2011.

CMHC chief economist Bob Dugan said recent federal government measures — such as requiring a larger down payment — would help moderate housing construction.

Dugan said in the beginning of 2009, a decline in the number of new listings for existing homes shifted the emphasis from a buyers’ to a sellers’ market and increased demand for new homes.

Pacific Northwest Wood Exports

In 2009, softwood lumber exports from Oregon and Washington state jumped by 17.5 per cent from 2008, totaling 344.2 million board feet, according to data released February 26 by the US Forest Service’s Pacific Northwest Research Station.

While log exports fell about 10 per cent to 697.3 million board feet, the numbers still show a vast improvement from four years ago.

Analysts predict continuing improvement in the wood products market in 2010. The overseas trade could be a lifeline to a major Pacific Northwest industry battered by the US housing crisis and weak demand.

The biggest customer last year was Japan, which made up about half of log exports and about a third of lumber exports. China, South Korea and Canada were also big players in 2009.

US Coastal Wood Exports

Log exports have nearly seen a complete recovery. In 2009, the value of those exports was US$429.1 million in Oregon and Washington.

Some aspects of log exporting remained relatively stable during the recession.

The Columbia-Snake Customs District — which includes the ports of Portland, Vancouver, Longview, Astoria and Coos Bay — reported shipping 353.6 million board feet overseas, almost all to Japan. During 2000, the peak in the past decade, those ports shipped 399 million board feet.

While log exports fell slightly in 2009, researchers say they’ve likely hit bottom and are on the way up.
“I think it is encouraging that there is some upward trend,” Robert Deal, a research forester with the Pacific Research Northwest Station told Oregon Business News. “We’re coming from a terrible place.”

Lumber shipments totaled $223.7 million in 2009, most of which left from the Seattle Customs District, which includes all ports in Washington with the exception of Longview.

Oregon lumber exports, a fraction of Washington’s, have been steadily declining since 1999. That’s likely due to federal logging bans which have limited supply, Deal said. In addition, much of Oregon’s lumber goes to California, a large market until the housing crisis.

Across the wood products industry, 2010 should likely see an uptick in business.

Most mills shut down for long stretches during the recession, whittling their inventories. Even without much demand, they’ll have to fire up to replenish their stocks.

March 07 , 2010

US Home Sales

Thankfully many Canadian lumber producers realized in early 2009 that waiting “for US housing to come back” was not a viable business model, and reacted by branching out into remanufacturing, value-added products, and seeking new regions globally for lumber exports. The latest US home sales figures are abysmal, proving that reliance on that one market would be disastrous in the short term. However, buried in the volume of doom and gloom information about the US housing market, are inklings of a recovery into the near future.

Record Lows

The US Commerce Department reported Wednesday that new home sales in January dropped 11.2 per cent, from a December rate of 348,000, to a seasonally adjusted annual pace of 309,000 units, the lowest level on records going back nearly a half century. Compared with one year ago, new home sales were off by 6.1 per cent. The report is a leading indicator of US economic health as it also reflects the stability of other crucial aspects of the economy, such as construction and furniture and appliance sales.

Wednesday’s figures follow data from the Case-Shiller home price index showing that home prices in the 20 largest US cities fell by 0.2 per cent from November and were off by 3.1 per cent from January 2009. The annual price decline has eased each month this year. The median price of a new home also declined in January, falling to $203,500 from $215,600 in December.

January is typically a slow month in home sales as winter weather grips much of the country. Noting bad weather especially in the northeast, the Mortgage Bankers Association said last week that mortgage applications declined by a seasonally adjusted rate of 8.5 per cent. US mortgage rates rose for the first time in three weeks, leaping above 5 per cent, a key level that could suppress demand for home loans, a Freddie Mac survey showed on Thursday. Rising mortgage rates do not bode well for the housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention.

The biggest problem facing builders is a glut of cheaper product sitting empty. At the current slow rate of sales, it would take 9.1 months to deplete the national inventory of houses, up from 8 months in December. It is also taking builders longer than ever to sell what they build because buyers are looking toward the less expensive resale market. In normal times, newly built homes sell in about five months; now it’s taking 14.2 months.

“The foreclosure flow is robbing demand from the new-homes market, and that process seems to be strengthening,” said Julia Coronado, a senior economist at BNP Paribas in New York. “The new-homes market just can’t get off the floor. If new homes suffer, construction suffers and jobs suffer.” Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million US homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payments or sell, according to a RealtyTrac forecast last month. In 2009 there were 2.82 million foreclosures, the most since the company began compiling data in 2005.

There are indications that savvy home buyers are waiting for the extended home buyer credit to expire in April. Says one potential customer, “I’m waiting until May/June to purchase, because I think we will see a 5-7 per cent reduction in price of moderately priced (200-300k in our area) homes as the subsidy comes off. I think the credit was a payoff to the HBA and local property tax assessments in order to cushion the blow of prices for homes falling.”

Says Bernard Thomas of, “In my opinion we have seen a crisis (autumn 2008) and rebound (2009). Now we will move forward based on fundamental growth. This means demand from replacement, efficiencies and population growth. These will increase demand for housing, products and services.” Craig Thomas, an economist at PNC Financial Services Group in Pittsburgh, told the Washington Post. “When you step back and look at what is going on with the broader economy in terms of retail activity … and industrial production, I think our recovery is on pace to create jobs, if not this coming month, the following month.” Hardware retailer Rona Inc. reported Thursday a 4Q 2009 profit of $30.8-million, edging ahead from a year-earlier $29.8-million as its sales rose 1.5 per cent on improving demand that stemmed from increased construction in the wake of the economic downturn.

“This improvement in our performance reflects the beginnings of an economic recovery, plus the success of Rona’s own efficiency improvement program and our many renovation stimulus initiatives,” president and CEO Robert Dutton said in a statement.

Orders to US factories for big-ticket manufactured goods shot up in January by the largest amount in six months, the US Commerce Department said Thursday, but that strength came from a surge in demand for one-time items like commercial aircraft. Orders for durable manufactured goods jumped 3 per cent in January, the biggest increase since a 5.8 per cent increase in July 2009. However, excluding transportation, durable goods orders fell by 0.6 per cent, a weaker showing than economists had expected.

Analysts were not too concerned by the drop in demand outside of aircraft, noting that the government revised higher the increase in orders excluding transportation in December to show a gain of 2 per cent, stronger than the initial estimate of a 1.4 per cent rise. Paul Ashworth, an economist at Capital Economics, said the January durable goods report provided further evidence that “the manufacturing sector is enjoying a healthy rebound, driven by restocking and a sharp turnaround in world trade.”

The Institute for Supply Management reported that its gauge of manufacturing activity rose to 58.4 in January, marking the sixth straight month of expansion. It was the strongest reading for manufacturing activity since 2004.

The Federal Reserve reported last week that output at the nation’s factories rose by 1 per cent in January, the biggest manufacturing gain since August.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the economics of biomass fuels, with the latest figures for global wood chip supply, and biofuel production and consumption in the US and in Europe.

Contact us any time for a subscription.

Steelworkers, Canfor Sign Tentative Deal

The United Steelworkers Union, representing approximately 11,000 forestry workers on the coast and in the interior of British Columbia, signed a tentative agreement with Canfor Corp. on February 20, 2010.

In reporting progress with Canfor earlier this week, the bargaining committee had said collective agreement language was needed on both permanent and partial closures to “prevent employers from simply running their workers out of seniority and then announcing a permanent closure of their operation to avoid the payment of severance.”

Bob Matters, spokesperson for the USW, told Madison’s Friday, “We accomplished employment security, we have unprecedented seniority retention. Employees will not run out of protection in the case of permanent mill closures.”

Collective Agreement

When asked what the Union had to give up in return for this security Matters said, “We didn’t ‘give up’ anything, we have worked out an investment model with Canfor in which members defer vacation pay, one stat holiday and one floating holiday per year in a trigger plan that is linked to company profitability.”

Matters explained that union members will never lose these benefits, there will be a deferral until Canfor starts showing a profit.

Dave Lefebvre, Public Affairs and Community Relations for Canfor, explained to Madison’s also on Friday that the Canfor executive board is feeling “pretty positive” about this tentative agreement.

“Canfor approached the negotiations with a mindset of focussing on finding solutions. When Canfor came to negotiate, work got done very quickly.”

Lefebvre said that Canfor initially gave their proposal to the Steelworkers in June 2009 but had to wait their turn for negotiations to come around. That proposal was the starting point for the recent talks.
“We are happy with the agreement, talks were very proactive with both sides focussed on finding solutions,” said Lefebvre.

Matters said that it is now up to the union membership to ratify the agreement, with a vote being held at the end of next week. The Steelworkers are urging members to vote in agreement.
The Steelworkers will next begin negotiations in the southern interior, with the IFLRA, on March 8.

Pulp Producers Integrate Biofuels

Castlegar’s Celgar pulp mill, the first to be funded under Ottawa’s $1 billion Green Transformation Program, is expected to generate 48 megawatts of power when a new green energy project comes online in September. Celgar intends to use 13 megawatts for the mill’s energy needs and sell the rest, 35 megawatts, to BC Hydro.

“That’s enough energy to power 21,636 households a year,” Susan Danard, manager of media relations at Hydro, told the Vancouver Sun.

This will bring a new source of revenue to the mill by adding a valuable bioenergy component to the pulp-making process, which uses steam generated by burning black liquor, a biofuel that is a byproduct of the pulp-making process.

Collaboration on Future Biorefinery Concept

Metso, Stora Enso and Domtar have established a multi-year project to develop a future pulp mill biorefinery based on new pulping technology. The target is to develop a new concept with better energy efficiency and cost effectiveness of the process, lower initial capital investment costs, and reduced fibre usage while maintaining or even improving fibre properties from a paper and board quality point of view.

The three companies see promising opportunities for a breakthrough in sustainable chemical pulping technology, compared to current practices.

The project is in line with strategic targets set by Finnish, Swedish and North American forest clusters for their research and development work: to renew the industry, to efficiently utilize raw materials, to protect the environment, and to improve cost efficiency.