US Mortgages ; Western Forest Products Sells TFL ; Canadian Housing Starts ; North American Intermodal Traffic ; Softwood Check-off ; More Mill Closures, Curtailments ; AbitibiBowater Changes Genomics and Microbials ; Madison’s Timber Preview ; Grant OSB Mill Demolished ; Worker Safety ; Japan Housing Starts, Canada Building Permits ; Lumber Industry Projections ; Tembec Invests Forest Products Forum ; Mill Curtailments, Openings ; Midway Reopening a Reality ; Canada’s “State of the Forests” 2011 Report ; US Pending Home Sales, Prices ; India Lumber Imports ; Madison’s Timber Preview ; Uncoated Freesheet Inventory ; US Housing Starts, Home Sales ; Typhoon Number 12, Japan ; Online Wood Network in BC ;
October 24, 2011
US Mortgages
It looks like the astonishingly complex US mortgage situation is not going to return to regular business any time soon. This week US mortgage regulator, the Federal Housing Finance Agency, was supposed to introduce new rules to stop or slow the foreclosure process, but instead is helping federal mortgage lending giants the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, impose tougher standards on new loans.
More Uncertainty
On September 26, a report by the inspector general of the FHFA said that Freddie Mac had failed to pursue Bank of America aggressively for compensation for bad loans, despite warnings from a senior staff member. Edward DeMarco, FHFA Acting Director, has so far refused to comply with US Administration policies, which encourage principal reduction through a handful of programs. The Federal Housing Administration and the Veterans Affairs also do not allow principal reduction on their loans.
This week it came to light that Fannie Mae and Freddie Mac are increasingly demanding that sellers repurchase mortgages that defaulted years after they were made, and buy back recent loans that aren’t even delinquent, says PHH Corp, the sixth-largest US home lender, according to Bloomberg.
Also on Tuesday, Freddie Mac CEO Charles Haldeman said the company is pondering ways to get private investors to share in the risk of guaranteeing home loans, according to the Wall Street Journal. Finding a way to sell credit risk could attract private capital, Haldeman said while addressing the Mortgage Bankers Association’s conference in Chicago. Freddie Mac could develop security structures that would be sold off. Enticing private investors is also a key goal of the Obama administration as it works to reduce the housing market’s reliance on Freddie Mac and Fannie Mae, which have cost taxpayers more than US$141 billion in financial support since late 2008.
On Wednesday, the average 30-year fixed-rate mortgage in the US had a rate of 4.18 per cent, according to Bankrate.com – nearly 200 basis points higher than the 10-year Treasury yield, further complicating Federal Reserve efforts to boost economic growth, according to the Financial Times.
Since 2000, rates for 30-year mortgages in the US have generally been about 150 basis points higher than yields on 10-year Treasury securities. Earlier this year, the spread betwen the two rates narrowed further, touching a low of 128bp in February.
On Tuesday, Deutsche Bank said its weekly survey of the top 10 US mortgage lenders showed an average rate of 4.29 per cent, up from 4.05 per cent the previous week, with the top five, which account for 65 per cent of the market, averaging 4.27 per cent. By Thursday, Freddie Mac said that the rate on the 30-year fixed loan rose to 4.12 per cent, up from 3.94 per cent last week, the lowest rate ever according to the National Bureau of Economic Research. Meanwhile, the average rate on the 15-year fixed mortgage, a popular refinancing option, increased to 3.37 per cent from 3.26 per cent, also a record.
CoreLogic, out of California, estimates that 53 per cent of borrowers with equity in their homes, or 20 million homeowners, are paying above market rates, defined as the current rate plus 100bp, or 5.1 per cent and higher. About 36 per cent are paying more than 5.5 per cent. Seventeen per cent are paying more than 6 per cent.
Banks are jostling for mortgage market share in a much smaller business now as the housing crisis wears on. Inside Mortgage Finance expects lenders to make about US$1.2 trillion in loans this year, down from about US$1.5 trillion last year and US$2.4 trillion in 2007. “There is no question that 2011 will be worst mortgage lending year in a decade,” publisher Guy Cecala said to Reuters Tuesday.
The Mortgage Bankers Association said in a press release Tuesday that mortgage originations are expected to fall from an estimated US$1.2 trillion in 2011 to US$900 billion in 2012. The drop will be driven by a significant decline in refinance originations, while purchase originations will increase only slightly. The economy will see another year of anemic growth in 2012, and then will grow somewhat faster in 2013. Refinance originations are expected to fall despite low mortgage rates as economic uncertainty lingers and fewer eligible borrowers remain.
Total existing home sales will stay around the 4.9 million unit pace for 2011 and 2012, before increasing slightly to 5.2 million units in 2013 as the broader economy recovers, says the release. The recovery in the new home sales will have a comparably slow start, and may well be slow for most of 2012, but will show some meaningful increases in 2013.
Yet, while things aren’t confusing enough already, the same group reported Wednesday that the market composite index – a measure of loan application volume – jumped 1.3 per cent on a seasonally adjusted basis from last week, as refinance and purchase activity picked up. The average loan in refinancing was valued at US$237,632, compared to US$241,323 a month ago.
Just in case anyone thinks there might not be enough reports on this subject, the Consumer Financial Protection Bureau, which took over a swath of consumer credit-product regulatory functions in July, on Thursday released its approach for examining big and midsize banks servicing mortgages, focussing on loans in default as part of an effort to ensure that troubled homeowners are made aware of their alternatives to foreclosure, and of their rights so that illegal or duplicative fees aren’t being charged for borrowers undergoing loan modifications.
The Dodd-Frank Act, written in response to the financial crisis, gives the CFPB the authority to examine banks, thrifts and credit unions that have assets of more than US$10 billion. The agency estimates that roughly 105 institutions fall in that category.
This manual has come in the wake of revelations about foreclosure-documentation errors at big banks and a stalled application process for many troubled borrowers seeking to modify their mortgages and avoid foreclosure.
“With all the structural problems, it is no surprise that the mortgage-servicing market has been plagued by pervasive and profound consumer-protection issues,” Raj Date, special adviser to the Treasury for the consumer bureau, told reporters.
Date asserted that the current fee-collection structure creates a strong incentive for servicers to “underinvest” in adequate technology, people and processes for handling unusual spikes in delinquency, given that bank servicers collect a fee for administering all aspects of a loan, including sending monthly payments to mortgage investors, maintaining records and collecting and paying taxes and insurance.
Western Forest Products Sells TFL
Western Forest Products has agreed to sell a tree farm licence covering 136,000 hectares to Haida Enterprise, a company owned by the Haida Gwaii First Nation. The Vancouver-based forestry company says Haida Enterprises (HaiCo) will pay $11.6 million for Tree Farm Licence 60 and rights to cedar logs harvested by Taan Forest, a subsidiary of HaiCo.
Taan will also assume the company’s obligations on Haida Gwaii, the traditional territory also known as Queen Charlotte Islands, west of Prince Rupert, BC. Haida Enterprise said the licence covers Graham, Moresby and Louise islands, which are part of HaidaGwaii.
Local ownership and control of the tree cutting rights will support the Haida’s objective of bringing more jobs and benefits to the area, HaiCo’s managing director Thomas Olsen said in a statement Tuesday.
Canadian Housing Starts
The pace of new home construction in Canada picked up in September, jumping from an annual rate of 191,900 to 205,900. Urban starts increased by eight per cent to 185,900 units in September. Multiple urban starts rose by 14.2 per cent to 118,000 units, while urban single starts decreased by 1.5 per cent in September to 67,900 units.
Housing Starts, Canada
Urban starts increased 47 per cent in the Atlantic region, 32 per cent in Quebec and 18.6 per cent in BC. In Ontario, the pace declined by 3.5 per cent, while in the Prairies it declined by 12 per cent.
An extended period of low interest rates, combined with high home prices and a relatively stable domestic economy have helped to prop up demand in Canada’s housing market for longer than economists initially expected.
Once those rates begin to rise, the current price of homes could become unaffordable for many, putting downward pressure on future prices.
Those higher home prices and investor expectations of further capital gains have likely driven apartment and condo sales. That could leave the market vulnerable to a sudden loss of confidence “resulting in falling house prices and significant knock-on effects for the economy,” said David Madani of Capital Economics to the CBC.
North American Intermodal Traffic
North America’s major freight railroads hauled 2.1 per cent more intermodal traffic than a year earlier in the week ending October 8, while bulk carload traffic grew 3.3 per cent. The Class I and large regional carriers picked up 303,288 containers and trailers last week, said the Association of American Railroads Thursday. That was down 3.1 per cent from the all-time high of 313,026 they originated just one week earlier, but was still 6,312 more boxes than in the first week of October 2010.
Intermodal Traffic, North America
The major railroads originated 397,742 carloads last week of bulk materials and equipment, down 2.6 per cent from the last week of September when they handled the most carloads of any week in 2011. But the latest total was still 12,611 loads more than in the first week of October 2010.
While carloads of grain shipments and grain mill products are still running behind the 2010 pace, a number of key industrial cargoes from autos to lumber to metal ores are consistently stronger than last year.
Traffic is rising from US autumn harvests, coal for winter heating and power, and gifts bound for store shelves, said Jeff Kauffman, a Sterne Agee & Leach analyst in New York. The late-arriving peak matches industry forecasts that the pickup in rail business wouldn’t begin until September, instead of the usual August, as companies make do with leaner inventory.
Softwood Lumber Check-Off Update
This June, the CEOs of 311 eligible softwood lumber companies who manufacture or import more than 15 million board feet per year in the US voted to establish a check-off for softwood lumber. Super-majorities of production, 80 per cent, and of companies that voted, 67 per cent, in the United States Department of Agriculture-run referendum approved the check-off.
Softwood Check-Off
In all, 43 industry leaders stepped forward to become candidates for the new board. All candidates have been vetted and cleared by the USDA. The Agricultural Marketing Service, the agency within the USDA responsible for check-offs, has submitted the package of nominations to the Secretary of Agriculture who will make appointments to the Board. The Blue Ribbon Commission for Check-off expects appointments to be made by the end of October so that the Board can prepare for its first meeting in late November.
More Mill Closures, Curtailments
Cascades is continuing to consolidate its operations, by announcing the closure of its Norampac plant in Le Gardeur, QC. The Le Gardeur plant is specialized in the conversion of corrugated products, and has annual revenues of $8 million.
In preparation for this closure, the plant’s operations will be redirected progressively towards the other Norampac Québec based plants that already serve the greater Montreal region.
Nearly 50 employees will be affected by this closure that will be effective before the end of 2011.
JD Irving Ltd. is closing another one of its sawmills. The forestry company will shut down its Deersdale, NB, mill, near Juniper, on October 28, throwing 65 unionized employees and eight staff members out of work.
The company is closing the Deersdale mill because it can’t get enough wood to supply it. The company is diverting the wood it has available to mills in Chipman and Sussex.
Irving spokeswoman Mary Keith said the shutdown is indefinite.
Workers who are facing layoffs at an Irving sawmill near Juniper say the province has the power to save their jobs, according to the CBC. The provincial Department of Natural Resources has a plan to reduce the amount of wood forestry companies can cut on public land over a five-year cycle, starting next year.
Irving spokesperson Mary Keith said if the wood supply is available the mill could stay open.
AbitibiBowater Changes
Clearly in an effort to distance itself from the financial disasters of its recent past, Montreal, QC’s, AbitibiBowater is changing its name to Resolute Forest Products, or Produits forestiers Résolu.
The company is still a North American leading global producer of newsprint and commercial printing papers after a heavy restructuring, It operates 18 pulp and paper mills and 24 wood products plants in North America and South Korea, and markets its products in 90 countries.
At the marketing level, including website and communications, use of the new name will take effect November 7. At the corporate level, the new name requires approval from shareholders.
This will be sought at the next annual meeting in 2012. It will be business as usual for invoicing, payments and contracts.
October 16, 2011
Genomics and Microbials
Building on previous studies and operating in conjunction with researchers globally, Genome British Columbia, out of Vancouver, BC, is embarking on another round of exciting research in forest science. New funding of $32.6 million has just been announced for four individual projects at the University of British Columbia. The funded projects aim to develop clean energy alternatives, enhance the use of forest biomass, understand the effects of climate change on the forest, and identify trees with superior growth and wood properties.
Two of these projects particularly caught Madison’s attention as relevant to the North American forest products’ industry: ‘SMaRTForest: Spruce Marker Technologies for Sustainable Forestry’, aimed at upping healthy wood yield; and ‘Harnessing microbial diversity for sustainable use of forest biomass resources’, which looks at how microorganisms in soil naturally degrade trees into biofuel feedstock. Madison’s spoke to the head researchers this week for details.
Forest Research
The genome project focusses on unlocking the conifer gene sequence to breed bigger, stronger trees.
“Once complete, our work will identify a parent tree with the right genetic makeup, one that displays traits beneficial to producing good quality, high value timber. We won’t have to wait several decades until a tree has reached maturity to know if it possesses the genetic markers we are looking for,” explained Dr. Jörg Bohlmann of UBC to Madison’s in a phone interview Wednesday.
The genetics research aims to develop marker technologies to identify spruce seedlings that have superior growth and wood properties, or increased insect resistance. As they are identified, these genetic marker systems and biomarkers can be directly applied to Canadian spruce forestry programs, which will result in a significant increase in production.
“Specifically we intend to identify genes that possess the relevant traits,” continued Bohlmann. “Traits like tree growth and development, resistance to insects and diseases, adaptation to a changing climate, and wood quality and wood property traits. Using our research, tree breeding programs will be developed to accelerate superior traits.
“This project is entirely new, but it is building on other research. The Treenomix Project in BC and the Arboria Project at Dorval University in Quebec have both advanced work on conifer genomics. Stemming from this combined expertise, we are attempting something much more ambitious, first to sequence the entire white spruce gene, then to determine the best application for this knowledge to improve tree species for the forest products industry.”
It seems that while the genetic map of spruce genes is becoming better understood, there is currently very little knowledge of how the genes are organized.
“We already know about 80 per cent of the spruce gene, but only about 10 per cent about the gene arrangement,” explained Bohlmann. “In order to have complete knowledge we must understand the dimension and arrangement of the genes. You could compare it to the construction of a home; if you can imagine the pieces of a scaffolding but 90 per cent of it is scattered about the floor with only 10 per cent of it erected. As yet no one has been able to completely re-assemble the spruce gene sequence.
“Using large samples across geography as a reference we will look for variation of traits, then associate that variation with a genome. We will be able to substantially associate certain parts of the genome with phenotypic variation. In this way we will find out which part of the genome is a significantly strong indicator of relevant traits. This knowledge will then be used in tree breeding programs.
“We will be able to make a positive prediction about the value of a tree in a breeding program and subsequently the value of the offspring.”
Bohlmann stressed an important distinction between this and other agricultural gene research.
“These will not be transgenic trees, this is not genetic engineering or genetically modified reproduction,” Bohlmann pointed out. “We are simply tapping into what nature is already offering to make rapid advances in tree biology.”
The second Genome BC project of interest to Madison’s is related to biofuels and unlocking the energy in wood.
“Our work aims to transform or degrade lignin. To remove it so cellulose can be used for other things like biofuel, or to convert lignin into resins or carbon fibres,” explained Dr. Lindsay Eltis, also at UBC, to Madison’s Wednesday in a phone interview.
The microbial project is exploring the microorganisms found in soil that naturally degrade biomass, a key component from which biofuels are derived. Unlocking the potential of forest biomass will lead to better forest management practices and improve the economics of lignin-based products.
“Most of the work done to date on biomass fuel has been using chemical methods to access the energy in wood,” detailed Eltis. “We will be using enzymes or bacteria as a bio-catalyst. There has been some progress in this field using fungii, but not a single commercial application exists because fungii are very difficult to manipulate and the process can not be scaled up for industrial production.
“As everyone knows, when a tree falls down in the forest it decays over time.
part of this decay is done by bacteria naturally existing in the forest soil. We will be examining the bacteria and this natural process of breaking down wood. The bacteria recycle everything in the forest, and maintain the global carbon cycle.
“There are thousands of different kinds of bacteria in soil types. We will be using soil samples from BC, Ontario, Texas, and California to have a wide range of information and to maximize the chances that whatever we develop can be applied elsewhere in North America.
“Our research approaches the biofuel question from a different direction. We are using metagenomics to identify the DNA of all the bacteria in soil. In one gram of forest soil there are over 5,000 kinds of bacteria. In examining the bacteria and the decay process we will be able to use this existing force of nature to create energy.
“There is a lot of biomass in the forest, beyond what is being used by the forest products industry,” concluded Eltis. “Lignin is very underutilized and we are trying to get a higher value product from wood.”
Both projects are expected to take two to three years to complete. However, as there is also work complementary being conducted by other research groups it is possible a breakthrough will happen earlier than that. Madison’s will continue to inform Reporter subscribers on the progress of this exciting field.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Prevew examines the latest developments at ArborGen, a global supplier of seedling products to the commercial forest industry. A joint project of timber corporations International Paper, MeadWestvaco and Rubicon, ArborGen is in the midst of organizing itself for a US$75 million Initial Public Offering.
Contact us anytime for a subscription.
Grant OSB Mill Demolished
The Grant Forest Products OSB mill in Timmins, Ontario is currently being demolished, according to the Timmins Times.
On September 9, 2006, Grant Forest Products locked the plant’s gate, shutting out 105 unionized workers shortly after 67 per cent of them voted to reject their contract offer that contained concessions. Grant Forest Products sold some of their assets to Georgia-Pacific, but the Timmins OSB plant was not included in the transaction.
In June 2009, Grant Forest Products applied for creditor protection under the Companies’ Creditors Arrangement Act in order to have time to restructure. Eventually the company went into receivership. The company offered the mill for sale in March 2010.
Worker Safety
Greatly reduced numbers for worker injury and death in the forestry of the past few years are being impacted by a rash of accidents at sawmills and forest operations. The safety of workers, and safe work practices, are the single most important factors in any industrial operation. Even one injury or death is unacceptable. To have several happen across North America in the space of a few weeks is cause for alarm and concern.
Safe Work Practices
Logger Danny Dimm, 53, was killed instantly Monday morning while clearing trees on private land about 10 kilometres south of Lillooet, BC, when part of a tree toppled down on a piece of equipment, pinning him underneath.
The accident is being investigated by the coroner and WorkSafeBC.
According to Lillooet RCMP Sgt. Fran Bethell, Dimm was with another worker when the tree snapped and landed on a front-end loader.
“Part of the tree fell and flipped the loader over on Mr. Dimm and he was killed instantly,” Bethell said. The other worker was uninjured.
Al Auger was one of the first on the scene of the accident and said it is very tragic.
An accident last week at the AV Cell dissolving pulp mill in Atholville, NB, has left one person dead and two others injured. The three men were employees of a subcontractor. They fell from a fixed catwalk approximately nine metres high.
A representative of WorkSafeNB told local news sources that the catwalk was a fixed structure, not scaffolding, but something gave way under the weight of the workers and the fell to the floor. Apparently the catwalk was intended to give access to pipes near the ceiling, and was used infrequently.
Investigators have narrowed the possible cause of a large fire October 3 at a Healdsburg lumber mill, near Santa Rosa, CA, including that rags used for staining wood sparked the flames.
The fire caused about US$500,000 damage to stacked boards at the Nu Forest Products wholesale business on Healdsburg Avenue.
City fire Marshal Linda Collister Tuesday said the cause could have been electrical or rags soaked in linseed oil, which is highly flammable. There was an electricity source and oil-soaked rags in the vicinity of where the fire started, she said. Workers had been using linseed oil in a “new, special process they were doing with the wood there,” Collister said.
A final determination was on hold while a company insurance investigation also remains underway, she said. More than 40 firefighters from seven agencies worked on the Sunday evening fire.
An Oregon State safety agency on Tuesday fined Stimson Lumber Company US$5,000 stemming from an explosion in May that killed one employee and seriously injured two others.
The incident occurred at the company’s mill in Gaston, south of Forest Grove. OR.
“This is a serious violation connected to training issues,” said Melanie Mesaros, spokeswoman for the Oregon Occupational Safety and Health Administration. “We’re saying that the employee wasn’t adequately trained.”
Japan Housing Starts, Canada Building Permits
Total August housing starts in Japan rose 14 per cent compared to the previous month, to 81,986 units, according to the Japan Lumber Reports.
The value of Canadian building permits plunged 10.4 per cent in August from July for a second consecutive decline, Statistics Canada said on Thursday.
Japan Starts, Canada Permits
The seasonally adjusted rate of annual home building in Japan was at 934,000 for August, says the Japan Lumber Reports.
Condominium starts rose 60 per cent. New wood based units were at 46,901, a 11.5 per cent increase over August 2010. The share of wood based units was 57.2 per cent of total new starts, up 1.5 points over July.
The overall value of Canadian August building permits was 3.9 per cent higher than in August 2010.
Housing permits fell 6 per cent to $3.6 billion following three monthly increases, dragged down by a sharp 8.9 per cent drop in building intentions for multifamily dwellings. Single family intention were down 4.1 per cent.
Nonresidential permits sank 16.6 per cent to $2.3 billion on a 20.6 per cent drop in the value of commercial building intentions in Ontario.
Coming together with the rising output value in the sector is the improvement in its structure. According to the SFA, the ratio of the primary industry, secondary industry and tertiary industry in the sector was adjusted to 39 to 52 to 9 from 52 to 41 to 7 in 2005. The weight of the latter two industries kept growing over time.
The SFA said growth in secondary industry was mainly boosted by wood and bamboo products while forest tourism helped to shore up the tertiary industry.
Lumber Industry Projections
Better times lie ahead for Canada’s long-suffering lumber industry, whose decade-long restructuring has left it a lean competitor poised for an upturn in the US housing market, said TD Economics on Thursday.
Once the foreclosure glut winds down and a US housing recovery kicks in toward the end of 2013, it will drive an upswing in lumber demand and prices as a result of a “far leaner capacity” at the mill level.
Turnaround will be abetted by rapidly growing demand from China.
Lumber Industry Recovery
The latest statistics from China’s State Forestry Administration, indicate the total output value of the forestry industry reached 1.66 trillion yuan (US$255 billion) in the first eight months of the year, up 9 per cent from the same period last year, according to China Daily USA.
Coming together with the rising output value in the sector is the improvement in its structure. According to the SFA, the ratio of the primary industry, secondary industry and tertiary industry in the sector was adjusted to 39 to 52 to 9 from 52 to 41 to 7 in 2005. The weight of the latter two industries kept growing over time.
The SFA said growth in secondary industry was mainly boosted by wood and bamboo products while forest tourism helped to shore up the tertiary industry.
Tembec Invests
Tembec announced plans Thursday that could lead to a further $100 million investment to expand its pulp facility in Temiscaming, QC, by 2015.
Chief executive James Lopez told a New York investor conference that the second phase of changes at its key facility would add 30,000 tonnes of annual capacity of specialty dissolving pulp.
The expansion would add 10 megawatts of electricity that would be sold to Hydro-Quebec.
The expenditure would raise the company’s forecasted capital spending in Temiscaming to nearly $300 million.
The Quebec government has provided a $75-million loan at rates that Lopez said are “substantially better than the market.”
October 11, 2011
Forest Products Forum
Supplemental to the annual Who Will Own the Forests? timberland investment summit September 19 to 21 in Portland, OR, for the first time this year the Forest Products Forum was held by Forest Economic Advisors the next day. The presentations featured topics including: lumber, panel and timber market outlooks; developments in the wood-based biomass area; and the macroeconomic outlook. Speakers ranged from: Brian Doyle, FEA VP of Sales; Albert Nussbaum, Director, Forest Analysis and Inventory Branch, British Columbia Ministry of Forests; and, Paul Jannke, Principal, Lumber, at FEA.
Portland, Oregon
Brian Doyle of FEA spoke about US macroeconomics in a presentation titled, “How Will We Know When the Economy Has Turned the Corner?” Because real GDP growth in the US fell below 1 per cent in first half of 2011 and ongoing household deleveraging is a key restraint on economic growth, stronger employment growth is a necessary condition for a sustainable housing recovery, began Doyle. Having closed a huge gap of 60 index points during 2006, the home price-to-rent ratio is still above the pre-housing bubble trend.
US household borrowing started to recover in 2010 but is still well below the median prior to the US housing boom, and it will take several more years for households to pay down debt.
Meanwhile new home inventories are very low, explained Doyle. While on the upswing, housing starts will remain below underlying demand until 2015. A striking graph, displayed on this page, shows that housing starts in Canada this year account for a quarter of North American housing starts.
In a declaration that Madison’s has not heard any other analyst make as yet, Doyle maintained that the death of bigger homes has been exaggerated, and that new home size will continue to rise, albeit at a very slow pace.
Albert Nussbaum of the BC Ministry of Forests made a presentation on “BC’s Mountain Pine Beetle: Infestation Update.”
Recent Ministry projections of total beetle-killed timber have become more optimistic than in previous years, falling from the more than 80 per cent pine kill estimated in 2006 to 61 per cent this year, said Nussbaum. It is important to remember than the maximum damage has already been done.
According to Ministry statistics, the worst year of pine beetle infestation was 2004, when 140 million cubic metres of timber were killed. Annual timber kill declined rapidly since then, to 39 million cubic metres in 2010. In total, as of 2010, 51 per cent of merchantable pine in BC has been killed, which equates to 692 million cubic metres. This rate of kill is projected to continue to decline, with less than 5 million cubic metres to be killed annually by 2021.
This upgrade to the outlook, however, has not been uniform across the various Timber Supply Areas of BC. The hardest hit areas in central BC are still in extremely bad shape, while the improvement is found in the TSAs along the periphery of the province. As a result, the annual allowable cuts, initially instated to maximize harvest of still-merchantable dead timber before it degraded too much, will be dropping to reflect the improved outllook.
The province of BC is looking for other ways to utilize the beetle-killed wood, Nussbaum explained, and biomass fuel is one option.
Still on the topic of timber supply, Rocky Goodnow, FEA Director of Timber, spoke about deferred harvests and sawtimber supply.
Large-scale timber deferment is on-going throughout North America, said Goodnow. Most regions have deferred 12 to 15 months of a typical year’s harvest, with ‘typical year’ meaning the sustainable harvest level.
Near-term price trends in the US South and West will reflect the increased availability of logs in local markets.
There will be an upward long-term price trend for sawlogs, and timber value will generally flow to the stump rather than accrue to manufacturers, Goodnow explained.
Log exports have become a major driver for sawtimber demand, with west coast log exports to China increasing from about 20 million board feet in 1Q 2009 to 350 million board feet in 3Q 2011.
By mid-decade, when BC’s lumber production will be constrained due to the pine beetle infestation, redistribution of softwood lumber capacity throughout the rest of North America will be based on sawtimber availability regionally.
Paul Jannke of FEA spoke on the lumber market and projection for future recovery. As with log exports and sawtimber demand from overseas, Jannke said that offshore trade will add demand for lumber products, especially while US consumption remains low through 2012. Lumber inventories are currently very low, at less than 1.25 months’ supply, compared to 2.75 months’ supply in early 2009.
Jannke detailed that the recovery of North American demand for lumber will be evident when US mortgage delinquencies drift down towards 2 per cent, home prices have stabilized and begin to increase, existing home inventories drop to six months’ supply, and new home sales increase towards 400,000 annualized.
In the near term, expect lumber prices to remain volatile thanks to extremely low inventories and curtailed production. As the end-use market recovers, lumber production costs will rise, thereby limiting profitability.
Madison’s would like to extend a Thank You to Brendan Lowney, Principal at FEA, for providing the presentations and notes on the speeches from the Forest Products Forum at the World Forestry Center in Portland, OR, September 22, 2011. – ed
Mill Curtailments, Openings
Sinclar Group Forest Products has announced it will not resume operations at its Winton Global Lumber plant sites in British Columbia. All former Winton Global Lumber employees will immediately receive the full severance to which they are entitled. Stimson Lumber’s Colville, WA, sawmill employees have been given 60 day notice that the company plans to significantly downsize or close. That mill produces cedar and ponderosa pine boards.
Tolko Industries has announced that operations at the company’s plywood mill near Kamloops, BC, will decrease from four shifts to three effective October 30. About 30 employees and 50 million square feet (3/8-inch basis) of plywood will be affected.
Georgia-Pacific has elected to delay the start of operations at its Clarendon, SC, OSB facility. The company had planned to start production at the plant in December of this year.
Midway Reopening a Reality
The Boundary Sawmill in Midway, BC, was closed in 2007 when the owner, Pope & Talbot, went bankrupt, throwing about 200 people out of work. Fox Forest Products purchased the mill in 2008 for $750,000 but it never reopened.
The sawmill has paid delinquent taxes and signed an agreement with American lumber company Vaagen Brothers to operate the new mill, according to the Osoyoos Times.
Boundary Bay, BC, Sawmill
The new company had purchased the mill with the help of a $1-million loan from the Heritage Credit Union in Rossland, BC. Thanks to scores of new investors, many from Midway, many from elsewhere, Boundary Sawmill is now close to paying off that loan. Russ Vaagen, Vaagen Brothers Lumber’s vice-president, visited the new mill last week. He says the company, known in Canada as Vaagen Fiber, will do some equipment tests in October before scheduling a grand opening. “We still have equipment showing up all the time so we can’t be sure of the exact date just yet.”
He says the company is very excited about the entire project. “We’ve actually been interested in the Midway mill for several years, but the pieces never seemed to fall into place,” Vaagen says. “Now that we’re here, it’s wonderful to see the transformation at the mill and what it will do for that community when it opens.”
Vaagen pointed out the deal will also benefit the company’s operations in Colville, Washington. Trees cut in British Columbia will be sawed and dried in Midway before being trucked about 70 miles to the Colville mill. There, they’ll be planed and turned into a finished product. “That will mean an additional 10 to 15 jobs for our Colville operation.”
Canada’s “State of the Forests” 2011 Report
From 2006 to 2009, the forest product sector’s share of Canada’s GDP dropped significantly, according to the 2011 State of the Forests released this week by Natural Resources Canada. In 2010, the forest product sector’s contribution to GDP showed signs of improvement from the record low in 2009, reaching 1.8 per cent or $22.6 billion.
This growth was caused in part by strong demand from Asian markets.
State of the Forests, Canada
After two consecutive years of losses, Canadian forest industry operating profits recovered to pre-crisis levels, reaching $2.2 billion in 2010, says the 2011 State of the Forests report by Natural Resources Canada. The return on capital employed also improved to 4.8 per cent, over the 20 year low of 0.1 per cent witnessed in 2009.
In 2010, direct employment in the Canadian forest industry fell 6.6 per cent from 2009 levels. Forest industry support activities had the steepest decline in employment, falling by 30.3 per cent. However, the wood product manufacturing sector, which has the largest share of employment in the Canadian forest industry at 48 per cent, lost the most jobs with 11,100 fewer employees than in 2009. This represents a 9.4 per cent year-on-year drop.
In 2010, the value of Canada’s forest product exports increased to $26 billion from $23.6 billion in 2009, a 10 per cent rise. Exports to India and China have consistently grown since 1995, at 6 per cent and 15 per cent annually respectively.
The entire report can be found here .
US Pending Home Sales, Prices
Pending home sales dipped 1.2 per cent in August despite record-low mortgage rates and appealing house prices, a real estate trade group said Thursday.
Contract signings for existing homes declined to the lowest level in four months, data from the National Association of Realtors showed. The association’s Pending Home Sales Index fell to 88.6 in August from 89.7 in July and was at its lowest level since April’s 82.1 reading. The August reading was modestly higher than the year-ago month, when it stood at 82.3. The association’s index uses the historically healthy 2001 year as a baseline, which represents a 100 level.
US Real Estate Market
The index was mixed across regions. Pending home sales in the West continue to be better than any other region and were slightly higher than the US average in 2001, while sales in Northeast continue to lag and were disrupted by Hurricane Irene during the closing weekend of August.
At the end of June, 10.9 million US borrowers, or nearly 23 per cent of those with mortgages, owed more on their mortgages than their homes were worth, according to CoreLogic, a Santa Ana, CA, data analysis company. Another 2.4 million mortgage holders had less than 5 per cent equity in their properties.
Meanwhile, US home prices rose for a fourth consecutive month in July but remain down from last year, according to Standard & Poor’s Case-Shiller home-price indexes released Wednesday. Overall, the 20-city index rose 0.9 per cent in July from June. Adjusting for seasonal factors, however, the index was flat. A smaller index of 10 major cities also rose 0.9 per cent from June but fell 0.1 per cent when seasonal factors were included. Year-to-year, unadjusted July prices fell 3.7 per cent for the 10 major markets while the 20-city index was down 4.1 per cent.
Home prices rose in July from June in 17 of the 20 major US metropolitan markets included in the monthly survey, led by 3.8 per cent growth in Detroit. Las Vegas and Phoenix saw declines of 0.2 per cent and 0.1 per cent, respectively.
However, with the exception of Detroit and Washington, prices were down year-to-year.
Mortgage applications in the US jumped 9.3 per cent over the last week and almost 2 per cent during the last four weeks, according to a recent survey by the Mortgage Bankers Association.
In related news, A federal watchdog said Freddie Mac may have given up opportunities to recover billions of dollars in claims over defaulted mortgages and suggested that a January settlement with Bank of America to resolve US$1.3 billion in bad-loan claims was inadequate.
The report is to be released Tuesday by the inspector general for the Federal Housing Finance Agency, which regulates Freddie Mac and its larger cousin, Fannie Mae.
October 03, 2011
India Lumber Imports
Since India removed arbitrary phytosanitary restrictions on Canada’s wood products imports at the beginning of 2011, the meteoric increase in exports of Canadian lumber to that country has been exciting to watch. Just as with China in 2006, the volumes are currently low. The question in many peoples’ minds is: Will North American wood exports to India grow at a similar pace as those going to China have in the past couple of years?
Please refer to the June 24, 2011 issue of your Madison’s Lumber Reporter for historical data on India’s imports of Canadian and US wood products.
There are several characteristics specific to the use of wood in India which differ greatly from that of North America and of China. There are also significant infrastructure challenges in moving product from the ports to customers far inland. However knowledgeable sources say the appetite for a stable supply of good quality wood far outweighs domestic challenges within India. The most important thing to keep in mind is that customers in India are interested in higher-value products than those in China, as demonstrated by figures provided below.
From Canada
At the Council of Forest Industries annual convention in Prince George, BC, September 15 and 16, two representatives from Ace Global Consulting presented their report, commissioned by Forestry Innovation Investment and the Forest Products Association of Canada, titled “Opportunities for Canada in India’s Wood, Pulp & Paper Sectors”.
The report authors, S. Divvaakar and P. Agrawal, explain that there is not a culture of building with wood in India, except in some regions in the south, and there has not been much investment in wood technology. To date there is a focus on large numbers of very small producers, and on artisan manufacturing of wood products. While Canada currently has an “insignificant share” of sawn wood imports into India, that volume is on track to increase by sevenfold in 2011/12. The value of Canadian sawn wood imports into India rose from US$300,000 in 2008/09 to US$1.1 million in 2009/10.
As pointed out by Madison’s in the issue cited above, there are remarkable opportunities for North America’s wood products industry to work out problems in India’s supply chain. Once again the figures are startling, Ace Global found that the average price for wood products at the port in India is US$160 per cubic metre, but once that same product reaches its final destination deep inland the price has gone up to an average of US$700 per cubic metre.
India uses 22.1 million cubic metres of wood annually for the building and construction sector, with about half of that volume going into joinery, according to the Ace Global report. 2.2 million cubic metres of softwood are consumed annually, mainly using Radiata Pine and mostly used for shutters and scaffolding. India consumes 50.9 million cubic metres in manufactured wood applications annually, with about one-third of that — or 18.9 million cubic metres — used for various panel products and for boards.
More than 50 per cent of India’s wood consumption is of hardwoods, but India pays well for good quality wood, according to the Ace Global Report. In short, there will be no benefit in looking at the low grade segment of softwoods.
Taking a look at growth, British Columbia sent 12,000 cubic metres of softwood to India in all of 2010, compared to 28,000 cubic metres from January to May 2011, according to Forestry Innovation Investment. Anyone agonizing over the small numbers would do well to remember that BC sent just 400,000 cubic metres of softwood lumber to China in 2006, compared to 1.2 million cubic metres in 2008 and 2.8 million cubic metres from January to May 2011. Such growth of exports to India can be expected over a similar time period.
Put another way, Canada exported $3.7 million in wood products to India in 2010, and $714 million to China, according to Statistics Canada. From January to July 2011 India received $7 million in wood products from Canada, a 335 per cent increase over January to July 2010. China received $698 million, a 136 per cent increase over the same time period in 2010.
A closer examination of this data shows an important aspect; the total value of Canadian softwood lumber exports to India greatly exceed those to China, in terms of volume. From January to May 2011, the value of BC lumber exports to India increased by 83.1 per cent, from $866,000 in the first five months of 2010 to $5.1 million for the same time period in 2011, according to Forestry Innovation Investment. In comparison, the value of BC lumber exports to China increased by 60.1 per cent, from $181.2 million to $454 million.
The increase in value of wood products exported to India is much more impressive than the already dramatic increase in volume.
At the Pulp and Paper Products Council conference in May, another forestry representative from India, this time from the pulp and paper sector, presented equally stunning data on the growth of industry in that country. Y. Agarwal of BILT Paper said that India has a US$304 billion forest base.
“There might be more people than trees in India,” explained Agarwal. “Sourcing fibre is a challenge.”
In 2011 India used 8 million tonnes of wood for paper production, which is expected to rise to 12 million by 2013.
“At US$122 per tonne the price of pulp wood in India is not the worst but isn’t good. The average distance wood travels to the pulp mill is 2,000 kilometres,” detailed Agarwal.
An audible gasp spread through the room at this statement.
Both sources mentioned higher cargo charges from Canada to India compared to China, and noted that somehow the prices of softwood lumber in India manage to be competitive. It is supply chain solutions for freight that will provide Canadian lumber exporters to India with the largest profit margins.
Madison’s Timber Preview
This week’s issue of Madison’s Timber Preview reports on presentations at the annual Who Will Own the Forests? timberland investment summit in Portland, OR.
As a special bonus, Madison’s Lumber Reporter subscribers will this week receive a free sample copy of Timber Preview.
Contact us any time for a subscription.
Uncoated Freesheet Inventory
The Pulp and Paper Products Council Friday released uncoated freesheet industry statistics that reveal higher operating rates and continued low inventories.
Deutsche Bank Equity Research said Wednesday that preliminary printing and writing paper shipments for August dropped 2.6 per cent for uncoated freesheet compared to one year ago, declined 3.1 per cent on coated freesheet, and fell 5.6 per cent for lightweight coated freesheet compared to one year ago.
Deutsche Bank estimated September offset prices fell by US$5 per ton to US$930-950 per ton. Preliminary August shipments fell 2.6 per cent compared to the same time last year.
US Housing Starts, Home Sales
US housing starts fell 5 per cent in August compared to July, according to Commerce Department data out Tuesday. Ground-breaking on new home construction fell to a seasonally adjusted annual rate of 571,000 units in August. Starts dropped in two of four regions, with the South joining the Northeast in decline.
On the upside, building permits, a leading indicator for future construction, rose 3.2 per cent in August.
Home Sales, US
Meanwhile, existing home sales in the US rose more than expected in August to the fastest annual pace since March, as falling prices and low interest rates drew more buyers into the market, the National Association of Realtors said Wednesday.
Sales climbed 7.7 per cent from the previous month to an annual rate of 5.03 million units, the group said. The median price was 5.1 per cent lower than a year earlier.
The Association said the increase in sales came despite some disruptions from Hurricane Irene, which battered much of the East Coast at the end of the month.
Regionally, sales of existing homes increased in all four regions, with the nearly 19 per cent jump in the West as the largest gain. From a year ago, sales of existing single-family homes have posted double-digit gains in July and August, coming off a very low base last year.
The median price of a single-family existing home fell 1.1 per cent to US$168,400 from a month ago, Federal Housing Finance Agency said in a report Thursday. On a year ago basis, the median price of an existing single-family home dropped 5.5 per cent.
Home prices in July fell the most in the region that includes Nevada and Arizona, slumping 6.9 percent from a year earlier, the FHFA said. They decreased 6.7 percent in the area that includes California.
As long as distressed properties makeup 30 per cent of existing home sales and the inventory of unsold homes is above the historical median and the labour market continues to show only tepid gains in hiring, prices of homes should continue to show a declining trend, according to Tainted Alpha.
The seasonally adjusted inventory of unsold existing single-family homes fell to 7.7-month supply in August from 8.7-month supply in the previous month. The median for the inventory-sales ratio is 7.3 month supply. The inventory-sales ratio is moving in the right direction, but it is not clear if the August improvement is a fleeting event or further declines are likely. Weak labour market conditions suggest that it most likely a one-off event.
A separate report showed applications for mortgages edged up last week on higher refinancing activity, but were held back by a lack of demand for purchases, according to the Mortgage Bankers Association.
One factor keeping home prices low is the high rate of “distressed sales,” which include those forced by foreclosures. Distressed sales accounted for 31 per cent of August transactions, up from 29 per cent a month earlier.
Homebuilding companies have lost more than a quarter of their value this year as an oversupply of existing homes dilutes demand. New-home sales probably will drop to 307,000 this year, according to a Sept. 12 forecast by Mortgage Bankers Association in Washington. That would be the fewest in almost half a century of government data.
Typhoon Number 12, Japan
In the first week of September a major typhoon hit Japan’s Kii Peninsula, causing extensive damage to the timber and forest industry in Wakayama, Nara, and Mie prefectures, according to Japan Lumber Reports. The full extent of the damage is not yet known.
The torrential downpour caused landslides, resulting in severe infrastructure damage including destroyed bridges and cut off roads.
Japan Typhoon
Lumber producing and processing facilities in those regions are having trouble receiving raw materials and shipping finished products, says the Reports. Power failures and disruption to the water supply are making normal manufacturng production impossible.
Log auctions in Wakayam Prefecture are scheduled to resume shortly, although expectations are that available log volumes will be low.
In general local sawmills carry a one-month log inventory, so if the supply chain problems continue much longer mills will have to look to outside sources for logs, according to the Reports.
Online Wood Network in BC
British Columbia is about to have its own online wood marketplace.
The creation of an interactive website designed to connect buyers and sellers of BC forest products will help BC Community Forest Association members, woodlot licensees, first nations tenures, private forest land owners and others to access up to date information on the availability of wood products for sale within BC’s forest communities.
Called “The Bridge Project”, it has another objective of identifying new log market opportunities in an effort to increase the value of wood to small tenure holders. It’s another step in supporting economically and socially sustainable rural BC communities, forest workers and their families.
The Bridges Project’s new website, WoodSourceBC.com will be available on October 3rd.