China Trade ; Madison’s Timber Preview ; US Housing Starts ; West Fraser’s Hinton, AB, Pulp Mill Funding ; PwC Forestry and Paper Conference ; Softwood Export Tax ; WSCA Call Out ; Alberta Wildfire ; Japan Housing Starts ; North American Economic Data ; Canfor Restarts Ontario Forest Tenure Reform ; Madison’s Timber Preview ; Madison’s Live Online Lumber Producer Listings ; Canadian Building Permits ; Lodgepole Pine Standards Need Review ; North American Transportation Update ; Softwood Lumber Export Tax Reduction ; Quarterly Results; Interfor Reopens Castlegar ExpoFor 2010 ; Madison’s Timber Preview ; Newfoundland Accidentally Buys AbitibiBowater Mill ; US Home Sales ; Japan 2009 Wood Import Value ; Fire Resistant Wood Framed Building
May 30, 2010
China Trade
Two years ago, when Madison’s first wrote about China as a serious customer for Canadian wood, the level of interest from Canadian lumber producers was lukewarm at best. Glacial would probably be a better description. Now, after 18 months of hard work by the Canadian and British Columbian governments, the Canada Wood Council, Forestry Innovation Investment and more than a few public and private lumber producing companies, the export of Canadian wood products to China is growing faster than its exports to any other part of the world. In fact, it is growing faster than all other emerging markets put together.
Announcements made by two major BC lumber producers in the past ten days are further demonstration of the viability of China as a customer for BC wood. Canfor has re-opened its Quesnel sawmill solely to serve the Chinese market, and Tolko Industries now has two agreements for lumber exports into China.
On May 16, Tolko signed a second major purchase agreement with China National Building Materials as the market for BC forest products continues to grow at a steady rate in 2010. China National Building Materials is the country’s number one lumber distributor to China’s construction industries. The two Tolko agreements combined are equivalent to two full mills’ production and will support 400 mill and woodland jobs.
Tolko signed its first major supply agreement with China National Building Materials in November 2009 as part of the largest-ever forest industry trade mission to China led by Forests and Range Minister Pat Bell. The volume for the original agreement is mostly to be supplied by Tolko’s Quesnel operation while this latest agreement will be filled by other Tolko operations. The agreements are for spruce-pine-fir lumber in a full range of grades and dimensions. China National Building Materials will distribute the lumber throughout China for a range of end-uses including concrete forms, remanufactured products for the apartment decorating and furniture markets, structural framing, and re-roofing projects.
With Canada
China is the fastest growing export market for Canadian wood products, with most of the lumber sourced from British Columbia. In 2009, BC lumber exports to China reached 1.63 billion board feet, double the volume of 2008, that was valued at $327 million.
It’s not just the solid wood companies. Other industries are interested in breaking into the vast Chinese consumer market. This week the governmental heads of Canada’s western provinces — Alberta, Saskatchewan and BC — are visiting China and Japan to drum up investment and set up a new trade-rep office in Shanghai. The premiers will work to establish a permanent collaborative trade and investment presence in Asia and promote western Canada’s competitive advantage of having some of the lowest corporate income tax rates among the G7 countries that have stable financial institutions. The trade mission will market the region’s natural resources such as gold, copper, potash, wood, natural gas and metallurgical coal, as well as western Canada’s geographical advantage as a tourist destination for the Pacific Gateway.
Alberta, BC, and Saskatchewan signed a partnership deal April 30 committing to remove barriersto economic development and to function more as a single economic zone. Under the New West Partnership, professional qualifications and business licences obtained in one province will be recognized by each of the partners. In a meeting with Lou Jiwei, chair of the China Investment Corporation, the Canadians talked oil, gas, uranium and the benefit to China of using ports in Vancouver and Prince Rupert. Transit from those ports will cut two days off shipping goods to the North American markets from China.
The three western province premiers wrapped up a five day visit to China with a gala dinner in Beijing, and fly to Japan on Thursday to continue their trade mission.
A forecast released Wednesday by Export Development Canada says that BC’s forest industry will help lift exports in that province, and the country. As BC and Canadian exports are rebounding from 2009, the worst year on record. Forest exports from BC — measured by the dollar value of the exports — are expected to grow 20 per cent in 2010 and 23 per cent in 2011, after falling almost 25 per cent in 2009.
In its annual review of Canadian international merchandise trade for 2009, released April 6, Statistics Canada found that China replaced Japan as Canada’s third largest country of destination, behind the US and the UK. Exports to China, which have been growing for the past seven years, increased 6.6 per cent to $11.2 billion, fuelled by strong exports of canola, iron ores as well as coal and other bituminous substances. Also in 2009, Canada’s exports to Japan declined by 25 per cent to their lowest level since 2003.
Similarly, imports from countries other than the United States fell for the first time in eight years during 2009, says StatsCan. Even with the declines, the share of imports from these countries rose to 48.8 per cent in 2009 compared to 43.5 per cent in 2005.
Further proof of the increase in Canadian exports to China come from the latest volume figures out of the Port of Prince Rupert. Container traffic between China and the BC port of Prince Rupert soared in the first quarter of this year, up 87.3 per cent from the same period last year, the Prince Rupert Port Authority reported Monday. Prince Rupert traffic showed an increase in containerized export commodities to China from western Canada. Export traffic led the container growth.
“Much of the growth in containerized export cargo is due to the backhaul of Western Canada resource-based commodities to China, including northern British Columbia lumber, logs and aluminum,” the Prince Rupert Port Authority said.
The port’s overall traffic came to 4.1 million metric tons in the first quarter this year, up 72.8 percent from the 2.4 million tons in the first quarter last year. There were strong increases in grain exports, as well as lumber, logs and aluminum, and in coal shipments.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview looks at the recent market correction on the major North American stock exchanges. Analysts comments about investing in general, and about forestry in particular, are examined.
Contact us any time for a subscription.
US Housing Starts
Construction of new homes in the US rose more than expected in April but new building permits fell sharply, signalling the industry’s rebound could be short-lived.
The results show builders ramped up to meet demand from buyers seeking to take advantage of federal tax incentives, but are now scaling back their plans.
Building permits, a gauge of future activity, sank 11.5 per cent to an annual rate of 606,000, the lowest since October 2009, the US Commerce Department said Tuesday. Analysts were expecting a slight dip to a rate of 680,000.
Home sales have rebounded this year. They were helped by low mortgage rates and two government tax credits — $8,000 for new buyers and $6,500 for current owners who buy and move into another property. To receive the tax credit, borrowers had to have a signed offer by April 30 and must close the deal by the end of June.
Housing Starts, US
Construction of new homes and apartments in the US rose 5.8 per cent last month to a seasonally adjusted annual rate of 672,000. The increase was from an upwardly revised March level of 635,000.
Nevertheless, a survey Monday showed homebuilders are more optimistic, even though a government tax credit designed to spur buying expired April 30. The surprising increase eased fear the market might stagnate or lose ground without the subsidy.
The National Association of Home Builders said its housing market index, which tracks industry confidence, rose three points this month to 22, the highest reading since August 2007. Readings below 50 indicate negative sentiment about the market.
New-home sales in March shot 26.9 per cent higher. The tax incentive, historically low prices, and low interest rates have helped take some sting out of the high joblessness plaguing the US and scaring Americans from making big purchases.
Aside from unemployment, builders are dealing with a lack of financing and rising building materials costs. Used homes are cheaper than new ones and the wave of foreclosures has driven prices even lower.
Builders are also cautious because of a surplus of unsold homes, including a so-called “shadow” inventory made up of property withheld from the market because of low prices.
Still, D.R. Horton Inc. recently reported a surprise fiscal second-quarter profit. And PulteGroup Inc. said its first-quarter loss narrowed, aided by increased home sales and low land-related charges
West Fraser’s Hinton, AB, Pulp Mill Funding
West Fraser Timber will boost its environmental performance and contribute to a more sustainable pulp and paper industry in Canada with help from a significant investment by the Government of Canada.
West Fraser’s Hinton Pulp Mill will receive $15 million in funding under the Pulp and Paper Green Transformation Program for its Pressure Diffusion Washer Project, creating a more efficient pulping process by reducing water consumption and redirecting more steam for the production of clean energy.
Green Transformation Funding
Steam savings gained through this project will translate into 3,580 megawatt-hours of additional energy a year — enough to power the equivalent of 2,800 homes. In addition, a key benefit of the project will be the reduced use of natural gas as clean energy production increases — lowering greenhouse gas emissions by more than 7,000 tonnes a year.
“The installation of a pressure diffuser washer will allow Hinton Pulp to meet these energy efficiency goals by reducing the volume of natural gas consumed and increasing the facility’s production of green power,” said Brian Grantham, General Manager. “The successful completion of this project is expected to be an important step for Hinton Pulp in improving its overall competitiveness and long-term outlook.”
May 24, 2010
PwC Forestry and Packaging
PricewaterhouseCoopers held its annual Forestry and Packaging conference in Vancouver, BC, on May 11, 2010 to a fine turnout. The theme of this year’s PwC conference was “Transformation Through Innovation.” Like the January 2010 BC Truck Loggers AGM in Victoria, BC, the mood of attendees was significantly elevated over similar events in 2009. Companies might not yet be showing profits at levels they would like, but all agreed that the bottom of the market is behind us.
Conference
Main topics covered on the agenda were: global economic overview, financial performance, market outlook, and executive perspectives. Speakers included: Doug Porter at BMO Capital Markets, Avrim Lazar of the Forest Products Association of Canada, Brian Merwin at Mercer International, Dan Fulton of Weyerhaeuser, Hank Ketcham of West Fraser, Chip Dillon at Credit Suisse, and Pat Bell, BC’s Minister of Forests and Range, and Integrated Land Management, among others.
Doug Porter, Deputy Chief Economist and Managing Director of BMO Capital Markets in Toronto, started off the conference with an explanation of the strength of the current economic situation. Porter’s group identified March 9, 2009 as the beginning of real economic recovery globally.
“Stocks and currency markets lead the economy by four months,” said Porter. “4Q 2009 and 1Q 2010 saw a better than five per cent improvement. Expectations are for a more than three per cent improvement in the North American economies for 2010 and 2011.”
Porter’s research shows that US housing starts will recover by 20 to 25 per cent “in the next year, which is still very weak. Still below replacement value.” Porter expects Canadian interest rates to go up a quarter of a per cent at each monthly meeting starting June 1, 2010 and lasting one year.
Frederic Bouchard and Michael Armstrong of PwC spoke next about Canada’s forest economy, both east and west.
“There will be a slight decline in the current rally before full recovery in 2011,” they said.
The solid wood industry is seeing investment again. Black liquor tax credits in the US were worth US$5.5 billion, providing much-needed funds to pay down debt for vertically integrated forest companies with operations in the US. PwC found that Latin America “grabbed 67 per cent of global forestry deal value activity in 2009 compared to five per cent in 2008. However, most purchases were made by European-based companies.”
Chip Dillon, Managing Director of North American Paper and Packaging for Credit Suisse Securities, focussed on the paper industry.
“Margins for containerboard packaging should go higher in the next few years,” said Dillon. “The strength of the repair and remodelling market in the US explains why lumber and panel prices are firming despite low housing starts.”
Dillon forecast “a colossal return in equity for paper companies into 2013 and beyond.” In fact, said Dillon, “Domtar is in danger of running out of debt.”
Dillon also forecast that pulp prices will correct downward later this year as Chile returns to former levels of production, “however there is very limited capacity coming back online in the next few years so pulp prices will firm to 2013 then correct again.”
In terms of the mountain pine beetle, Dillon said that the crisis will “impact log prices in the US after about three years, then it gets ‘better’ due to less competition.” Dillon’s advice was to “get into lumber until 2013, then get involved in timberland post-beetle devastation.”
Brian Merwin, VP of Strategic Initiatives for Mercer International, discussed that company’s unique operations.
“Once finished the upgrade, Mercer’s Celgar, BC, mill will be Canada’s largest bioenergy facility,” said Merwin. “Bioenergy production at a pulp mill is positively correlated with pulp production.”
Merwin pointed out that there has been a paradigm shift, “global demand for green, bio-neutral products keeps growing.” In keeping with this global trend, “Celgar became a net exporter of electricity in 2007.”
The lunch hour featured a speech by BC’s Forest Minister, Pat Bell. Bell announced a new forestry partnership between BC, Alberta and Saskatchewan, with details to be coming soon.
“Even in the downturn forestry was responsible for 30 per cent of the BC economy,” said Bell. “The speed of this current recovery might take away from the urgency of transformation in this industry. There is still 12 to 14 million cubic metres annually of fibre not traditionally utililized in BC which needs to go into the bioenergy sector.”
After lunch, Paul Dodge, Supply Chain VP at ProBuild Holdings out of Denver, CO, spoke about the changes his company went through in the past two years and how well it is poised to take advantage of the recovery.
Dodge explained that while some of his competitors may sell at a discount during tough times, he won’t go below a certain level so as not to devalue the product in general.
“I guess some of our competitors need the cash more,” Dodge remarked wryly.
“We have built supplier relationships so that we have ‘true’ JIT programs. We are two to three hours away from truss plants, we check our inventories in the afternoon and take deliveries within two days,” explained Dodge.
Dan Fulton, President and CEO of Weyerhaeuser, detailed that company’s shift from a solid wood producer to a timberland investor and real estate company. The most fascinating aspect of Fulton’s speech, Madison’s found, was the change in Weyerhaeuser’s real estate development in the past year. Fulton explained that in 2009 the size of an average home was between 1,655 to 3,062 square feet whereas in 2010 it will be between 1,132 and 2,099 square feet. Similarly, home values will drop from between US$221,000 and $350,000 to a low of US$150,000.
“2009 was the trough, and there are still lots of challenges ahead,” concluded Fulton.
Finally, Hank Ketcham, Chair, President, and CEO of West Fraser Timber, talked about lumber production and exports out of BC.
“The price of #2&Btr 2×4’s is currently as low as in 1982, in Canadian dollars,” Ketcham started off. “The US should be building 1.75 million homes annually” to keep up with the demographics. “The US was overbuilt for 10 years but is now significantly underbuilt,” said Ketcham. “No one is buying so the months’ supply is high. Once that inventory is liquidated the level of new homes for sale will drop sharply and home values will go up.”
In reference to the beetle, Ketcham spoke of bioenergy applications. “There will be a significant reduction in the annual allowable cut, therefore a supply constraint, and for the mills that do survive commodity prices will go up. [ . . .] BC is cutting much more than the AAC right now, by ten years from now that cut is going to plummet.”
Many of the speakers touched on the subject of forest certification, which is becoming more and more important throughout the whole supply chain with each passing years. Both investors and consumers are demanding a strict level of certification on products.
“There is more forestland independently third party certified in Canada than anywhere else in the world,” concluded Ketcham.
Softwood Export Tax
Due to strong lumber prices, effective June 1, BC’s softwood lumber producers will no longer pay any tax on their shipments to the US, Forests and Range Minister Pat Bell announced May 7.
This week’s market survey made it clear to Madison’s that the elimination of tarriffs for the first time in years caused makers to jump through the window of opportunity. Some of the big makers announced that they will reopen mills that had long been closed, or will expand production in WSPF. Shipments will increase and “a wall of wood” will be heading for US customers and reloads. What that will do to selling prices is fairly obvious.
WSCA Call Out
The Western Silviculture Contractors Association has launched an Online Petition demanding that the BC Government mount a silviculture response to the MPB infestation.
“More than 15-million hectares of forests have suffered an assault from the mountain pine beetle and other bugs and blights. We have a responsibility to act now.”
To sign the community petition demanding the BC government grow and plant more trees go here: http://forestfacts.ca/the-petition.html
Alberta Wildfire
A wildfire began near the hamlet of Opal, AB, about 60 kilometres northeast of Edmonton, on Wednesday afternoon. Thorhild County declared a local state of emergency Thursday after strong winds caused the brushfire to flare up and start burning out of control. About 10 square kilometres of dry grass and bush have been scorched in the fire. About 250 firefighters are expected on the ground and the hope is they will have the fire under control late Friday.
The BC Ministry of Forests and Range has issued several burning restrictions and wildfire warnings in recent weeks.
Japan Housing Starts
Japanese housing starts in March were 65,008 units, down by 2.4 per cent compared to March 2009, declining for 16 consecutive months. The pace of decline decelerated from drops of 9.3 per cent in February and 8.1 per cent in January, and was much slower than double-digit decreases seen throughout 2009 that ranged from minus 15.7 per cent to minus 38.3 per cent in year-over-year comparisons.
Housing Starts, Japan
March building permits were 9 per cent moe than March 2009 and have increased for five consecutive months.
The seasonally adjusted annual rate recovered to the 800,000 unit level for the first time in two months at 854,000 units. While owner-occupied houses showed an increase for five consecutive months, houses built-for-sale also increased for the first time in 16 months due to the increase in single-family houses.
Thus a sign of recovery started appearing. Wooden homes accounted for 52 per cent, or 33,947 units.
Japan’s Ministry of Land, Infrastructure and Transport report showed that construction orders received by big 50 contractors surged 42.3 per cent in March from the previous year, reversing a decline of 20.3 per cent in February.
North American Economic Data
Manufacturing sales for both Canada and the US were up in March, by 1.2 per cent and 2.3 per cent respectively. Meanwhile, the US government $8,000 home buyers’ tax credit expired at the end of April.
In an attempt to head off what could be a home buying slump, builders are now offering mega-discounts on new builds. Sticker prices are as much as $30K lower than they were in April on mid-value homes. Kind of makes those who rushed to buy homes in April look like the bottom feeders in math class.
Statistics Canada reported Friday constant-dollar manufacturing sales increased 1.7 per cent in March, their seventh straight monthly advance.
Other durable good sales increases included non-metallic mineral products (up 7.7 per cent) and wood product manufacturing (4.9).
Inventory levels fell 1.1 per cent in March compared with February. The backlog of unfilled orders declined for the first time in four months, down 0.4 per cent to $53-billion.
March new orders decreased 0.7 per cent to $44.3-billion. New orders fell in three key industries: computers and electronics, transportation equipment, and machinery.
In the US, business inventories rose 0.4 per cent in March, in line with economists’ expectations, the US Commerce Department said Friday.
Sales for manufacturing and wholesale trades rose 2.3 percent to US$1.07 trillion, an 11.9 per cent jump compared to March 2009.
After months of declines, inventories rose in December and February, but were virtually flat in January. The upswings indicate producers are gearing up, modestly, for an increase in consumer demand.
The inventory-sales ratio for all business, unchanged a month ago, fell to 1.24 from 1.27. A year ago, the ratio that indicates how long it would take to sell all inventory at current prices, was 1.46.
The inventory ratio for manufacturers in March was also 1.46 and the ratio for wholesalers was 1.39. For retailers, the inventory ration was 1.54 for the month, indicating retailers have more stock on hand, based on sales expectations, than manufacturers or wholesale trade businesses.
The hope is that sustained increases in demand will encourage businesses to step up orders and restock depleted shelves, giving a boost to factories and prompting them to rehire workers.
A separate US report Friday showed that industrial production rose a strong 0.8 per cent in April, better than economists had expected.
Businesses had slashed inventories for 13 straight months through September as they struggled to cut costs during the recession.
The move away from massive inventory liquidation has played an important role in supporting growth over the past two quarters.
The overall economy, as measured by the gross domestic product, grew at an annual rate of 3.2 percent in the January-March quarter and an even faster 5.6 percent in the final three months of last year.
Canfor Restarts
Canfor Corporation announced Monday that it will be restarting operations at its Quesnel, BC, sawmill in June. Production is targetted solely for the Chinese market, so the additional capacity should not impact North American lumber prices.
The sawmill will produce approximately 200 million board feet of SPF lumber on an annual basis. The mill will produce metric sizes and its entire output is destined for various regions of China. The Company will recall approximately 155 employees.
“Providing this dedicated production into the Chinese market shows our confidence in the growing demand in this developing market,” said Canfor President and CEO Jim Shepard.
May 16, 2010
Ontario Forest
As announced in the September 11, 2009 issue of your Madison’s Lumber Reporter, Ontario is moving forward with a bold forest tenure policy reform. With the intention of modernizing forest tenure and pricing, a series of stakeholder and public consultations were scheduled throughout that province in September and October. The proposed system would determine how wood supplies are licensed, allocated and priced, as well as the associated legal obligations.
Tenure Reform
Consultations are finished, and on April 30, 2010 the Ontario Ministry of Northern Development, Mines and Forestry posted details of the proposed changes on its website.
As it currently stands, large companies in the industry who operate mills enter into an agreement on pricing with the province. These companies were asked to both supply their mills and users with wood, as well as maintain the long-term sustainability of the resource. For example, AbitibiBowater was in charge of the Kenora Forest while operating the Kenora Pulp and Paper Mill. Under the new system, local forest management corporations would take over the role of looking after the forest, leaving the mill operators to focus more on running their operation.
The cornerstone of the new system is the introduction of these Local Forest Management Corporations (LFMCs) to manage Crown forests and oversee the competitive sale of Crown timber.
“The proposed new system would be flexible, transparent, and responsive to changing social, economic and environmental conditions and needs. It would also be designed to increase business opportunities for new entrepreneurs and promote market competition for allocating and pricing Crown timber,” says Michael Gravelle, Minister of Northern Development, Mines and Forestry.
The framework contains a proposal for five to 15 new LFMCs that would assume responsibility for management, marketing and sale of wood from Crown forests within their defined area.
Ontario Minister of Intergovernmental Affairs and MPP for Nipissing, Monique Smith, gathered with area stakeholders Friday to release the framework. Smith said the cornerstone of the framework is the introduction of the LFMCs component. Northwatch spokesperson Brennain Lloyd says the move is a good first step.
“We support the government’s proposed framework” says Jeremy Williams of Arborvitae Environmental Services, a co-author of a recent paper on forest tenure and pricing. “The changes will encourage investment and innovation, strengthen communities, and support forest sustainability. In addition, the move to sell wood at market prices will encourage its efficient use and enable Ontario businesses to protect themselves from US trade sanctions.”
Communications, Energy and Paperworkers Union national representative Marvin Pupeza, who is on the board of the local forest management corporations, is reviewing the proposal carefully. If the end result is based on the framework presented Friday, it could keep some forest operators going and even help those shut down restart, Pupeza said to TBnewswatch.
“If there’s a process to make us more competitive in other jurisdictions, that’s a good thing,” he said. “I’m encouraged by the framework.”
Jamie Lim, president of the Ontario Forest Industries Association, says now is not the time for tenure reform, calling the province’s recently released proposal one more challenge the hard-hit industry must overcome to land on its feet. Among the demands the OFIA is making of the province is for Ontario to guarantee access to 26 million cubic metres of wood each year, proper economic analysis on local impact when decisions are made and an exemption for forestry under the Endangered Species Act. Calling the new framework shortsighted, Lim said the industry’s current license holders may only be using 11 million cubic metres a year today, but as obstacles are lifted and the industry rights itself, the wood will be needed down the road.
However, Mathew Leitch, a professor of forestry at Lakehead University, said the future of the forestry industry depends on the ability of smaller companies having access to timber, not just the major, traditional players, many of which were idled or severely curtailed in their forest activities after the industry collapsed in the mid-2000s.
Some Northwestern Ontario communities champing at the bit for Ontario‘s new wood-tenure plan hope the exercise isn‘t a case of hurry up and wait, according to The Chronicle Journal out of Thunder Bay. Before the collapse of Northwestern Ontario‘s forest industry called into question how Crown forests are harvested, public trees were traditionally licensed solely to big corporations, which logged them and processed them in big pulp and lumber mills. In the process, the companies profited and tens of thousands of woodlands and mill workers were paid high wages.
A new wood-supply management system is expected to cater to smaller-scale projects like a proposal at Whitesand First Nation just outside Armstrong, ON. The Whitesand proposal could create about 120 permanent and seasonal jobs through an integrated cogeneration, pellet-plant and sawmilling operation.
An informal group of researchers as well as aboriginal, municipal and business leaders including Lakehead University professor Peggy Smith and Northwestern Ontario industry veteran Mike Shusterman, said tenure reform “is the key to long-term stability in the North.” according to The Chronicle Journal.
“The little companies may not bring hundreds of jobs with them, but unlike traditional mills that have been shuttered in the wake of a rising Canadian dollar, global competition and high energy costs in Northern Ontario, they do provide sustainable employment in an area hard-hit by the forestry collapse,” opined an editorial Wednesday on TBnewswatch. “They need access to wood, and they need it locally. The province is on track by offering to put 25 per cent of crown timber up to the highest bidder. It opens the door for local companies to buy raw materials generated in Ontario. And the big players aren’t using it these days anyway,” the editorial said.
Sessions for the public and stakeholders will be held across the province, or input can be submitted at www.ontarioforesttenure.ca.
Meeting dates in Ontario are as follows: May 18 – Thunder Bay; May 20 – Dryden; May 26 – Marathon; May 28 – Toronto; June 1 – Hearst; June 3 – Timmins; June 8 – Pembroke; June 10 – North Bay.
A parallel series of sessions is planned with First Nations and Aboriginal organizations.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines recent movement in Weyerhaeuser and Domtar share prices, as well as perception around the industry and with analysts about where the lumber market is going through 2010.
Contact us any time for a subscription
Madison’s Live Online Lumber Producer Listings
Madison’s is hard at work updating our forest company listings!
All primary mills, remanufacturers, pulp and paper mills, cedar mills, wood preservers, panel mills, and wholesalers and exporters are being contacted to ensure their listing information is accurate.
Watch your fax machines, or contact us directly to check your listing!
Canadian Building Permits
Following four months of decline, the value of building permits in Canada increased 12.2 per cent in March to $6.3 billion, according to a StatsCan release Thursday. This was 38.9 per cent higher than the level in March 2009. The increase came mainly from multi-family and industrial building permits.
In the residential sector, construction intentions increased 13.9 per cent to $4.2 billion, thanks to a substantial gain in permits for multi-family dwellings, particularly in Ontario and British Columbia, said StatsCan.
Building Permits Canada
In the non-residential sector, municipalities issued $2.1 billion worth of permits, up 9.1 per cent from February. This increase occurred mainly as a result of higher construction intentions in the industrial and institutional components.
The Canada value of building permits for single-family dwellings remained unchanged at $2.7 billion. Provincially, increases in eight provinces offset declines in Alberta and Ontario. Quebec and Newfoundland and Labrador posted the largest advances in single-family construction intentions.
Nationally, municipalities approved construction of 19,469 new dwelling units in March, up 21.1 per cent. The gain was largely attributable to multi-family dwellings, which rose 46 per cent to 10,038 units. This was the first time since July 2008 that the number of multiple units surpassed 10,000. The number of single-family dwellings approved increased 2.5 per cent to 9,431 units.
The Canada value of building permits for single-family dwellings remained unchanged at $2.7 billion. Provincially, increases in eight provinces offset declines in Alberta and Ontario. Quebec and Newfoundland and Labrador posted the largest advances in single-family construsction intentions.
Lodgepole Pine Standards Need Review
A press release Friday by the Western Silviculture Contractors’ Association draws attention to current lodgepole pine stocking standards in British Columbia.
With at least 80 per cent of the mature lodgepole pine in BC expected to be lost to the mountain pine beetle plague over the next few years, two recent studies show that juvenile lodgepole pine plantations across the province are performing poorly and climate change is likely to make things worse.
The studies, presented at the Southern Interior Silviculture Committee spring conference in April, recommend a major review of current stocking standards for pine and the exercise of caution in the application of silviculture treatments, species selection and timber supply predictions. The two reports amount to a major shock to the assumptions that underly past and present silviculture practices and future timber supply estimates over a large part of BC, says the WSCA.
Pine Beetle Studies
A yet to be published paper from UBC has investigated the potential effects of climate change on juvenile pine plantations across BC.
It observed more than half the 15 to 30 year old trees in the extensive study were already suffering health effects due to bugs and various blights. Given what we understand about the destructive agents that affect young pines, including gall rust, snow and ice, mistletoe, needle cast, and insects; all these threats are likely to thrive and amplify as a result of climate change.
Current BC stocking guidelines examine whether stands are well stocked and healthy at 12-15 years. But no mechanism is in place to monitor their ongoing condition through to maturity the study noted; the inference being our present free-growing threshold may not be a reliable indicator of the future of a stand of pine.
The report also identified that some silviculture treatments such as spacing to too wide densities may actually contribute to the degeneration of pine plantations. The observations of the study indicate trends that could have a marked effect on future timber supply predictions as well as the general abundance and diversity of the forest estate well into the future.
The two reports seem to confirm what has been widely observed anecdotally across the province regarding pine plantations. In response to Forest Range Evaluation Program Forest Stewarship Stocking Standards Report #19, government’s draft action plan refers to ongoing trials, working groups and monitoring.
But ultimately any new principles and practices adopted, such as possibly doubling the planting density for pine, will be based on the pending silviculture framework resulting from the government’s Growing Opportunities discussion paper.
The WSCA has been told by the BC Ministry of Forests and Range executive that strategy will be released by next month.
Madison’s will provide details of the findings of the reports as soon as both become available, as well as the new government strategy.
May 09, 2010
North American Transportation Update
Financial results for CP Rail, CN Rail, and Union Pacific as well as the latest surface transportation figures for North America are examined.
Surface Transportation, US and Canada
With CN Rail and CP Rail showing strong quarterly results this week, and ground transportation figures up from recent trends, its time to look, once again, at North American transportation.
Trade using surface transportation between the United States and its NAFTA partners, Canada and Mexico, was 24.1 per cent higher in February 2010 than in February 2009, reaching $59.5 billion, according to the US Bureau of Transportation Statistics. The increase is the largest year-over-year rise on record but freight value still remained 14.3 per cent less than the value in February 2008, according to the government report released Thursday.
The latest Canadian General Freight Index data, released April 29, continues to suggest that ground transportation rates have stabilized. February’s results show a 1.6 per cent increase in ground transportation rates for Canadian shippers, offsetting a similar decline in January, according to Nulogx, the company that created and maintains the index. Base rates, excluding fuel surcharges, increased 2.1 per cent in February, the index indicates.
“February’s results are essentially at the same level as the last quarter of 2009 with less than a 0.5 per cent overall variance,” commented Dr. Alan Saipe, president of Supply Chain Surveys.
The volume of cargo carried by Canadian railways increased in February, as both commodity loadings in Canada and traffic received from the US rose, according to a report from Statistics Canada also on Thursday. Total freight traffic originating in Canada and received from the US increased to 21.9 million metric tonnes in February, up 6.2 per cent from February 2009. Compared with February 2009, freight loaded in Canada rose 5 per cent to 19.8 million metric tonnes in February. The Canadian railway industry’s core transportation systems, non-intermodal and intermodal, both contributed to the rise in cargo loaded, according to StatsCan.
Canadian Pacific Railway Ltd. Wednesday reported a 74 per cent increase in first quarter profit. For the quarter ended March 31, CP Rail earned $100 million, compared with $57 million in the first quarter of 2009. Revenues were up 5 per cent to $1.2 billion compared with $1.1 billion in the same period last year.
Canadian Pacific Ltd’s first-quarter profit jumped 74 per cent, beating analysts’ expectations, on lower costs and higher revenue from a sharp recovery in demand for commodities and automobiles. The stock is up more than 5 per cent compared to the previous quarter. Canada’s second-largest railway said Wednesday that profit almost doubled to $100 million from $57 million a year earlier. Revenue rose 5 per cent to $1.2 billion.
Union Pacific Corp.’s first quarter profit grew 43 per cent as the US railroad company posted quarterly volume growth for the first time in two years. The company’s strong results were the latest sign of strength in the freight-transport sector, which has seen its outlook improve recently along with the economy. On Thursday Union Pacific posted a profit of US$516 million, up from US$362 million a year earlier. Operating revenue grew 16 per cent to about US$4 billion.
Analysts and investment advisors had a lot to say about financial prospects for the transportation industry through 2010.
The Globe and Mail explained Tuesday that as the economy picks up, more goods are shipped, travelling increases and consumers are more inclined to purchase new vehicles. A good play on this cyclical sector is the iShares Dow Jones Transportation Average, which gives exposure to package carriers like United Parcel Service, freight carriers like Union Pacific and airlines like Continental Airlines. The Dow Jones Transportation Average closed at $85.79 on Monday.
In a conversation with Seeking Alpha, Brad McFadden, of the Daily Trading Report, explained investment interest in transportation, “In essence we search the globe for deep-out-of-favour sectors and invest at the ‘point of maximum pessimism’. When we first started buying into the shipping sector, the median price-to-book value of the largest 100 shipping stocks in the world was a mere 0.62, the cheapest ever in our records [which go back to 1970]. Our primary reason was the valuations of shipping stocks. In September when we started to invest, the total market cap of all publicly traded shipping stocks in the world came in at less than $20 billion. We thought that it was only a matter of time before conditions improved and valuations returned to more ‘rational’ levels.”
In terms of future growth, CN Rail’s new chief executive says growing demand for North American commodities from emerging countries will help the company grow its business during the gradual economic recovery. While the US and Canadian economies are slowly gaining traction, increased demand by China, India and other growing economies will push shipments, Claude Mongeau said at the railway’s annual meeting. Evidence of the positive impact that emerging countries were having on results was seen in the first quarter, when about half of the growth in the key lumber business was due to Asian demand. Mongeau said the demand is driven in China and other markets by the increasing use of wood products in Asian building codes. Chinese demand is also driving imports of Canadian pulp, even though paper demand remains challenged.
In other CN news, the railway was served a slap on the wrist Wednesday by US Federal regulators. Surface Transportation Board members said at a hearing that they were deeply disappointed in CN for reporting that in November and December there were only 14 occasions where trains blocked crossings for at least 10 minutes between Mundelein and Matteson, IL. An independent audit showed that traffic delays occurred 1,457 times in the same period. CN expressed “regret” at the undercount, essentially blaming it on a miscommunication with federal regulators. The rail company had reported only crossings blocked by stopped trains, but the board had mandated that delays caused by slow-moving trains also had to be included.
Vocal opponents of CN’s recent acquisition of the Elgin, Joliet & Eastern line out of Illinois are likely responsible for this severe level of scrutiny. Suburbs along the EJ&E tried to stop the deal, complaining that it would triple or quadruple the freight train traffic on the line, blocking crossings for long periods, tying up traffic and slowing emergency responders trying to cross the tracks.
CN special adviser Gordon Trafton said the railroad was “not looking to hide information” and had “diligently worked” to meet what it thought were the board’s expectations.
Softwood Lumber Export Tax Reduction
Canadian exporters of softwood lumber products into the United States are facing a significant change in export taxes, effective May 1. Option A provinces, British Columbia and Alberta, will see a 5 per cent reduction in tax (to 10 per cent), while Option B provinces, Quebec, Ontario, Manitoba and Saskatchewan, will see a 2 per cent decrease (to 3 per cent).
There is a lot of confusion about the application of this tax reduction, and changes to paperwork at the border. Madison’s heard from lumber producers that customers tried to demand a 5 per cent price discount the week the upcoming tax reduction was announced, and that some lumber exporters began immediately submitting customs documents reflecting the upcoming tax reduction.
A sharp-eyed customs broker working the Canada-US border, Michael Jones at Jones & Jones Customs Brokers and Trade Consultants, noticed a lack of clarity in the wording of the 2006 Softwood Lumber Agreement, which seems to indicate that lumber loaded on rail lines prior to an export rate change date will be charged at the old tax rate.
Requests for clarification by both Jones and Madison’s of DFAIT and the Canada Revenue Agency came up with no meaningful results. Jones is advising clients to be on the safe side and not load lumber onto rail cars until May 1 in order to take advantage of the tax reduction.
Madison’s is, once again, appalled at the lack of proper information out of Canada’s federal government. A major international agreement between two huge trading nations is undergoing a change, for the first time ever, and no useful information is provided in terms of compliance. Specific requests to the CRA were responded to with vague replies repeating information already available.
Madison’s hopes that this continued lack of attention to the needs of Canadian lumber producers and exporters by our federal government does not result in problems at the border with improperly filled out customs forms and months of headaches to sort out paperwork.
Quarterly Results
Canfor Corporation has reported total net income of $32.5 million for the first quarter of 2010, compared to a net loss of $9.1 million for the fourth quarter of 2009 and a net loss of $69.9 million for the first quarter of 2009.
Domtar Corporation has posted their preliminary first quarter results showing net earnings of $58 million compared to net earnings of $124 million for the fourth quarter of 2009 and a net loss of $45 million for the first quarter of 2009.
Lumber and pulp prices increased significantly in the first quarter of 2010, and were the major reason for the Canfor’s improved results for the quarter. US housing activity showed only a modest improvement from the historically low levels of the previous quarter.
Commenting on the results, Canfor’s President and CEO, Jim Shepard, said, “While we are very pleased to see the rise in North American lumber prices, we recognize the increase is largely due to supply factors rather than to any significant increase in US house construction activity.”
Highlights of Domtar’s first quarter include; refundable excise tax credit for the production and use of alternative bio fuel mixtures of $25 million ($18 million after tax), charge of $22 million ($16 million after tax) related to the impairment and write-down of property, plant and equipment, closure and restructuring costs of $20 million ($14 million after tax), and gain on sale of property, plant and equipment of $1 million ($1 million after tax).
“Despite a still modest economic recovery we recorded strong financial results due to price increases and higher pulp, paper and wood shipments,” said John D. Williams, President and CEO.
Also reporting this week, Weyerhauser Co.’s first-quarter loss narrowed significantly, beating analysts’ estimates, as most of the company’s segments saw improved performance.
“We’re encouraged by the improvement in our performance,” said President and CEO Dan Fulton. “Financial results increased significantly compared with the prior quarter and on a year-over-year basis due to better market conditions and the work we’ve done to improve our long-term competitiveness.”
Weyerhauser is in the process of converting to a real-estate investment trust, having received shareholder approval for the move earlier this month.
The company reported a loss of US$20 million narrowed from a loss of US$264 million a year earlier.
Interfor Reopens Castlegar
International Forest Products Ltd. says it will reopen one sawmill as dramatic increases in pricing and demand continue to take root in the lumber market, but remains wary of lingering uncertainty in the recession-battered industry.
“Clearly business conditions are much better than they were at this time last year or the immediately preceding quarter,” CEO Duncan Davies told analysts Friday on a conference call to discuss Interfor’s improved financial results for the first quarter of 2010.
Davies said there is cause for some celebration as Interfor plans to restart one if its BC mills, at Castlegar, but there is also uncertainty in the market, especially in the US, where activity in the housing market remains close to historic lows.
Lumber shipments totalled 264 million board feet for the quarter, more than double a year ago, helped by production from Adams Lake, BC, and the recent restart of operations at Grand Forks, BC, as well as higher operating rates at the company’s US mills.
Davies said the company was surprised by a dramatic increase in lumber prices from the previous quarter. But higher log costs in the BC Interior and the Pacific Northwest, weak cedar markets, and the higher Canadian dollar offset some of the revenue gains.
Even so, Davies said Interfor will continue with its current business model, balancing operating levels against sales activities and maintain strict control over inventories.
May 03 , 2010
ExpoFor 2010
The BC Association of Professional Foresters held their annual general meeting for 2010 last week in Kelowna, BC. Industry speakers gave presentations on a variety of subjects from wildfire danger to log exports, and China as a customer for North American lumber.
2010 Annual General Meeting
ExpoFor 2010, the Association of BC Forest Professionals’ annual meeting, was held last week in Kelowna, BC. The three day conference was packed with speakers on a variety of topics, from wildfires to log exports, from lumber demand out of China to First Nations forestry activity. This week Madison’s breaks down the presentations, providing a summary of the discussions.
First, and probably most important given the timing, is the wildfire danger in British Columbia due to the low winter snow pack, plus dead and dry timber left behind in the wake of the Mountain Pine Beetle infestation. Steve Schell of Kamloops Fire Centre, Fire Chief for the City of Kelowna Rene Blanleil, and Kelowna Urban Forest Health Technician Blair Stewart spoke about forest fire safety and what the average citizen can do to protect themselves and their property. The next day Okanagan Forest District Ecosystem Restoration Team Leader Bernie Kaplun spoke about treating fire-maintained ecosystems to achieve multiple forest benefits and values.
Schell’s presentation focussed on BC’s fire danger, explaining that this province has the most challenging terrain in Canada. BC has a 10-year average of 2,500 wildfires every summer of which the causes are 50 per cent human and 50 per cent lightning strikes. 93 per cent of fires are extinguished at less than 4 hectares in size, thus aggressive initial fire response is key to success in putting out a fire. To fight wildfires, BC has one Provincial Wildfire Coordination Centre, six regional fire centres, 60 fire zones/initial attack bases, two provincial warehouses and 18 tanker bases. In terms of technology, the province has automated weather stations, spatially displayed fire danger risk, lightning detection, a Fire Reporting Centre, real-time resource tracking and fire status and monitoring.
Schell further explained that BC’s 2010 winter temperatures were between 1.5 and 2.5 degrees C above normal, and that drainage basin snowpack and water equivalency are below normal as of April 2010 but that May and June rains will help determine water supply challenges for the 2010 summer fire season.
Blanleil’s presentation detailed what provincial wildfire professionals have learned after the disastrous Kelowna fire of 2003. The most important lesson, said Blanleil, is interagency cooperation and unified command. Also planning and multi-agency exercises to prepare workers in advance of a fire are critical. An integrated communication system is also critical, with all agencies involved receiving each other’s releases and updates.
Stewart explained that fire suppression practices in the past have resulted in poor forest health; forests are too dense, are filling in natural grasslands, the trees are stressed, and are more susceptible to pest outbreaks. As a result of these findings Kelowna has embarked upon a fuel modification program on city owned forest lands, which involves; pruning 3–5m, 2–3 m Crown spacing, removal of dead trees, and chipping or removing ground debris. As of 2009, approximately 70 per cent of the 151 applicable hectares have been treated, with the remaining 30 per cent at low to moderate danger levels thus no treatment is required.
The second day of presentations kicked off with top executives of major BC lumber companies discussing lumber exports to China. Jack Heavenor, CEO and Managing Partner of Downie Timber, West Fraser’s VP of lumber sales Chris McIver, VP and Chief Forester for Interfo Ric Slaco, and Canfor CEO Jim Shepard all spoke.
Heavenor started off by explaining that Downie Timber is primarily in the western red cedar business, with a focus on high end finished goods, panelling, siding, clear facia & trim, and finger joint boards and siding. 60 to 70 per cent of BC lumber goes to the US, which is too much exposure to a single market according to Heavenor. US housing starts, while difficult to predict, are not expected to exceed one million units annually in the next two to three years. China, on the other hand, has pent up housing demand, an emerging middle class, and is a large user of low grade lumber, Heavenor went on to explain. However China also has a significant milling sector, prefers to buy logs, is close to Russian timber supply, and does not have a strong wood culture.
For Downie Timber specifically, and other specialty species and product suppliers, China is an emerging market. Especially for cedar, China is currently taking 4 per cent of BC’s cedar exports, said Heavenor. Chinese demand for middle & low grade remanufactured stock increased from 1,000 mfbm in 2000 to 2,2500 mfbm in 2008, amounting to a 20 fold increase in the decade. Chinese industry manufactures the material into finished goods which are then exported back to the US.
In terms of BC lumber, the cedar industry accounts for 5.8 per cent of the volume but 21.3 per cent of the value, according to Heavenor.
Interfor’s Slaco agreed that BC needs to diversify its lumber customer base beyond the US and Japan, explaining that there are growth opportunities for hem-fir based on product attributes and for higher end cedar products. Slaco also noted an important point, which has been stated also by Pat Bell, BC’s Minister of Forests and Range, that when the 2006 Softwood Lumber Agreement comes up for renegotiation in 2013, BC will be much better positioned to deal with the Americans if China is a more significant customer for wood products.
The final day of the conference began with presentations about the always-controversial exporting of logs out of Canada. Speakers TimberWest CEO Paul McElligott, and BC consulting forester Jim Girvan tackled the topic, “Log Exports: Good for business, bad for the economy?”
Offering a unique perspective out of TimberWest, as a large owner of private coastal timberlands on Vancouver Island, McElligott explained that in 1998, the Canadian Department of Foreign Affairs and International Trade (DFAIT) harmonized provincial and federal procedures for obtaining log export permits. In order to obtain a federal log export permit, it must be demonstrated that the logs in question are surplus to domestic needs. Because log export restrictions constrain landowners from selling to the highest bidder, they directly cause a transfer of wealth from timber owners to private manufacturing companies, according to McElligott.
This is not an issue of ‘exporting jobs’, said McElligott, since there is not a shortage of fibre on the coast of BC. Since 1998, the estimated undercut of publically owned coastal crown timber exceeds 60 million m3.
McElligott further pointed out that in the US Pacific Northwest, companies have exported and continue to export logs from their private lands.They have re-tooled their manufacturing plants without the addition of private land log export restrictions. US land owners are not obliged to meet a surplus test yet US log exports declined significantly after the industry restructured and local mills became globally competitive.
Girvan pointed out that a significant portion of BC mills rely on revenue from log exports to keep their mills running. Girvan’s presentation contained fascinating quotes from various BC lumber industry professionals, as well as from some loggers. That presentation can be viewed here http://www.expofor.ca/program_info/documents/Girvan_presentation.pdf The rest of the presentations are available on the BC Professional Foresters website here http://www.expofor.ca/program_info/presentations.htm
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines recent sharp rises in share prices for several North American pulp, paper and packaging companies. Global inventories and shipments to March 2010 for these commodities are also discussed.
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Newfoundland Accidentally Buys AbitibiBowater Mill
The Newfoundland and Labrador government admits it is on the hook for millions of dollars because it mistakenly expropriated a newsprint mill it doesn’t want. The matter came up Thursday in the house of assembly, when Deputy Premier Kathy Dunderdale said the government wound up with a century-old, environmentally troubled mill in Grand Falls-Windsor.
The mistake was made in a 2008 bill that was rushed through the legislature, allowing the government to seize AbitibiBowater assets, particularly timber and water rights, as well a hydroelectric power station. The error is related to land surveys prepared for government when it drafted an expropriation bill that sailed through the house in December 2008. In its rush, the surveys were botched and the area that the government claimed mistakenly included the land on which the mill sits.
Premier Danny Williams said the environmental costs could be enormous but no bureaucrats will be disciplined and no politicians will be punished for the error.
US Home Sales
Existing-home sales were up slightly more than expected in March, climbing 6.8 per cent, to a 5.35 million annual rate from a downwardly revised 5.01 million annual rate in February, the National Association of Realtors said Thursday.
US Real Estate
First time home buyers purchased 44 per cent of all homes in March, up from 42 per cent in February. The level of all cash sales was steady at 27 per cent.
The median home price rose 3.7 per cent to US$170,700 from February’s downwardly revised US$164,600. Median prices were up 0.4 per cent in year-over-year comparisons.
NAR Chief Economist Lawrence Yun credited the government’s tax credit program with driving sales higher, but said it would take months for the full effects of the program to be reflected in the data.
March’s increase in new home sales comes on the heels of a February dip that took activity to its lowest level since the Commerce Department began tracking the data in 1963. Severe winter weather coupled with continued weakness in the job market pulled February sales down a revised 4.1 per cent to a seasonally adjusted annual rate of 324,000.
March’s new home sales figure is up 23.8 per cent from a year earlier even though new home sales growth has been sluggish as buyers have leaned toward purchases of cheaper, sometimes foreclosed, existing homes.
Still, new home inventories are declining. Friday’s data showed 228,000 new homes were up for sale at March’s end, a 2.1 per cent decrease from the previous month.
The months supply of new homes available for sale slid to 6.7 from 8.6 in February.
Japan 2009 Wood Import Value
Japan’s Forest Agency has released figures, based on trade statistics from the Finance Agency, showing that the total value of wood imports to that country for 2009 was about 820 billion yen, 30 per cent less than 2008. The largest drops were made by imports of Russuan logs, down 37 per cent, and Canadian lumber, down 36 per cent by volume and 39 per cent by value, according to Japan Lumber Reports.
Japan Wood Imports 2009
European lumber imported into Japan was almost flat by volume but the value dropped by 21 per cent, according to the Reports.
Plywood imports into Japan were also down in 2009 compared to 2008, by 2,460 M cubic meters, or 107.7 billion yen.
Wood chip imports fell by 10,480 M tons, a 29 per cent drop, or 198 billion yen less than 2008.
Australia and South Africa were two major supplying countries, with a 50 per cent share of the wood import market into Japan, says the Reports.
Fire Resistant Wood Framed Building
A 6,388 square metre, two storey nursing home is being built in Japan’s Kanagawa prefecture. The 2×4 framed buildings will comply with current fire resistance specifications.
Base floors will be concrete slab, with wood finishing added after the roof is completed. Roof trusses of a maximum 21 metre span will be connected with metal fasteners. Two to three trusses will be preformed into units then lifted into place with a large crane.
Each room will be equipped with a sprinkler, while floors and walls will be double reinforced gypsum boards.
Light steel framing will be used for ceiling and divider walls. – Japan Lumber Reports.