Forestry Week, Vancouver ; Madison’s Timber Preview ; US Housing Starts ; British Columbia Floods ; Sawmill Fire, Forestry Worker Fatality ; Interfor Buys . . . ; Biomass Fuel Study ; North American Wildfires ; Canada Housing Starts ; Housing Starts, Japan; Ontario Wood Pellet Plant ; Quarterly Earnings;Hardwood Plywood Imports From China ; More Quarterly Results, Lumber Producers ; Sawmill Openings, Investments ; Fires at Lumber Production Facilities ; California Wildfires ; US Construction ; Madison’s Timber Preview ; Average Pay for Canadian Forestry Workers up 11 per cent; PwC Forestry Earnings Report ; APA 2013 Market Outlook ; Quarterly Results ; Nova Scotia Rejects Claim
May 29, 2013
Forestry Week, Vancouver
Last week was held the Pulp and Paper Products Council/PwC Forestry and Paper Week in Vancouver, BC. Industry, agency, analyst, and economist presentations covered a wide range of topics including projections for global pulp capacity, log supply issues in various regions, sawmill operating rates and production, and of course outlooks for lumber demand and prices.
Speakers for the PwC 26th Annual Forest and Paper Conference on Thursday, May 9, provided deep insight and updates to a large room jam-packed with attendees.
Kicking off the first session, “Global Economic Outlooks” was Craig Wright, Sr VP and Chief Economist at Royal Bank, with a presentation titled, “Economic Outlook: leaning into the headwinds“.
“2012 was the weakest year for economic growth globally,” Wright began. “Emerging economies accounted for 80 per cent of what growth did occur, with the developed world accounting for only 3.5 to 4 per cent of total global economic growth. There is significant inflationary risk worldwide with bank balance sheets running this high.
“The US housing market recovery helps the ‘feel good’ factor for consumers as they are no longer sitting on a negative equity base. In Canada, corporations are sitting on a lot of cash, there is currently $600 billion on Canadian balance sheets. Company profits are soaring, but investment is weak mainly due to difficulties accessing credit, large pension payments, and continued uncertainty.”
Wright provided details on exchange rates, specifically CA-US and CA-EU, interest rates, and continued financial problems in the EuroZone, saying, “The new normal for the Canadian dollar will probably be 90 to 95 cents US, instead of the 85 cents level held for so many years.”
Pulp and Paper Products Council, PwC Conferences
The next topic was “Financial Performance“, with Michael Vermette, Partner at PwC, speaking first.
In one of the most important statements of the entire week’s proceedings, and an observation Madison’s agrees with wholeheartedly, Vermette pointed out that, “We haven’t seen a dynamic yet where China and the US are each creating a demand for lumber at the same time. In the US, log exports will be stressed as recovering US domestic demand looms.
“Forest products companies may have rapid growth in the near future, much like the tech sector has done. There is actually a possibility of companies taking advantage of rapid improvements, for example by investing when the market is on the way up, but they might go too far too fast, they might not have the opportunity to grow organically.”
Daryl Swetlishoff, Director and Head of Research at Raymond James, wasted no time going through his lengthy slide presentation,”Five Fearless Forecasts“.
“There will be a 50 per cent improvement in lumber prices compared to recent years, with the US$500 mfbm threshold being achieved after 2014. In OSB the party is already over, the best days for OSB are here right now. Lumber prices won’t get back to 1995 trend levels until 2015.”
There was a question from the floor about TIMOs opening up access to more southern US timber, and also about the direction of log prices in lumber producing regions. In answer to the first question Swetlishoff explained, “The commodity works out but the stocks don’t because the costs are too high. Log costs are two-thirds of total operating costs for southern US mills. The US south has been undercut and new mills will be built in the south, then lumber will be pretty muted until operating rates approach 95 per cent.”
In answer to the second question, Swetlishoff said, “As for BC stumpage rates, right now BC is harvesting about 12.5 billion board feet, therefore log cost pressure will be muted due to sawmill closures, in fact some currently curtailed mills might not ever reopen. And in the US west, log costs are high due to exports to China.”
The rest of the morning was devoted to a “Spotlight on Brazil” which was very pulp and timberland heavy so Madison’s will reserve coverage of that for another day.
The afternoon sessions started off with a “Global Industry Outlook Panel“. Donna Harman, President and CEO of the American Forest and Paper Association, gave a presentation titled, “Growing the Future: Global Strategies for Sustainable Success“.
“US forest products account for 4.5 per cent of total domestic GDP. The total revenue for companies combined is US$200 billion annually, combined payroll is US$50 billion. The forest industry globally has taken advantage of the last 3 to 5 years and is positioned to grow.”
At last came the consistently best session at the annual PwC forestry conference, the “Executive Perspectives“, commonly known as the CEO panel. The participants were given only ten minutes to describe their companies and give their opinions, with the bulk of the time devoted to questions from the floor.
In his brief talk, Jim Lopez, President and CEO of Tembec, said, “Overall the forest industry destroys value. Return on Capital Employed (ROCE) in the last five, ten, fifteen, twenty years has been terrible. Unacceptable. Fragmentation is the enemy of our indusry, however some companies and sectors have done an excellent job of consolidating.
“Government subsidies and funding have provided some opportunities in the biomass fuel game but have also resulted in some silliness.”
Lopez also referred to the “biomass fuel game” as “in the third period” to which Madison’s submitted a question looking for clarification.
“Governments have well meaning thoughts about doing something about climate change. But how does it make sense to ship bio-material half-way around the world so the consumer can pay $130/MWh? If people stop focussing on economic energy and focus on uneconomic energy, that spells trouble,” replied Lopez to Madison’s submitted question.
Marcelo Castelli, President and CEO of Brazil’s Fibria Celulose agreed, “Subsidies should stop. The markup right now on biomass fuel is 100 per cent due to government incentives. This amounts to guaranteed feed-in tariffs for the next 50 years. This is not R&D and innovation, this is just subsidizing what is going on.”
Kevin Clarke, outgoing President and CEO of Catalyst Paper, responded, “Look at shale gas increases in the US. How will trade flows affect energy in the next five years? The energy profile of the US is going up, and there is too much economic gain not to do something [with biomass fuel].”
During his brief talk, David Scheible, President and CEO of Graphic Packaging International, touched on this topic.
“The packaging we make for cereal boxes gets recycled an average of six times. This is the very definition of sustainable. With pellets, you burn them and its done. There is no sustainability. Without subsidies the business doesn’t work.”
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview examines the latest movements with lumber commodity sales and prices, and looks at analyst and economist assessments of what a tanking futures market will mean for investors.
Contact us any time to receive this timely and worthwhile information.
US Housing Starts
US builders broke ground on fewer homes in April, one month after topping the 1 million mark for the first time since 2008. But most of the decline was in apartment construction, which tends to vary sharply from month to month. Applications for new construction reached a five-year peak, evidence that the housing revival will be sustained.
Housing Starts, US
The Commerce Department said Tuesday that starts at building sites for homes in the US fell 16.5 per cent last month to a 853,000-unit annual rate. Newly issued building permits, a gauge of future construction, rose 14.3 per cent from a month earlier to an annual rate of 1.017 million, the highest level since June 2008.
Near record-low mortgage rates and improving job opportunities are drawing buyers into a market that remains a bright spot for the expansion. The increase in demand is stretching beyond builders, giving a boost to suppliers of construction materials.
New construction of single-family homes declined 2.1 per cent in April to an annual rate of 610,000. Multi-family construction plunged 39 per cent to a rate of 243,000.
Housing starts fell last month in every region except the Midwest, where it rose 11 per cent compared with March. New construction dropped 28 per cent in the South. It fell 13 per cent in the Northeast and 6 per cent in the West.
Even with the sharp drop in construction last month, confidence among builders is rising. The National Association of Home Builders says its builder confidence index rebounded in May to a reading of 44, up from 41 in April. The outlook for sales reached its highest point in more than six years.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders’ group.
Several major homebuilders have reported strong annual increases in orders for the first three months of the year. That includes the start of the spring home-selling season, the traditional peak period for sales.
British Columbia Floods
As heavy rains and suddenly warmer temperatures hit BC this week, flood warnings were issued for various communities.
A flood warning was maintained Thursday for the Fraser River through Prince George, according to the provincial agency responsible for watching the water. River levels along the Upper Fraser rose this week, and are currently at or near the peak levels, said an update from the BC River Forecast Centre.
Fraser River Flooding
A rapid snowmelt and unseasonably high temperatures prompted a flood watch Monday morning which was upgraded to a warning the following day.
As of Wednesday morning, the Fraser River at South Fort George was nearing peak levels at 9.75 metres. Officials expected the water could rise up to another three centimetres before dropping in the evening.
By Friday the flood threat was easing in parts of BC.
The BC River Forecast Centre said the Fraser River in the Prince George region reached its peak Wednesday and is expected to drop off without any major flooding.
Although a high water advisory has ended for the North Thompson River, the city of Kamloops has issued a boating advisory for the north and south Thompson Rivers because of strong currents and heavy debris beneath the surface.
A high water advisory remains for the lower Fraser River from Hope to the coast, with peak levels expected on Friday and Saturday.
The forecast centre also says the level of Osoyoos Lake is expected to continue rising over the next few days because of high flows from the Similkameen River.
Sawmill Fire, Forestry Worker Fatality
Firefighters from seven Wisconsin departments battled an intense and smoky fire so hot that heat warped steel beams at a pallet-making company near Holcombe Monday night.
The fire at Walters Brothers Sawmill in Chippewa County destroyed the sawmill, wood debarking area, and an adjoining room, according to Cornell Fire Chief Denny Klass. A manufacturing area was saved in part to a fire wall, he said.
A 59-year-old Wayzata, MN, man was killed Thursday in northern Minnesota when a tree fell and hit him, according to the Lake County Sheriff’s Office.
Fire at Sawmill, Logger Fatality
Authorities were called to Birch Lake Road, just north of the Birch Lake Campground in Minnesota, Thursday. When they arrived, a man who was reportedly a contract worker for the Forest Service had a tree that he was felling land on him as he tried to get out of the way.
The Lake County and St. Louis County Sheriff’s Office responded to the scene. The man was taken to Ely Hospital, where he was pronounced dead from his injuries.
The Walters Brothers Lumber factory in Holcombe, WI, on the east side of the factory, was entirely destroyed. Employees left the building at 4:30 p.m. Monday, so no one was there at the time of the fire. No injuries were reported.
A fire wall between the sawmill and the pallet-manufacturing shop halted the blaze and prevented further damage, mill manager Corey Walters said to the Leader-Telegram.
Interfor Buys . . .
Further to its February announcement of purchasing three sawmills in Georgia from Rayonier, Interfor, out of Vancouver, BC, released a statement this week that it has an agreement to buy the assets of Keadle Lumber Enterprises, also in Georgia.
Keadle is a well-regarded producer of high quality southern yellow pine lumber and has been in the business since 1947. The mill currently produces 80 million board feet on a one shift basis. Interfor intends to increase the mill’s kiln capacity and add a second shift to the operation, as market conditions improve, bringing production to an annual rate of 160 million board feet.
The transaction is subject to final documentation and Board approval and is expected to close prior to the end of 2Q 2013.
May 22, 2013
Biomass Fuel Study
A new report released last week assesses approaches to expanding community-scale clusters of wood-to-energy facilities in the US. The US Endowment for Forestry and Communities (Endowment) report, “Financing Woody Biomass Clusters: Barriers, Opportunities, and Potential Models for the Western US”, looks specifically at how community-scale wood-fueled facilities could aid in addressing burgeoning forest health issues and expanding losses due to wildfires. The production of energy using a renewable material such as wood can have positive impacts on all three legs of the sustainability stool — society, the economy, and the environment, says the report.
The Endowment is a not-for-profit corporation established at the request of the governments of the US and Canada in accordance with the terms of the 2006 Softwood Lumber Agreement. The Endowment’s vision is that America’s forests are sustainably managed to meet broad societal objectives such as marketable products, clean waters, wildlife habitats and other ecological services, while ensuring healthy and vibrant forest-reliant communities.
“Biomass energy development has the potential to foster economic development, address wildfires and associated risks and costs, and reduce dependence on fossil fuels,” says Jeff Howe, President of Dovetail Partners and a contributing author of the report.
“There are critical strategic, organizational, and financial issues that need to be addressed in order to realize the considerable potential of biomass energy. First and foremost, biomass energy needs to become an attractive and financially viable investment alternative. This can be aided by strategically applying a wide array of market-based, as well as incentive- and grant-based financial tools.”
The report is part of a series of works produced by the Endowment in a collaborative effort with the USDA Forest Service to assess the potential of markets for low-value wood to enhance forest health while advancing energy security.
Below are some of the fascinating findings of this report:
US Endowment for Forestry and Communities Report
”
There is an old saying in the lumber business to the effect that “lumber sales keep the lights on, sawdust makes the profits.” The historical interpretation has been that the commodity lumber business is so low margin, that the few dollars the business receives for waste products are critical to profitability. The emerging focus on energy resources and exploration of biomass energy opportunities has the potential to significantly influence this viewpoint. The continued interest in renewable fuels, combined with opportunities for forest restoration and innovations in biofuel technologies (e.g., liquid fuels, torrefied wood, etc.) offer the opportunity for wood products companies to rethink and redesign their operations to produce new products and serve new markets. There is the potential to foster creative ways of thinking about wood products that can affect profitability and traditional views of commodity-oriented lumber workers. Changes in how wood is viewed as a fuel resource can foster a cash flow, a reduced seasonality, and a new mindset in regard to utilization throughout the product channel that could have broad ramifications for the forest products sector.
Globally, wood and charcoal are the main energy sources for more than two billion people. Production of energy using a renewable material such as wood can have positive impacts on the environment and the economy. It can also contribute to the nation’s energy security in a significant way by reducing dependence on imported fossil fuels. Despite these positive impacts and abundant, in some cases overstocked, forest resources, woody biomass makes up only about 2 per cent of primary energy production in the US.
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A final outcome of the project was the identification of major findings and recommendations that can support the further development and performance of biomass fuels and biomass energy facilities. These findings were divided into the main categories of: Finance; Biomass Project Development Practices; Aggregated and Clustered Projects; Biomass Technology; Biomass Fuel Competitiveness; Fuel Supply ; Fuel Delivery; Biomass Energy CoBBenefits; Policy; and, Noteworthy Regional Differences.
To better understand how biomass energy could be more widely adopted in the US, this project focused on identification of factors contributing to success or failure of biomass energy projects. These findings were used to identify barriers to and opportunities for achieving more extensive use of such systems. This project focused on addressing four primary questions:
• What are the opportunities and barriers to wood-to-energy facilities?
• What are the lessons learned from existing projects?
• What are the potential impacts of non-traditional revenue sources (e.g., payments for environmental services)?
• What models could be economically viable for development of wood-to-energy facilities in a western public lands environment?
The results of the interviews and surveys carried out aided in the identification of key opportunities, barriers, and lessons learned from current operations. The primary drivers in wood energy investments were also explored.
For many facilities, funding is a primary roadblock. Biomass energy systems may provide significant annual heating cost savings, but potential investors may desire a shorter payback than is realistic without low interest financing. Biomass energy systems may also be more capital intensive than alternatives. In many instances, there is broad recognition of the potential environmental and socio-economic benefits of adopting a biomass energy system, but the system still needs to make financial sense as an investment.
Based on interviews, survey results, site visits, case study development, and a financial analysis that involved biomass energy facilities across the US, a number of barriers to wider adoption of biomass energy production in the US were identified. Recognition that economic factors and financial concerns on the part of potential purchasers and investors are critical elements in biomass energy adoption and long-term success led to close examination of the economics of biomass energy production. The result was the development of the Biomass Investment Multiplier (BIM) as an additional tool for use in economic assessment of bioenergy project potential. [insert graph] This, in turn, was used to evaluate a number of model scenarios in which biomass energy was compared with more traditional energy sources. This evaluation illustrated how biomass energy investments compare with alternatives and opportunities to design financially competitive biomass energy systems. The availability of payments for environmental services can contribute to improving the financial performance of associated biomass energy systems. Applying biomass energy development as a more economically efficient wildfire risk reduction activity could provide opportunities to access non-traditional revenue sources.
The production of energy using a renewable material such as wood can have positive impacts on all three legs of the sustainability stool. Biomass energy development has the potential to foster economic development, address wildfires and associated risks and costs, and reduce dependence on fossil fuels. There are critical strategic, organizational, and financial issues that need to be addressed in order to realize the considerable potential of biomass energy. First and foremost, biomass energy needs to become an attractive and financially viable investment
alternative. This can be aided by strategically applying a wide array of market-based, as well as incentive and grant-based financial tools.
”
The full report is available here: http://www.usendowment.org/news/latestnews.html
North American Wildfires
Wildfires burned this week in Arizona, the interior of British Columbia, Alberta, New Brunswick, and Prince Edward Island, while Quebec has issued fire warnings and bans.
A suspected human-caused fire has consumed about 43 acres, or 17 hectares, of wilderness on Mt. Graham in Arizona’s Coronado National Forest.
The US Forest Service reported Friday morning that the Marijilda fire was at about 70 per cent containment. The Marijilda fire is in Rincon Canyon, near Rincon Springs, at about 5,000-feet elevation. Burning is short grass and oak and no structures are threatened.
The fire was first reported Wednesday morning. There are four wildland fire crews on the ground — three 20-man crews and one short crew.
Canada and US Wildfires
Hot and dry weather in southern British Columbia is expected to hold until at least Saturday, which means crews battling the 255-hectare Spatsum Creek fire south of Ashcroft, BC, can’t rest easy yet.
There are 63 personnel fighting the fire Wednesday and building helipads to allow support crews better access to the blaze.
Other fires in the Kamloops, BC, area, including a small blaze off Lac le Jeune Road and three spot fires near Monte Creek, were being mopped up on Wednesday.
A fire near the community of Nordegg, north of Edmonton, AB, is contained, and will be hit hard Friday as extra fire crews and equipment are being brought to the area.
The fire began Sunday night, and has been blazing through 75 hectares near the Frontier Lodge, about five kilometres west of Nordegg. Winds picked up Thursday afternoon, causing the blaze to burn out of control.
Winds did not get as bad as predicted in the area overnight, which aided firefighting efforts.
About 150 residents of Nordegg remained on a one-hour evacuation notice as of Friday morning.
Forest fires near Petitcodiac and Kedgwick in New Brunswick burned out of control Tuesday.
Two homes were destroyed already and more are at risk. Evacuations are being conducted are in place to get people to a safer place. Water bombers and helicopters are fighting the fires.
There has already been 272 fires in New Brunswick this year. At least 14 fires were burning mid-week, according to the CBC.
In Prince Edward Island, fire officials battling a major forest fire Tuesday on the Friston Road near Pleasant Grove and Covehead area.
The fire started in the afternoon and quickly spread, said The Guardian Tuesday. Strong southwesterly winds have turned the fire into a crown fire. By evening the fire was 10 acres in size. The area is heavily wooded and difficult for firemen to attack.
The forest fire index was increased to high across PEI Monday.
The increasing fire danger rating in Quebec has led to an open fire ban across the entire province, officials said Wednesday. A dozen forest fires were burning across the province, and 167 fires have burned in that province this year so far.
Canada Housing Starts
The seasonally adjusted annualized rate of housing starts in Canada was 174,858 units in April, down from 181,146 in March, Canada Housing and Mortgage Corp said Wednesday. The March figure was revised down from the 184,028 units reported a month earlier.
Wednesday’s figure is 31 per cent below the year-ago pace.
Housing Starts, Canada
Multiple-unit housing starts in Canada’s urban areas fell 3.5 per cent in April to a pace of 93,500, a decline of 42 per cent from the same month a year earlier, according to the CMHC report. Single-unit work fell 0.9 per cent to 60,100 units, down 16 per cent from the year-ago month.
The six-month trend level in housing starts was 182,754, continuing a downward slope that began in the middle of 2012, when Canada’s red-hot housing market peaked.
Housing Starts, Japan
March housing starts in Japan were 71,456 units, a 7.3 per cent improvement over March 2012, according to the Japan Lumber Reports. On a seasonally adjusted basis starts were 904,000 units, a 4.2 per cent decline from February mostly due to a drop in condominium starts.
Japan Housing Starts
March new building of owners’ units improved by 11.4 per cent while new rental units increased by 10.7 per cent, says the Japan Lumber Reports.
For full-year 2012, which ended March 31, 2013, housing starts in Japan were 893,002, a 6.2 per cent increase over 2011 and a three consecutive year improvement. By house type, 2×4 units were 110,459, an 11.9 per cent increase over the previous year.
Ontario Wood Pellet Plant
Rentech has acquired two decommissioned fibre mills in Ontario and plans to produce wood pellets in both to fulfill pellet delivery contracts with Drax and Ontario Power Generation, the company announced Saturday.
The two mills are: Wawa, a former Weyerhaeuser OSB processing mill; and, Atikokan, the former Atikokan Renewable Fuels particle board processing mill.
Pellet Plant, Ontario
Rentech’s wood pellet supply contract with Drax includes a 10-year contract for delivery of 400,000 metric tonnes of pellets annually, which will be fulfilled by both Wawa and Atikokan mills. The contract establishes a strategic relationship with Drax, which plans to invest approximately US$1 billion through 2017 to transform the largest coal-fired power station in the UK into an electricity generator fuelled predominantly by sustainable biomass.
And Rentech’s wood pellet supply contract with Ontario Power Generation (OPG) involves a 10-year contract for 45,000 metric tons of pellets annual for the coal power plant in Atikokan that is being converted to wood pellet. OPG has the option to expand the contract to 90,000 metric tons annually.
Quarterly Earnings
Catalyst Paper and Western Forest Products both reported quarterly earnings this week.
Catalyst Paper, out of Richmond, BC, posted a net loss of $9.8 million in 1Q 2013, the company said Monday. Before specific items, the loss was $11.6 million. In the previous quarter, the company posted a loss of $35.2 million.
Vancouver, BC’s, Western Forest Products reported Wednesday a net income of $22.8 million in 1Q 2013, on sales of $233.8 million, compared to a net income of $14.3 million for the previous quarter, and a net income of $1.7 for the same quarter last year.
May 15, 2013
Hardwood Plywood Imports From China
An investigation was commenced in the US last autumn when six domestic companies, that represent a small fraction of the global plywood market but who collectively comprise 80 per cent of the US hardwood plywood market, led a campaign to disrupt the imported wood market by alleging “unfair” trade practices of hardwood plywood imported from China. This commodity is used by American manufacturers to produce kitchen and bath cabinetry as well as recreational vehicles, furniture, flooring, boats, panelling, store fixtures, shipping containers, and other products.
On September 27, 2012 the case was filed with the US International Trade Commission (ITC) by these US hardwood plywood manufacturers. The petition filed alleged that margins of approximately 310 per cent in antidumping duties (AD duties) and an unstated per cent of countervailing duties (CV duties) could be imposed as early as December 2012 and March 2013 respectively, or earlier if the government makes duties retroactive.
In 2012, imports of hardwood and decorative plywood into the US from China were an estimated US$747.9 million, representing about one-third of the total consumed in the US, according to the Commerce Department.
The initial phase of the investigation moved quickly. Questionnaires were sent to relevant companies and were due by October 11, 2012. The ITC held a conference on October 18 in Washington DC on the subject.
US Import Duty
This week the US Department of Commerce released its ‘Preliminary Determination in the Anti-Dumping Investigation’ on hardwood plywood imported from China. The US government found that all individually-investigated exporters did not engage in “dumping”, or unfair pricing.
The Commerce department announced a preliminary AD duty of zero per cent on the two individually-investigated respondents in China. However, Commerce refused to apply a zero per cent to the remaining exporters who were fully cooperative. Instead, Commerce used an average that included a penalty duty normally reserved for non-cooperative companies. The resulting average duty, 22 per cent, applies this penalty to US manufacturers’ purchases of hardwood plywood from these fully cooperative exporters. The China-wide rate — which is applicable as a penalty to non-cooperative companies — is set at 64 per cent.
This week’s AD determination is preliminary and a thorough review of the process and methodology behind the 22 per cent rate will take place in the coming weeks before a final determination is made. Rates could, and likely will, adjust up or down, said both the International Wood Products Association (IWPA) and the American Alliance for Hardwood Plywood (AAHP) Wednesday in their respective press releases.
The new AD will go into effect this week and, combined with an existing 22 per cent CV duty the Department imposed in February, will result in a total 44.77 per cent duty on applicable imported plywood.
Chinese hardwood plywood importers like Shelter Forest International, an American company that manages the global supply chain for TigerPLY hardwood plywood, used by thousands of US manufacturers, and organizations such as the Kitchen Cabinet Manufacturers of America have long maintained that the highly specialized hardwood plywood imported from China is not available from US manufacturers and therefore poses no threat to them.
Another American company, Hardwoods Distribution Inc, issued a press release Wednesday saying that approximately 14 per cent of its total sales in 2012 was product that would have fallen within the scope of this US trade action.
Madison’s spoke to Greg Simon, Co-Chair at the? AAHP, a recently-formed coalition of US based companies that rely on a unique form of hardwood plywood imported from China, and Jeff Grimson, legal counsel at Mowry & Grimson, in a phone interview Thursday.
“On March 14, US importers of hardwood plywood from China started paying the CV duties,” explained Simon. “On May 3 these new AD duties will come into effect, bringing the total tax to more than 44 per cent.”
Madison’s found the method the Commerce department used to come up with the duty confusing so enlisted the help of US trade specialists for explanation. It seems the US government policy when determining petitions against China is that all applicable companies are “non-market”, which means government controlled and/or subsidized. In this case the three companies chosen as mandatory respondents in the CV duty case and the two factories investigated in the AD case, were all found to be independent and not subsidized. In the CV case, 101 companies requested to be investigated and wanted to co-operate but were never given the chance.
“Apart from the three respondents in the CV case and the two in the AD case, every other company was given the penalty rate,” Grimson detailed. “American importers must now pay the CV and AD duties until the next opportunity to be heard, which is November.”
If representatives for the AAHP win in that round the money collected will be returned. If not, more duties will be collected while the case moves through the system.
“We are fairly optimistic we can present our views clearly, and are eagerly looking forward to the opportunity to show the Commerce department that these duties should not be applied,” said Grimson. “Applying a 22 per cent duty to a co-operating industry is contrary to law, in our opinion, and we feel we can get that message across to Commerce.”
ITC data for 2011 puts US imports of hardwood plywood from China at 1,535 million square feet, or US$707 million, and 749 million square feet, or US$391 million, in the first six months of 2012.
Another troubling aspect of the initial petition is that it is aimed at hardwood plywood but deliberately does not exclude softwood plywood. It seems the petitioners avoided specifying hardwood or softwood plywood, but when asked by the Commerce department said the petition included hardwood, softwood, and bamboo plywood. At the moment the legal definition of the petition includes hardwood and softwood. Volumes of softwood plywood from China into the US are small, approximately ten per cent of that of hardwood. However, US imports of softwood plywood from Canada and Chile are huge compared to the hardwood plywood currently being penalized.
“The petition was deeply flawed from the beginning, in our opinion,” said Simon. “There are already significant downstream effects of these duties. US manufacturers and end-users are outraged, they can’t compete with ready-to-assemble cabinetry and other wood products from China when the supply of their main material is cut off. The small and even the large cabinet companies in the US are being hurt, there are already tremendous negative effects on jobs and manufacturing in the US.”
The Commerce Department is scheduled to make final determinations in July.
More Quarterly Results, Lumber Producers
Tembec, Resolute Forest Products, Norbord, Canfor, and Canfor Pulp this week all released quarterly financial results.
As well, Weyerhaeuser Company reported on April 26 net earnings of US$144 million for 1Q 2013, compared with net earnings before special items of $9 million for the same period last year. Net sales for 1Q 2013 totalled US$2 billion, compared with net sales of $1.5 billion for 1Q 2012.
Tembec Inc Tuesday posted a net loss of $26 million in 2Q 2013, compared to a net loss of $14 million in the same quarter last year. Consolidated sales for the quarter were $407 million, unchanged from the previous year.
Resolute Forest Products reported also Tuesday a net loss of $5 million in 1Q 2013, compared to a net income of $23 million in the same quarter last year. Excluding $33 million of special items, net income for the quarter was $28 million. Excluding special items of $16 million, net income in 1Q 2012 was $7 million.
1Q Financial Results
Norbord Inc Wednesday reported earnings of $67 million in 1Q 2013, compared to break-even results in the same quarter of last year.
Canfor Corp reported Wednesday a net income attributable to shareholders of $61.9 million for 1Q 2013, compared to a net loss of $18.01 million for 1Q 2012. Canfor reported operating income of $100 million for the 1Q 2013, more than double the $49 million recorded for 4Q 2012.
Meanwhile, Canfor Pulp Products reported also Wednesday a net income of $10.9 million in 1Q 2013. This result can be compared to a net income of $10 million in the same quarter last year. The operating income for 1Q was $19 million – up $6.9 million from the operating income reported in the previous quarter.
Sawmill Openings, Investments
Resolute Forest Products announced Tuesday it will reopen it’s Gatineau, QC, operation in June as a lower cost operation with just one paper machine and a co-generation power plant. Only 130 workers will be employed. That plant was closed in August 2010, laying off 330 employees. The newsprint will be sold in North American and overseas.
No severance was paid to the workers in 2010 when the mill closed because the company was restructuring and under creditor protection, according to the Ottawa Business Journal.
Investment in Sawmills, Reopenings
West Fraser Mills‘ Chetwynd Forest Industries is continuing on with Phase 2 of a $35 million upgrade to its sawmill in Chetwynd, BC, the company announced Monday. The sawmill is being upgraded from a one million board feet per day average up to 1.365 million a day.
With the increase in productivity, twoshifts will be maintained at the mill, with additional hours for the planer.
Idaho Timber will reopen a sawmill in Coushatta, LA, later this year with 90 jobs, paying an average US$32,000 annually, plus benefits, company and state officials said Wednesday.
Idaho Timber, based in Boise, ID, will make a US$3.5 million capital investment to refurbish and reopen the northwest Louisiana mill by 3Q.
The site closed in 2008 as a result of the national recession. Idaho Timber LLC recently purchased the facility from Hood Industries. The sawmill will produce radius-edge decking, dimension lumber and other timber products crafted from southern yellow pine.
The Louisiana Economic Development department estimates the Coushatta mill project will result in an additional 289 new indirect jobs. The project is also expected to create 50 construction jobs.
Fires at Lumber Production Facilities
A fire Monday at Domtar‘s Dryden, ON, mill is under investigation.
The fire was reported between the 4th and 5th floors of the building, burning in the equipment.
“It was product burning, combustible materials inside of the equipment of the machinery on the fourth and fifth floors of the seven story building. It was contained to the equipment and extinguished by the mill fire crews,” Dryden fire chief Ken Kurz said.
The fire was extinguished within 45 minutes.
There was a fire in Interfor‘s waste wood piles at its Castlegar sawmill in British Columbia Wednesday. High winds in the afternoon caused smoke to cover the Castlegar/Robson area. Fighting the fire proved difficult due to the winds.
Sawmill Fires
Two helicopter with bucket crews were brought in to assist and the fire at Interfor’s Castlegar, BC, wood waste pile was extinguished by midnight. The cause of the fire is unknown. Fire Chief Gerry Rempel said the fire is not being treated as suspicious. No one was injured and structures were damaged.
A fire which erupted Wednesday in a shed at Sierra Pacific Industries’ Quincy, CA, sawmill destroyed one building and damaged the plant’s electrical system, temporarily closing all operations.
The flames were in a metal building between the sawmill’s co-generation plant and a series of large Pacific Gas & Electric Co transformers, said Robbie Cassou, Quincy fire chief. Firefighters contained the damage to the shed, which was gutted by fire, Cassou said.
The fire, which caused hourlong power outages throughout the Quincy area, left the sawmill without electricity.
The cause of the fire is under investigation.
California Wildfires
A huge Southern California wildfire carved a path to the sea and burned on the beach Friday, but firefighters got a break as gusty Santa Ana winds turned into breezes.
The wind-whipped fire erupted Thursday in the Camarillo area, damaging 15 homes and a cluster of recreational vehicles in a parking lot. About 2,000 Ventura County homes remained threatened and evacuations remained in force Thursday night although the fire line edged southwards toward Malibu. It was about 32 kilometres from that coastal enclave at daybreak.
Temperatures remained high, but humidity levels were expected to soar as cool air moved in from the ocean and the Santa Anas retreated.
The 15.5 square-mile (39 square kilometres) blaze was only 10 per cent contained on Friday, and the work of more than 900 firefighters, aided by air tankers, was just beginning.
There’s still a chance of “explosive fire spread” before winds begin tapering off in the afternoon and cooler weather begins to kick in, said Curt Kaplan, a National Weather Service meteorologist in Oxnard.
“It has grown throughout the night,” Ventura County fire spokesman Tom Kruschke said. “The fire has been coming down canyons all along Pacific Coast Highway and that’s where we’ve been concentrating a lot of our effort.”
May 07, 2013
US Construction
As mild spring weather is barely getting underway across North America, a lot of interest is being focussed on construction, home building, and home sales in the US. This is the season, after all, when such activity truly ramps up for the year. However, the reality of home ownership, buying, and building has changed drastically since the mortgage speculation-fueled US housing boom of 2005-2006. Now that the bulk of foreclosures stemming from those easily-accessed speculative mortgages are behind us, what will be the new reality for US home sales and building?
One important difference today compared to ten years ago, is that the number of homeowning immigrant households is projected to continue increasing. Immigrant households will rise by 2.8 million in the decade ending 2020, compared with a 2.4 million gain in the ten years ending 2010, said a report by the Research Institute for Housing America and the Mortgage Bankers Association released March 7. Immigrants will account for more than 50 per cent of the rise in homebuying in six gateway states, such as California and New York, the report adds.
Please see the July 17, 2009 issue of your Madison’s Lumber Reporter for information on the growing percentage of US homes owned by immigrants.
Home ownership in the US fell to a 17-year low of 65.3 per cent in 3Q 2012, but among immigrant households – accounting for existing families and new arrivals – it has steadily increased, said the Financial Times Tuesday. For many upwardly mobile immigrants owning a home is a symbol of economic success, and they typically purchase after renting for a few years.
In an indication that US home selling still has some improving to do, Freddie Mac Thursday released the results of its Primary Mortgage Market Survey, showing average fixed mortgage rates moving lower for the fourth consecutive week continuing to support the ongoing housing recovery. This week, the 30-year fixed-rate mortgage averaged 3.4 per cent with an average 0.8 point, down from last week when it averaged 3.41 per cent. Last year at this time, the 30-year fixed-rate mortgage averaged 3.88 per cent.
Home Building, Sales
Also this week, the 15-year fixed-rate mortgage hit a new all-time record low at 2.61 per cent, as did the five-year Adjustable-Rate Mortgage at 2.58 per cent. The previous record low for the 15-year fixed was 2.63 per cent set the week of November 21, 2012.
Recent data showed that 1Q 2013 existing home sales reached the highest level since 4Q 2009, while new home sales were the strongest since 3Q 2008, said Frank Nothaft, Freddie Mac’s chief economist.
Sales of existing homes in the US edged downward in March, even though the housing market recovery that has helped boost the economy has shown strength in recent months and is expected to continue, said the National Association of Realtors (NAR) Monday. Home resales edged down 0.6 per cent last month to a seasonally adjusted annual rate of 4.92 million units. Sales of existing homes in March were 10.3 per cent higher than during the same period in the prior year.
Nationwide, the median price for a home resale rose to US$184,300 in March, up 11.8 per cent from a year earlier, the biggest increase since November 2005. The limited supply of available properties is pushing up home values.
Meanwhile, the share of distressed sales, which also include those where the sales price was below the amount owed on the home, has decreased. It accounted for 21 per cent of home resales last month, down from 25 per cent a month earlier. It was the lowest since the NAR began tracking the number in October 2008 as the foreclosure crisis escalated.
The NAR reported Tuesday that the median price of an existing home rose 11.8 per cent, the most since November 2005, to US$184,300 last month from a year earlier.
First-time homebuyers accounted for 30 per cent of all existing home purchases in March, the same as the previous three months, although down from 33 per cent during the same period a year ago. Historic norms would place the first-time home buyer share closer to 40 per cent.
Housing inventory at the end of March increased 1.6 per cent from the previous month, to 1.93 million existing homes for sale. At the current sales rate, the March 2013 inventory represents a 4.7-month supply compared to a 4.6-month supply in February, and a 6.2-month supply of homes a year ago.
The increase in March inventory suggests that rising prices are inducing more households to place their homes on the market, after previously holding back due to low prices. Those same rising prices may be dampening the enthusiasm of investors and cash buyers whose participation declined in March.
A decline in the availability of distressed homes and still-tight access to credit are holding back buyers, according to Bloomberg Tuesday. Bigger gains may emerge when rising property values encourage more Americans to put their properties on the market.
Indeed, all cash sales were 30 per cent of transactions, compared to 32 per cent in February, and 32 per cent in March 2012. Investors accounted for 19 per cent of March 2013 home sales, compared to 22 per cent in February, and 21 per cent a year ago.
Elsewhere, US new home sales advanced in March as near record-low mortgage rates helped the industry complete the strongest quarter since 2008, putting the economy on firmer footing. Purchases of single-family properties climbed 1.5 per cent last month to a 417,000 annual pace, Commerce Department figures showed Wednesday. Home sales averaged a 424,000 annual rate in the first three months of this year, the strongest since 3Q 2008.
Builders are responding to increased demand by making more homes available. There were 153,000 new houses on the market at the end of March, the most since November 2011. At the current sales rate, the supply would last 4.4 months, the same as in February.
And, the Federal Housing Finance Agency’s reading of US home prices for February climbed by 0.7 per cent month-over-month the agency said Tuesday. The US index is 13.6 per cent below its April 2007 peak and is roughly the same as the October 2004 index level. US house prices have not declined on a monthly basis since January 2012.
But what does it all mean for this year’s home building and selling season?
The National Association of Home Builders posted on its “Eye on Housing” blog Thursday that while the recent housing market data have illustrated the long-run trend for housing remains one of improvement, there will be bumps along the road. In particular, availability of building lots and skilled labour, rising building material prices, and big picture economic and policy developments will present month-to-month challenges for home builders and other housing businesses, the NAHB said.
For instance, the share of first-time home buyers remains lower than the historic average. For the housing market to return to normal, these buyers need access to credit and stable labour market conditions to afford a home.
One factor holding builder confidence back is a rise in the cost of some building materials. Since last March, Production Price Indices have significantly increased 18 per cent for gypsum , 30 per cent for softwood lumber, and 68 per cent on OSB, said the NAHB.
Madison’s Timber Preview
This week’s issue to Madison’s Timber Preview examines the latest rumours of big timberland sales looming in the US, as well as looking at quarterly results for Plum Creek Timber and Deltic Timber.
Contact us anytime to receive this vital and timely information.
Average Pay for Canadian Forestry Workers up 11 per cent
Sawmill Openings, Investments
Resolute Forest Products announced Tuesday it will reopen it’s Gatineau, QC, operation in June as a lower cost operation with just one paper machine and a co-generation power plant. Only 130 workers will be employed. That plant was closed in August 2010, laying off 330 employees. The newsprint will be sold in North American and overseas.
No severance was paid to the workers in 2010 when the mill closed because the company was restructuring and under creditor protection, according to the Ottawa Business Journal.
PwC Forestry’s 4Q 2012 Earnings
Canadian forest and paper products companies reported generally weaker net earnings for 4Q 2012, compared 3Q 2012, said the PwC Global Forest and Paper Industry Net Earnings Summary released this week. Log, lumber, and panel prices continued to show strength throughout the quarter mirroring the continued improvement in US housing starts.
Ten of the largest US-based forest and paper companies reported net earnings of US$922.7 million for 4Q 2012, down slightly from US$1.2 billion in 3Q 2012 and US$1.2 billion in 4Q 2011.
PwC Forestry Earnings Report
Western Canadian-based companies posted net earnings of $1.2 million, compared with net earnings of $775.1 million in 3Q 2012 and net losses of $759.5 million in the 4Q 2011, said the PwC release this week.
Western Canadian diversified companies Canfor and West Fraser finished 4Q 2012 with strong results, posting net earnings of $24.6 million and $22.0 million respectively.
Eastern Canadian based companies posted net losses of $37.4 million in 4Q, compared to net earnings of $14.7 million for 3Q 2012 and net losses of $58.5 million in 4Q 2011.
Norbord continued its series of strong 2012 results and reported net earnings of $37.7 million compared with net earnings of $27.9 million in 3Q 2012. The continuing strength of OSB prices through the quarter have contributed to Norbord’s positive results.
OSB prices are expected to remain robust in 2013.
Resolute Forest Products reported net losses of $34.7 million compared with net earnings of $30.9 million for 3Q, related to weak newsprint and paper prices during the quarter.
Six of the largest forest and paper companies in Japan posted net earnings of US $424.3 million in 4Q 2012, up from US $268.3 million in 3Q 2012 and earnings of US $400.6 million in the same period of 2011.
APA 2013 Market Outlook
The small but positive uptick in the economy and residential construction closed 2012 on an optimistic note for the first time since the recession began, and that slow-but-steady growth is expected to continue through 2013, said APA-The Engineered Wood Association this week. With indicators pointing to rising housing starts through the year and into 2014, APA predicts a second straight year of growth in all four of the wood product sectors it represents.
APA Market Outlook
Housing is beginning to lead the economy and is expected to provide an economic catalyst for years to come, said APA – The Engineered Wood Association in its outlook this week.
“Last year saw across-the-board increases in structural panels, I-joists, glulam, and LVL. In 2013, not only will that trend continue, but at a slightly faster pace in most cases,” said Craig Adair, APA’s market research director. “Residential construction will drive much of that growth, with pent-up demand for housing, moderately rising house prices, and growing consumer confidence having the most influence.”
Domestic (US and Canada) production of OSB and plywood is expected to reach 30.5 billion square feet in 2013, a 10 per cent rise over 2012.
Glulam is predicted to see a 10 per cent increase over 2012, reaching 248 million board feet. The growth is due entirely to housing, with little support from non-residential.
Growth in the I-joist market is forecast around 17 per cent in 2013 to 651 million linear feet, slightly slower than 2012’s 22 per cent increase.
Increased housing starts also will drive demand for LVL, the majority of which is used for beams, headers, and rimboard. LVL production should reach 54.9 million cubic feet in 2013, a 10 per cent growth over 2012.
Quarterly Results
West Fraser Timber and Domtar both reported quarterly results Thursday.
Vancouver, BC-based West Fraser Timber is reporting net earnings of $67 million on sales of $863 million in 1Q 2013.
For comparison, the company reported net earnings of $20 million in 4Q 2012, and $101 million in 1Q 2012.
West Fraser Timber said in their earnings release that “both SPF and SYP lumber prices steadily improved throughout the quarter as we headed into the spring building season. [ . . . ] Lumber productivity and cost improvements are expected to continue to improve over the next few quarters as we complete various major capital projects.”
Montreal, QC’s Domtar is reporting net earnings of $45 million for 1Q 2013 on sales of $1,345 million.
These results can be compared to net earnings of $19 million for 4Q2012 and net earnings of $28 million for 1Q 2012.
Nova Scotia Rejects Claim
The Supreme Court of Nova Scotia Wednesday dismissed a claim from a sawmill company that said it was owed $33.3 million after the NewPage Port Hawkesbury paper mill went into creditor protection in 2011.
Ligni Bel argued that it was owed the money because of several problems including increased log costs and NewPage’s failure to supply enough wood for its Pictou County sawmill operations.
The adjudicator dismissed Ligni Bel’s claim, saying NewPage provided significant detail of its efforts to accommodate the sawmill operator.