Lumber News Archives: November 2013 - Madison's Lumber Reporter

Timberland Management: Governments ; The Canadian lumber industry : 2012 ; Lumber Prices in China ; Lumber Yard Fatality ; Canada, US Trade Balance ; Canada’s Manufacturing Survey ; Housing Affordability, US ; Associated Hardwoods Builds Sawmill ;Trade Agreements and Tarriffs ; USDA to Fund Biomass Fuel Research ; Housing Starts, Canada ; Japan Housing Starts ; US ISM Manufacturing Index ; 3Q Financial Results : Forestry US Rental Rates ; Madison’s Timber Preview ; CN Rail and Teamsters Reach Tentative Deal ; BC Sawmills Face More Dust Inspections ; Producer Price Index, Canada and US ; Financial Results ; Plum Creek Acquires ; Boise Cascade Appoints ;Alberta’s Emissions Program ; BC Forestry Labour Talks to Continue ; Sawmill Closures, Tenure Swap, British Columbia ; Japan Biomass Power Generation ; Canada, US Trade Data ; BC lumber exports to China Jump ; US Trucking Index Pops ; US Lumber Coalition Speaks in Vancouver, BC

November 12, 2013

Timberland Management : Governments

A headline on a small Oregon TV station’s website this week jumped out at Madison’s: “Bird Spotted, Drops Timber Land Value $18 million”, said KPIC CBS 4 Wednesday.

It seems an endangered marbled murrelet was spotted in the summer by state surveyors and volunteers in the Elliott Sate Forest, in Coos County, OR. The value of three timber tracts, where logging is now in doubt, have been drastically lowered. State appraisals dropped from US$22.1 million to US$3.6 million.

Subscribers to Madison’s Timber Preview are well aware of Oregon’s financial troubles since timber harvesting was drastically reduced in the 1980s due to concern over the future of that small bird, and more recently since federal transfer payments — in lieu of timber revenues — ran out.

Oregon owns some 700,000 acres, including most of the Elliott State Forest, and uses revenue from mineral and timber leases and sales on that land to fund public education, emergency services, and more.

Federally, recent changes to policy at the US Forest Service are a good start for moving forward with much-needed forest inventory, silviculture management, and post beetle-kill timber salvage across the country. The majority of informed players maintain that these updated policies do not go far enough, and are very late in coming. After 25 years of combined forest under-investment, and of actively putting out all wildfires, the forested land base in the US is severely underutilized and badly in need of intensive management, most professionals agree.

For the past decade or so significant proportions of merchantable timber in the US has been sourced from private landowners. The volume of logs coming off US Forest Service lands into sawmills is minimal by comparison.

In Government Hands

What about Canada? There is very little in the way of private timberland holdings, so operators have no choice but to deal with government constructs in sourcing logs.

British Columbia is a prime example of bureaucratic machination. In this province, the combined blows of multiple high-capacity sawmills, mountain pine beetle devastation, and the US home building downturn, have hit the pocketbook of the Forests portfolio very hard indeed. Now, as companies struggle back to profitability, the extremely budget-conscious Ministry of Forests, Lands and Natural Resource Operations finds itself in a difficult position.The funds needed to re-invest in and to re-assess the forests are deemed simply not available, meanwhile the business of running wood through sawmills continues.

There have been several rounds of public consultations and information sessions over the past five years by the Forests Ministry, and some announcements of possible changes to the land base, but not a lot of action on the ground.

The revelation, October 24, that two major sawmills in the BC interior will shut down — while surprising to no one — seems to be a wake-up call. The looming prospect of restricted fibre supply in western Canada just went from academic discussion to stark reality. The BC government seemed caught off-guard by the sawmill closures and the tenure swap agreements. Immediately following the announcements, Steve Thomson stated the deals will face a review by his Forests Ministry. The Minister has the power to cancel the agreements even after they have been made.

As lumber producers, both public and privately-held, work to find ways to adjust business practice in this changing landscape, many important questions remain about fibre availability going forward.

There has been a lot of discussion, particularly during the Mid-Term Timber Supply Committee hearings last year, about the mountain pine beetle uplift to the Annual Allowable Cut (AAC). Many said then, and even more are saying now, that the province is actually past the salvage stage now and the AAC should have already started coming back down.

Affected parties, which include municipalities, First Nations, wood lots, and community forests, have been vocal about their own ideas for managing BC’s timberlands, and especially about timber allocation.

One such voice is Gerry Thiessen, the Mayor of Vanderhoof.

Thiessen is concerned about the anticipated shortage of wood fibre as a result of the beetle infestation but is also quick to point out the innovation and resourcefulness of the local forest industry to find ways to remain in business, according to Working Forest June 18.

“Sinclair Group’s L & M sawmill went through about a $32-$33 million upgrade to their mill. Vanderhoof Specialty Wood Products has also spent millions of dollars making sure that technologically, they’re as operational as possible, as well as making sure that they use all the fibre that they bring into their yard,” detailed Theissen.

The anticipated wood supply shortage has the potential to dramatically affect current forestry companies and their operations. If the available fibre is not sufficient to meet the demand of the mills, the results could include operational downsizing or closures. This is a concern for the District of Vanderhoof, as well as surrounding communities, said Working Forest.

Thiessen is out of the country this week on holidays, so Madison’s caught up with Vanderhoof Councillor Brian Frenkel for a phone interview Wednesday.

“It’s a difficult issue from a community standpoint,” began Frenkel. “Decisions in general are being made without an updated database [of the forest]. Looking down the road, industry and communities knew there would be a drop in AAC due to the previous increase [to encourage harvest of beetle-kill].

“Past decisions about the forest inventory should be held accountable. Money should be budgeted to update the inventory as best as can be done, recognizing that it is changing daily.”

Frenkel explained that Vanderhoof put forward ideas to the Mid-Term Timber Supply Committee.

“Current partition could be handled a lot better,” continued Frenkel. “The partitioned cut, for example, is supposed to be up to 30 per cent non pine species such as spruce or balsam. But there are full cut blocks of spruce being harvested in the region. If we don’t get a handle on this now it will negatively affect our communities later when there will be no spruce or balsam to harvest during the mid-term.

“In terms of the partitioned cut, the Chief Forester doesn’t specify that it should be incidental. So operators might take a 300 ha block of pine and add on 90 ha of spruce just to get at the spruce.”

When asked about oversight, Frenkel replied, “Government staff are trying their best, but Licensees are conducting their operations in a way that they feel matches the intent of the partition; some are harvesting a higher percentage of pine while others are harvesting a lower per cent.”

Another district actively campaigning for changes to BC forest practice model is Houston.

A November 5 article in the Globe and Mail states, “As the community of Houston, in the province’s northern Interior, grapples with the closing of the town’s lumber mill, the mayor says his community is unprepared for its post-beetle future. “A lot of money was spent on action plans,” Mayor Bill Holmberg said “We haven’t really seen the rubber hit the road.”

“We were very disappointed with the lack of notice,” explained Holmberg to Madison’s in a phone interview Wednesday. “The companies didn’t include us in ANY of these discussions.

“We understand the need for companies to make their own decisions, but we don’t agree with the way they did it in this case. Frankly I need someone to explain to me how they can just move Timber Supply Areas (TSAs) around. We want a meeting with the Ministry of Forests regarding due process, regarding the legality of this move.

“Forestry dependent towns in BC are questioning how tenure transfers are handled and how it is going to affect the local population.”

Both Frenkel and Holmberg called for a forest re-inventory as soon as possible, and they’re certainly not the only ones who see the urgent need for this information

.
There is also concern about what kind of timber licenses, and at what value, will remain for First Nations, regional districts, community forests. and villages.

Madison’s asked former NDP and Independent MLA for Cariboo North, Bob Simpson, for insight into this complicated subject.
Simpson directed Madison’s to the BC Apportionment System website, specifically for the Morice and Quesnel TSAs (where the tenure swaps will take place).

Of the all-important Replaceable forest licenses, in the Quesnel district West Fraser would hold almost 1 million cubic metres of the total 1.24 million cubic metres available. For Morice district, Canfor would have both Replaceable licenses for a total of 1.57 million cubic metres.

“Harvesting of those Replaceable licenses will exceed the long-term sustainable cut,” explained Simpson to Madison’s. “The Non-Replaceable licenses are all in the uplift because Replaceable licenses trump everything.

“This means that post the beetle-reset, the government will lose all capacity to address forest issues with First Nations, communities, independent operators, etc. The government will have no capacity to accommodate First Nations’ rights to timber resources or to attract new entrants into the forest sector.”

The Canadian lumber industry : 2012

Canada produced 54.5 million cubic metres of softwood lumber in 2012, up 5 per cent from 2011, said Statistics Canada Tuesday. While softwood production rose in 2012, hardwood lumber production declined 13.2 per cent, 1.3 million cubic metres.

The top three softwood producing provinces are British Columbia, Quebec, and Alberta. British Columbia, at 53.5 per cent, accounted for more than half of Canada’s softwood production in 2012, of which 83.1 per cent, or 24.2 million cubic metres, was spruce, pine and fir.

Quebec, the second largest softwood producer in 2012, had a 20.1 per cent share of the national total, followed by Alberta, at 15 per cent.

Of Canada’s total softwood excluding spruce, pine and fir produced in 2012, 90.1 per cent was produced in British Columbia.

Lumber Prices in China

The value of imports of softwood lumber to China in January-September 2013 increased by 25.9 per cent year-on-year, to reach US$2.64 billion, said What Wood Thursday. After the slowdown in 2012, the rise of the housing market in the country triggered a boom for roundwood and sawnwood. In the coming years, Chinese villagers will continue moving to the cities, and the demand for cheap housing will continue to grow, so by 2015 the Forestry Agency of China predicts a serious shortage of wood products.

The leading suppliers and the major competitors, in the Chinese market are Canada and Russia: in 3Q 2013, Canada shipped softwood lumber worth US$390.6 million to China, while Russia shipped US$336.8 million.

Lumber Prices in China

Average import prices for products from these two countries are roughly equal (US$193 from Canada and US$190 from Russia in 2012): sea transportation from Canada across the Pacific costs even cheaper than rail deliveries from the Russian mills. Because of this, the Chinese prices are comparable, although export prices for Canadian products are higher than for Russian.

China actually saves European manufacturers this year and compensates for the decline in the home market. Finland and Sweden increased exports several times since the end of 2012, however, in absolute figures, deliveries to China are still low.

Very low prices at the border points of Kyakhta and Naushki can be explained by the fact that at the border there are numerous sawmills, which are often owned by Chinese businessmen. These enterprises produce cheap and roughly-cut products that are delivered to China for further processing. Transportation costs of these mills are also low due to their geographical location.

The average FOB price in January-September 2013 amounted to about US$170 in the Far Eastern ports of Vanino and Nakhodka, and approximately $200 in St. Petersburg. Rates on FCA terms in the same ports are $10 lower on the average, while CIF Shanghai price grows to US$216.

Lumber Yard Fatality

A 21 year old man was hit by a log bundle at a lumber yard in Mission, BC, Wednesday afternoon, according to the Mission City Record.

The Everwood Industries employee fell in the Fraser River and was at risk of drowning before a colleague found him at around 2:30 pm.

The victim suffered major trauma and life-threatening injuries, and succumbed to his injuries at about 4 pm Wednesday.
RCMP confirmed there was no indication of criminal activity.

WorkSafe BC is currently investigating the industrial accident.

Canada, US Trade Balance

Canada’s merchandise exports grew 1.8 per cent while imports edged up 0.2 per cent in September, said Statistics Canada Wednesday. As a result, Canada’s trade deficit with the world narrowed from $1.1 billion in August to $435 million in September.

Exports increased to $40.6 billion on the strength of energy products as well as aircraft and other transportation equipment and parts. Overall, volumes were up 1.7 per cent.

Imports edged up to $41.1 billion, as gains in energy products and consumer goods were partially offset by declines in basic and industrial chemical, plastic and rubber products. Import prices were up 0.4 per cent while volumes were down 0.2 per cent.

Exports to the United States increased 1 per cent to $30.5 billion on higher exports of aircraft. Imports from the United States were up 0.9 per cent to $26.2 billion.

Consequently, Canada’s trade surplus with the United States rose from $4.2 billion in August to $4.3 billion in September.

In the US, the Department of Commerce reported Thursday total September exports of US$188.9 billion and imports of US$230.7 billion. This resulted in a goods and services deficit of US$41.8 billion, up from US$38.7 billion in August, revised. September exports were US$0.4 billion less than August exports of US$189.3 billion. September imports were US$2.7 billion more than August imports of US$228.0 billion.

Canada’s Manufacturing Survey

Manufacturing sales in Canada rose 0.6 per cent to $49.9 billion in September, the fourth increase in five months, said Statistics Canada Friday. The gain in September was largely a result of higher sales in the motor vehicle assembly and food industries. Total sales in September were at their highest level since June 2012.

Sales rose in 11 of 21 industries, representing about 55 per cent of Canadian manufacturing.

Both the durable and the non-durable goods industries posted 0.6 per cent sales gains.

Constant dollar sales increased 1 per cent in September, indicating a rise in volumes.

Total inventories, meanwhile, fell 0.9% per cent to $68.2 billion in September. The decline in September was the third in nine months.

In the petroleum and coal product industry, inventories were down 10.8 per cent to $5.6 billion. About 53 per cent of the decline reflected a decrease in raw materials held by manufacturers.

The inventory-to-sales ratio, meanwhile, declined to 1.37 in September from 1.39 in August. The inventory-to-sales ratio measures the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.

Housing Affordability, US

Strengthening house prices and increased interest rates in metros across the US contributed to lower housing affordability in the third quarter, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, released Thursday.

In all, 64.5 per cent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the US median income of US$64,400. This is down from the 69.3 per cent of homes sold that were affordable to median-income earners in the second quarter, and the biggest HOI decline since the second quarter of 2004.

Associated Hardwoods Builds Sawmill

Associated Hardwoods Inc, out of South Carolina, secured US$8.7 million in funding through a New Markets Tax Credit allocation from CEI Capital Management, according to WoodWorking Network Wednesday.

Associated Hardwoods will use the funding to build and operate a hardwood sawmill in Gaffney, SC.

Construction has already begun, and will create 93 direct and 23 indirect jobs. Once construction is complete, Associated Hardwoods expects to initially employ 15 full-time workers, expanding to 24 full-time employees in the first three years of operations.

November 12, 2013

Trade Agreements and Tarriffs

In a shrinking world, modern governments are moving forward with multi- and bi-lateral trade agreements at an astonishing pace. Even as interests are discussed and documents are drafted, business moves forward nonetheless. Decision makers can only hope their plans come into line with eventual government or legal decisions.

This week two separate trade issues relevant to forestry between China and the US, as well as Canada and Brazil, were decided.

One was the seemingly improbable threat of a 74 per cent import duty on hardwood plywood from China coming into the US. The International Trade Commission (ITC) voted 5-0 Tuesday to strike down anti-dumping (AD) and countervailing (CVD) duty rates of 74 per cent on imported Chinese hardwood plywood, according to the International Wood Products Association (IWPA), out of Alexandria, VA. The ITC ruled that the US domestic industry suffered no material injury as a result of imports from China.

Forest Products

“IWPA is thankful to the hard work of the American Alliance for Hardwood Plywood (AAHP), which led industry efforts in opposition to the petition”, said the agency’s press release.

A second, more serious, arbitration was also decided this week.

The Chinese Ministry of Commerce announced Wednesday that it will impose provisional anti-dumping measures on cellulose pulp — also known as dissolving pulp — used to make cloth, cellophane, tires, and other products, imported from the US, Canada, and Brazil, Xinhua reports.

The ministry stated that beginning on Thursday all importers of cellulose pulp are required to place deposits, ranging from 0.7 to 50.9 per cent depending on dumping margin, with Chinese customs.

The Chinese ministry said that the three countries had dumped ‘cellulose pulp on the Chinese market and such imports caused substantial damage to the domestic industry’.

A final duty decision by the Chinese is expected in February 2014, about a year after it first began to review the actions of foreign producers.

Already, some Canadian exporters expressed their disapproval with this decision. Fortress Paper, based in Vancouver, BC, decided to implement a swing mill strategy at its Specialty Cellulose mill in Quebec to also make kraft pulp for the paper industry. Fortress Paper, along with other companies such as Tembec and two private dissolving pulp producers in the Maritimes, face 13 per cent interim duties.

Duties will also apply to US producers Buckeye, Georgia-Pacific, Weyerhaeuser, Rayonier, and Cosmo Specialty Fibers.

Under international trade rules, dumping refers to selling exported goods below prices in the producer’s home market. Under World Trade Organization (WTO) rules, duties can be applied by importing countries if the dumping is harming their domestic producers.

Fortress Paper said to Canadian Press Thursday it’s considering legal challenges to China’s new duty. The company said it disagrees with China’s decision, which Fortress says “represents an unsupported assessment of injury to China’s dissolving pulp market and the allegations of ‘dumping’ activities by Canadian producers.”

Fortress says it has ten days to make an initial decision on its options, which include challenging the duty — a lengthy process that could take years if it goes to the WTO.

For it’s part, Brazil’s Bahia Specialty Cellulose (BSC), a subsidiary of Sateri, released a statement Thursday saying, “The immediate impact of the preliminary ruling on BSC is that, with effect from 7 November 2013, importers of BSC dissolving pulp products into PRC will have to pay a security deposit at the rate of 6.8 per cent of the dutiable value, such deposit to be placed with Chinese customs. In the event that the rate of duty as determined in the final ruling is less than the preliminary rate of 6.8 per cent, the excess shall be refunded to the respective importers.

“Sateri’s position is that BSC has at all times acted in accordance with all applicable laws, and any allegations or provisional findings of product dumping are entirely without merit.”

Sateri said that it will, through legal advisers, continue to liaise and cooperate with Chinese authorities as they work to a final ruling that is anticipated by February.

The editorial board at Salem News, out of Salem, OR, Wednesday printed a lengthy analysis of the cellulose pulp market and the preliminary duties.

“We conclude that the imports from the countries being investigated are not the root cause of the problems faced by China’s domestic producers, that any duty imposed can at best provide only short-term relief to the domestic producers, and that any duty imposed may have significant negative impacts for Chinese industries that consume dissolving pulp,” says the Salem News.

“Specialty dissolving pulp is used for cigarette filters, tire cords, explosives, and other specialty uses. Commodity dissolving pulp is used for the production of viscose fibre which is used in the manufacture of textiles. Commodity dissolving pulp mills cannot produce specialty dissolving pulp without significant modifications with a high capital cost.

“As specialty dissolving pulp is used for products unrelated to those which use commodity dissolving pulp, it is not surprising that the price (US$/tonne) of specialty dissolving pulp and dissolving pulp are not correlated. As a result, China’s Ministry of Commerce should ensure that in evaluating the dissolving pulp market, it distinguishes between data, particularly price data, pertaining to specialty dissolving pulp, and data pertaining to commodity dissolving pulp.”

The article goes on to say that from 2004 to 2012, world production of viscose fibre grew by 84 per cent and China’s share of global production increased from 38 per cent to 61 per cent. Hence, China’s viscose fibre production has been the major driver of global demand for commodity dissolving pulp.
To meet the growth in demand, global dissolving pulp capacity expanded by 3.1 million airdried metric tonnes from 2008 to 2013, nearly doubling capacity. Of that growth in capacity, China saw the largest increase, expanding its dissolving pulp capacity by 945,000 airdried metric tonnes, or 30 per cent of the total global expansion. Over 2012 and 2013, the global expansion of dissolving pulp capacity continued, with China continuing to be the largest contributor to that growth in both years.

This global expansion in dissolving pulp capacity was also driven as a response to the short-term price increase for commodity dissolving pulp in 2011 caused by cotton crop failures.

The changes in price for commodity dissolving pulp, therefore, have largely been influenced by a rapid increase in the demand for viscose fibre in China and fluctuations in the price of cotton, says the Salem News.

The cost of the wood fibre itself is also a large driver of the total cost of dissolving pulp. When reviewing eight international producers, wood fibre represents on average 44 per cent of the total cost of dissolving pulp production. The production cost of dissolving pulp, therefore, is very price sensitive to the cost of wood fibre. For those dissolving pulp producers which must import their wood fibre, their cost structure is closely tied to their wood import price. Unlike dissolving pulp producers in timber rich countries like Canada, United States, and Brazil, dissolving pulp producers in China must import most of their wood fibre.

“As a result of these factors, China’s domestic dissolving pulp producers have been unable to remain price competitive against global dissolving pulp producers. This is not due to any dumping by the rest of the world, but rather is due to the high-cost structure of domestic dissolving pulp producers in China caused by the need to import wood fibre at great expense, rising labour costs, a dropping exchange rate, and over capacity,” concludes the Salem News.

USDA to Fund Biomass Fuel Research

The US Department of Agriculture announced Wednesday it awarded nearly US$10 million to a consortium of academic, industry, and government organizations led by Colorado State University and their partn ers to research using insect-killed trees in the Rockies as a sustainable feedstock for bioenergy. The award, provided under the Agriculture and Food Research Initiative, is part of USDA’s effort to develop modern solutions for climate challenges in agriculture and natural resource management.

Specifically, the team will explore recent advances in scalable thermochemical conversion technologies, which enable the production of advanced liquid biofuel and co-products on-site. The project is working with Cool Planet Energy Systems, which is based out of Greenwood Village, CO. The company’s prototype pyrolysis system can be tailored to the amount of feedstock available and thus can be deployed in close proximity to stands of beetle-killed timber. This localized production leads to significantly lower costs related to wood harvest and transportation. Their distributed scalable biorefinery approach is a key element in making the use of insect-damaged trees as feedstock plausible.

Housing Starts, Canada

The Canada Mortgage and Housing Corp said Friday the pace of housing starts heated up again in October, continuing the momentum that began to build in July. The agency estimates there were 17,033 actual starts in October. Seasonally adjusted starts were 198,282 units, compared with 195,929 in September.

Housing Starts, Canada

Canada’s October urban starts were essentially unchanged at a seasonally adjusted rate of 177,434 units, said the CMHC. Rural starts were estimated at a seasonally adjusted annual rate of 20,848 units.

Multiple urban starts registered a slight increase of 0.9 per cent, to 115,011 units in October, while the single urban starts segment saw a decrease of 1.7 per cent, to 62,423 units.

The seasonally adjusted annual rate of urban starts increased in Ontario, but slipped in BC, the Atlantic, the Prairies, and Quebec.

Building permits in September were up 1.7 per cent from August, to $6.5 billion, the seventh monthly advance since the beginning of the year, said Statistics Canada Wednesday.

The total value of residential building permits rose 3.3 per cent to $4.1 billion, following a 4.8 per cent decline in August. Residential construction intentions increased in five provinces, led by Alberta and Quebec.

In the non-residential sector, the value of permits edged down 0.8 per cent in September to $2.5 billion, said Stats Can

Japan Housing Starts

Total September housing starts in Japan were 88,539 units, a 19.4 per cent improvement over the same time last year, according to the Japan Lumber Reports.

Seasonally adjusted starts were 1.04 million units, up 8.3 per cent over September 2012.
Buyers raced to complete purchases before increasing consumption taxes and mortgage rates came into effect. After September, a 5 per cent tax will apply on home purchases so there was a rush of orders before that month ended.

U.S. producer prices unexpectedly fell in September and the increase in the annual rate was the smallest in nearly four years, pointing to a benign inflation environment.

The US producer price index fell 0.1 per cent in September, following August’s increase of 0.3 per cent, according to the US Labor Department also Tuesday. Year-on-year, the index continued to point to soft inflation, up by 0.3 per cent.

Japan Housing Starts

Units built for sales showed the single greatest increase, at 20,000 units, for a very unusual time of the year. Looming tax changes were also credited for this increase said the Reports.

New units built for owners continued their hot steak, now on the increase for 13 consecutive months.
Wood-based units also fared well, with a 14.6 per cent improvement, to 49,113 units.
New home building and rebuilding efforts in the earthquake-affected areas continued brisk.

US ISM Manufacturing Index

Manufacturing in the US grew in October at a faster pace than forecast, showing factories were a source of strength for the economy at the start of 4Q.
The Institute for Supply Management’s index climbed to 56.4, the highest since April 2011, from 56.2 a month earlier, the Tempe, AZ-based group’s report showed November 1.

Readings above 50 indicate growth.

Resilient motor vehicle sales and the recovery in housing are helping sustain production at the same time global markets begin to pick up.

Manufacturing Index, US

It was the fifth straight monthly gain for the index. A measure of new orders rose slightly, while a gauge of production fell but remained at a high level. Factories added jobs, though at a slower pace than the previous month.

These latest figures show the brinksmanship over the budget that closed the federal government for 16 days last month did little to spoil the rebound in manufacturing since the middle of the year, according to Bloomberg.

3Q Financial Results : Forestry

Third quarter results continue to pour in for North American forest products companies.

West Fraser Timber, out of Quesnel, BC, this week reported its lumber division’s 3Q 2013 sales grew to $581 million, from $491 million a year ago.
Stella-Jones showed sales for 3Q totalled $268.1 million, up 37.2 per cent over last year’s sales of $195.4 million. The operating facilities acquired from McFarland on November 30, 2012 contributed sales of approximately $86.2 million, said the Montreal, QC, company.

Goodfellow, based in Delson, QC, announced this week the company generated net earnings of $5.3 million in 3Q, compared to net earnings of $4.4 million a year ago. Consolidated sales for the fiscal year 2013 were $483.5 million, compared to $500.7 million for the same period a year ago. During Fiscal 2013, lumber sales were positively impacted by the demand for hardwood lumber and company efforts to widen the distribution network in all traditional lumber markets.

Federal Way, WA’s, Weyerhaeuser said in its 3Q financial release that its wood products division revenue was hit by a 26 per cent decline in average OSB selling prices compared with 2Q, while lumber selling prices fell 7 per cent. The declines were partially offset by improved average selling prices for engineered wood products, higher sales volumes across all product lines, and lower western log costs.

CanWel Building Materials, based in Vancouver, BC, showed in its 3Q results that revenues increased to $205 million, compared to $198 million in the same period in 2012.

Also out of Vancouver, Conifex Timber Tuesday reported a net loss of $0.1 million for 3Q 2013, compared to net income of $2.4 million for 2Q and a net loss of $3.7 million 3Q 2012.

Still in Vancouver, Interfor Wednesday reported a net loss of $0.1 million in 3Q 2013, compared to net earnings of $15.8 million in 2Q and $0.9 million in 3Q 2012.

Burnaby, BC’s, Taiga Building Products Thursday reported consolidated net sales for 3Q were $344.9 million, compared to $315.9 million in the same period last year. The increase in sales by $29 million, or 9.2 per cent, was largely due to higher sales from US and export operations selling into the United States and Asian markets.

Gross margin for the quarter increased to $29.7 million, from $28.9 million last year.

Net earnings for the quarter ended September 30, 2013 remained relatively consistent at $4.0 million compared to $3.8 million in the same period last year.

November 12, 2013

US Rental Rates

Even with the delay of September US housing starts until November 26, when the Census Bureau will put out September and October data concurrently, it is possible to get a gauge on US real estate activity. One extremely important, and often overlooked, indicator is rental rates.

In terms of macroeconomics, the US Consumer Price Index (CPI) increased 0.2 per cent in September on a seasonally adjusted basis, the US Bureau of Labor Statistics reported Wednesday. Core CPI, which excludes more volatile food and energy prices, rose by 0.1 per cent for the second consecutive month. Over the past twelve months, Core CPI increased by 1.7 per cent.

The shelter index segment rose 0.2 per cent month-over-month in September for the fourth consecutive month. Over the past twelve months, the shelter index increased 2.4 per cent before seasonal adjustments.

For its part the real rent index has increased for eight consecutive months, rising by 0.1 per cent in September, while over the past year the real rental prices have risen by 1.2 per cent.

Elsewhere, the National Association of Realtors said Monday its Pending Homes Sales Index, based on contracts signed the previous month, plunged 5.6 per cent to 101.6 in September, the fourth monthly drop in a row. Mortgage rates have risen sharply since May on bets that the US Federal Reserve would soon begin winding down a stimulus program, although rates have eased slightly in recent weeks.

As well, the Standard & Poor’s/Case-Shiller 20-city home price index rose 12.8 per cent over the 12 months ending in August, the agency reported Tuesday. That’s up from 12.4 per cent in July from a year earlier. All 20 cities in the index showed year-over-year gains.

And a New Bond Market?

However, a measure of month-over month prices for the 20 cities rose just 1.3 per cent in August. That’s down from a 1.8 per cent month-over-month gain in July. And 16 of the 20 cities reported more modest price increases in August than in July.

Meanwhile, according to the Conference Board Tuesday, the share of consumers planning to buy a home in the next six months was 5.8 per cent on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home was 3.4 per cent, while the share of respondents planning to purchase a new home was 0.8 per cent. These measures were all down from the prior month.

At least a fifth of all occupied single-family homes were rentals last year in 32 of the nation’s top metropolitan regions, according to US Census Bureau data released October 20. That’s up from seven metros in 2006.

Nationwide, 18 per cent of occupied single-family homes last year were rentals, up from nearly 15 per cent in 2006, show data from an annual Census Bureau survey.

As the selling, buying, and — most importantly — building, of homes in the US slowly sputters back to former levels, activity in the rental market is already booming.
The first-ever home rental asset-backed security (ABS), a US$480 million bond trade from private equity giant Blackstone Group, the largest US private real estate owner, began marketing Wednesday. Some 300 potential investors were expected in New York for the Invitation Homes 2013-SFR1 transaction.

Nearly 90 per cent of the homes underpinning the ABS (or REO-to-rental) are located in and around Phoenix, AZ; Riverside, Los Angeles, and Sacramento, CA; Atlanta, GA; and Tampa, FL.

Deutsche Bank is the lead structurer on the deal, which is being jointly led by Credit Suisse and JP Morgan.

The US$479.1 million deal will include a US$278.7 million Triple A rated tranche that will have initial credit support of around 41.8 per cent. After New York, the roadshow for the deal will hit Boston, MA, on Thursday and Los Angeles, CA, Friday. The offering is expected to be officially announced Monday.

Investors are looking to gain exposure to the strengthening commercial real estate market in the United States. Vacancy rates are expected to decline for commercial properties and rents are expected to grow modestly, the National Association of Realtors said in a forecast released in August.

Back in January, Blackstone accelerated purchases of single- family homes as prices jumped faster than it expected. Blackstone spent more than US$2.5 billion on 16,000 homes to manage as rentals, deploying capital from the US$13.3 billion fund it raised last year, said Jonathan Gray, global head of real estate for the world’s largest private equity firm at the time. That’s up from US$1 billion of homes owned in October 2012, when Blackstone Chair Stephen Schwarzman said the company was spending US$100 million a week on houses.

Please see the October 26, 2012 issue of your Madison’s Timber Preview for details on Blackstone’s plans.

Blackstone invested an estimated US$7.5 billion in 40,000 homes, according to Bloomberg, and has continued buying aggressively. The homes are largely in Western states, where the foreclosure crisis hit hardest.

Overall, investors have bought close to 200,000 foreclosed homes in the last few years, sinking nearly US$20 billion into this new asset class.

The trade will receive ratings from Kroll, Morningstar, and Moody’s. At least one of those ratings will be Triple A, a fact that shocked some investors relying on numerous rating agency reports over the past year that indicated a first-time REO-to-rental deal would never reach a rating higher than Single A.

One clue as to how the deal may get the top rating is that it will be secured by individual mortgage liens on each underlying property rather than an equity pledge in the property, said Reuters October 25. That will allow for the creation of a so-called real estate mortgage investment conduit (Remic) structure, according to people close to the deal. Remics, which are also used in CMBS, allow for the pooling of a diverse set of loans from different originators and offer flexibility in assembling a security.

Rating agencies had preferred that mortgages were in place as legal instruments in any potential REO-to-rental securitization structure, so that bondholders did not get shut out of payments in case competing liens were placed on any particular property.

Market watchers expect public backlash to the deal, considering that institutional purchases accounted for 14 per cent of September home sales and all-cash buyers accounted for almost half of sales, according to a RealtyTrac last week. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 per cent, from 40 per cent in August, and 30 per cent a year earlier.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines a new mountain pine beetle report out of the US Forest Service’s Southern Research Station, as well as recent changes in timber management policy with US Forest Service lands.

CN Rail and Teamsters Reach Tentative Deal

Canadian National Railway, Canada’s largest rail operator, agreed to a new labour contract for some 3,300 conductors, train and yard workers, and traffic co-ordinators represented by the Teamsters union, the railway said Thursday.

The tentative three-year deal, the details of which were withheld pending ratification, comes after a week of talks with government-appointed mediators. It averts the possible disruption of a cross-country network.

BC Sawmills Face More Dust Inspections

Inspectors are heading back to 150 British Columbia sawmills over the next three months to ensure the operations are doing everything possible to reduce the buildup of potentially explosive wood dust.
WorkSafeBC said Thursday that a team of 10 officers will inspect the mills between November 1 and January 31, 2014, as part of a drive to reduce dust levels.

BC Sawmill Dust Inspections

This is the third white-glove inspection for the mills since dust accumulation was implicated in an explosion and fire at Hapmpton’s Babine Forest Products operation in Burns Lake, BC, on January20, 2012. The blast levelled the mill, killing two workers and injuring 20 others.

A second fatal mill explosion occurred in April 2012 at Sinclar’s Lakeland Mills in Prince George, BC, where two workers were killed.

The cause of those disasters hasn’t been revealed by investigators, as WorkSafeBC has asked the Crown to review whether the companies or any individuals could be charged for violations of the Workers Compensation Act.

The organization’s officers have carried out more than 1,000 inspections of sawmills and other wood processing operations since the combustible dust safety initiative began in late April 2012.

Producer Price Index, Canada and US

After three consecutive monthly advances, Canada’s Industrial Product Price Index (IPPI) was down 0.3 per cent in September, with 12 of the 21 major commodity groups posting declines, said Statistics Canada Tuesday. Primary metal products , down 0.9 per cent, was the largest contributor to the decline of the index, mainly as a result of lower prices for aluminum products, down 1.7 per cent, copper and copper alloy products, down 2.1 per cent, and other non-ferrous metal products, down 0.9 per cent.

The decrease in the IPPI was also attributable to petroleum and coal products, down 0.4 per cent, the first drop since April 2013. The downward movement was primarily a result of lower prices for gasoline, down 1.9 per cent. The IPPI excluding petroleum and coal products declined 0.2 per cent in September.

U.S. producer prices unexpectedly fell in September and the increase in the annual rate was the smallest in nearly four years, pointing to a benign inflation environment.

Canada and US Industrial and Producer Prices

In Canada, the decline of the IPPI was moderated slightly by lumber and other wood products, up 0.8 per cent, mainly due to higher prices for softwood lumber, up 2.2 per cent, according to Statistics Canada.

The IPPI rose 1 per cent in the 12-month period ending in September, after increasing 1.7 per cent in August.

Compared with September 2012, the advance of the IPPI was mainly attributable to motor vehicles and other transportation equipment, up 3.5 per cent, specifically motor vehicles, up 4.7 per cent. The depreciation of the Canadian dollar relative to the US dollar on a year-over-year basis was largely responsible for the increase.

During the 12-month period ending in September, the Raw Materials Price Index (RMPI) advanced 2.1 per cent after increasing 5.1 per cent in August.
Compared with September 2012, mineral fuels, up 8.5 per cent, was the largest contributor to the increase of the RMPI, mainly as a result of higher prices for crude oil, up 8.6 per cent. The RMPI excluding mineral fuels was down 3.6 per cent on a year-over-year basis.

Among other commodity groups that contributed to the year-over-year increase in the RMPI were wood products, up 3.4 per cent, said StatsCan.
Meanwhile, in the US, one third of September’s PPI increase can be put down to a 6 per cent jump in the index for home heating oil, said the US Department of Labor. Residential natural gas prices were also higher.

In the 12 months through September, wholesale prices rose 0.3 per cent, the smallest gain since 2009. That compared to a 1.4 per cent increase in August.

Financial Results

North American forest companies releasing 3Q financial results this week include Norbord Inc and Resolute Forest Products.

Norbord Friday reported EBITDA of $45 million in 3Q 2013, compared to $66 million in the same quarter last year, and $102 million in 2Q 2013.

Norbord recorded $27 million of earnings in 3Q 2013 compared to $27 million in the same quarter last year and $53 million in the prior quarter. Earnings this quarter include a $9 million one-time non-recurring income tax recovery.

Company share prices jumped 5.4 per cent as the panelboard producer’s earnings topped estimates.

Resolute Forest Products reported a better-than-expected profit for the fourth straight quarter Thursday as demand for its pulp products improved, sending its shares up 15 per cent in early trading.

Resolute, the largest newsprint maker in North America, said results were hurt by a $619 million charge related to income tax.

The company’s net loss was $588 million, or $6.22 per share, in 3Q, compared with a profit of $37 million, or 38 cents per share, a year earlier.
Revenue fell 8 per cent to $1.1 billion, mainly due to lower newsprint prices.

The company will continue to find more ways to save, announcing plans that it’ll shed up to 170 positions at two facilities in Quebec and Ontario, the company’s CEO said Thursday.

Plum Creek Acquires . . .

Plum Creek Timber Monday announced it signed a US$1.1 billion purchase and sale agreement to acquire approximately 501,000 acres of industrial timberlands, associated wind and mineral assets, and an interest in approximately 109,000 acres of high-value rural and development-quality lands from MeadWestvaco Corporation. The transaction is expected to close during 4Q 2013.

Boise Cascade Appoints . . .

Boise Cascade Company announces that its Board of Directors has elected Rich Viola and Frank Elfering to new officer positions, effective October 30.
Rich has been appointed VP sales and marketing for Building Materials Distribution. Rich was the sales and marketing manager for BMD’s East Region before becoming the division sales and marketing manager.

Frank has been appointed VP purchasing for Building Materials Distribution.

November 5, 2013

Alberta’s Emissions Program

On October 10, the Climate Change and Emissions Management (CCEMC) Corporation of Alberta announced the offer of up to a total of $40 million in funding to support projects that use plants, animals, and microbes to avoid or reduce greenhouse gases or to enhance carbon sequestration.

The announcement was made in Calgary at the Biological Solutions Forum. That event was hosted by the Biological GHG Management Program, which is delivered by Alberta Innovates Bio Solutions (Al Bio) using core funding from the CCEMC. To date, the CCEMC investment has been supporting projects that improve fundamental understanding, overcome technological hurdles and demonstrate strategies to reduce net GHG emissions.

The Biological GHG Management Program was launched in June 2012. The program offers financial support for projects that will discover, develop, and deploy innovative technologies and strategies, and demonstrate cost-effective ways for the agriculture, forestry, and waste management sectors to help meet Alberta’s climate change strategy goals. Funded projects support both the CCEMC’s mandate to GHG emissions and Al Bio’s mandate to grow and develop Alberta’s bio-industries through science and innovation.

Climate Change and Biomass Energy

Program Goals:

Reduce biological GHG emissions from managed systems, such as agriculture, forestry, and landfills;
Capture more atmospheric carbon for long-term sequestration (biological carbon sinks);
Enhance the use of biological feedstocks in material processing and production.
Funding Opportunities (three funding pools):
R&D Projects are smaller-scale, one-year projects which address specific and targeted gaps in science, technology, market-readiness or policy that currently act as a barrier to progress.

This funding pool also will support analysis of novel concepts with significant potential for biological GHG management;

Demonstration Projects explore application of technologies or strategies at ‘real-world’ scale. These projects provide a bridge between research and development and full-scale implementation, and an opportunity to address scaling-up challenges;
Larger-scale Implementation Projects that will implement innovative tools, techniques and strategies for reducing direct GHG emissions or enhancing biological carbon sequestration will be invited by the CCEMC through a request for proposals.

Eligible projects will:

Discover, develop and/or deploy transformative practice changes in the forestry, agriculture, municipal waste handling, and/or energy sectors;
Develop or modify bio-processes;
Replace non-bio-based feedstocks with bio-based feedstocks;
Develop and manufacture novel bio-products;
Use biological organisms or bio-based materials to reduce emissions in non-biological industrial systems.

For its part, AI Bio leads and co-ordinates science and innovation to grow prosperity in Alberta’s agriculture, food, and forestry sectors. The latter two are that province’s leading renewable industries, and currently contribute more than $25 billion every year into the Alberta economy.

AI Bio is an integral part of Alberta’s research and innovation system, along with colleagues in the Alberta Innovates group. AI Bio enjoys a reputation as a partner of choice with financial resources of almost $60 million over the next three years.

With a mandate to support the growth and diversification of Alberta’s bioindustries, AI Bio invests in research and development at different stages of the innovation continuum; leads foresighting, strategy development and specific initiatives; evaluates technologies and emerging opportunities; facilitates connections; creates and expands networks; and manages knowledge and communication.

Food and beverage manufacturing in Alberta reached $12 billion in 2009, while in 2010 agriculture in Alberta created $9.8 billion of value for farmers and Alberta’s revenue from forest manufactured goods was $2.4 billion.

Interested parties can find more information here: http://bio.albertainnovates.ca/funding/