Lumber News Archives: Sept 2011

Council of Forest Industries ; Madison’s Investment Rx ; AbitibiBowater Fire in Thunder Bay ; Canadian Housing Starts ; Plywood Inventory, Japan ; Wayne Clogg to Retire from West Fraser Softwood Lumber Arbitration ; Madison’s Timber Preview ; Canada Building Permits, International Trade ; Wildfires Continue ; Ainsworth Lumber Management ;Construction in China ; Longhorn Beetle Found in Eastern Canada ; Alberta Forest Products Shipments ; US Mortgage Lawsuit ; Wildfire Season ; Venezuela Seizes Smufitt Land BC BioEconomy and Forestry ; Madison’s Timber Preview ; Watkins Sawmill Fire ; Canadian Manufacturing Production ; Construction Spending, US

September 27, 2011

Council of Forest Industries

It’s back! After a three year absence, COFI’s Annual Convention returned to Prince George, BC, September 15 and 16, 2011. The event, held at the Civic Centre in downtown Prince George, was chock full of lumber producers, wholesalers, service providers, and equipment suppliers. The convention was also well attended by politicians, with BC Premier Christy Clark opening the event.

Thursday’s presentations were split into two categories. The first session examined domestic Canadian and BC economic issues; and the second session covered international market conditions, specifically in Korea, Japan, and India. The afternoon presentations from the COFI convention will be covered in next week’s Madison’s Lumber Reporter. There was such a wealth of information provided to warrant splitting our coverage into two issues.

Annual Convention

In her fiery speech Clark made reference to a “soon to be announced jobs plan”, then offered a few details. The jobs plan will be unveiled by the Provincial government fully next week.

Jumping off from the “families first” government policy, Clark explained that the BC government will “build infrastructure to move goods [ . . . ], and open up new markets” for BC’s forest products and for other industries as well.

“In British Columbia we are going to create the most competitive environment for investment in North America. Our new jobs plan will focus on training the population, providing tax credits to businesses, and fiscal discipline. We will keep in mind the importance of fiscal fundamentals.”

Clark cited examples of economic troubles in Greece and the US as a lesson in what not to do when a government is faced with tough financial decisions. She then made a cheeky reference to NDP leader Adrian Dix and waited for the laughter to subside before offering a muted apology. Such political angling is always welcome at forestry events, and there were several television news cameras present to catch them.

Clark finished her speech by declaring “your government will lead the way for business and industry by getting out of the way.”
The first panel of the conference was chaired by Ken Shields of Conifex with panelists Minister of Jobs, Tourism and Innovation, Pat Bell; Patricia Mohr, Economics and Commodities VP at Scotia Bank Group; and Jock Finlayson of the Business Council of BC.

Pat Bell’s speech weighed heavily on general economic conditions. Perhaps in anticipation of BC’s next trade mission to China, which takes place this November, Bell spoke in some detail about China as a customer for BC wood products.

“In 2011, 37 to 38 per cent of BC’s lumber is going to the US, 35 per cent is going to China, and 10 per cent each is going domestically within Canada, to Japan, then distributed elsewhere around the globe. [ . . . ] In our first few trips to China we may have been asking the wrong question. Our intent now is to try to get BC factored in to China’s 12th Five Year Plan. When we go next to China our question will be: ‘How can we assist your goals and objectives with the products we produce?’”

Bell then suggested that a recovery to “1 million new homes build annually in the US is still five to seven years away.”
Other presenters had different expectations. One of those was Scotia Bank’s Patricia Mohr. In a presentation titled “China Leads the Revival in Lumber“, Mohr detailed China’s economic condition since the downturn of 2008/09.

“Since the global economic downturn, China’s growth has been in the double-digits,” explained Mohr. “If China’s economy slows much more, the government will release monetary tightening of the past few months.”

Madison’s sources within many forest products company have noted since spring that lumber demand from China dropped in large part due to suddenly limited access to credit.

Mohr continued, “As part of China’s new Five Year Plan, residential building activity will stay strong for the next year. There are 10 million new low-income apartments slated to be built in China for 2011, which the country is on-track to achieve, and 36 million low-income apartments in total planned for the next ten years. [ . . . ] China’s social housing construction will see a big increase in 2011 and in 2012. At the same time, however, there will be a decline in private building.”

In terms of the US, Mohr had a less glowing projection.

“We expect the US dollar, trade-weighted, to move lower. The dollar will be on a downward path over the next few months to boost the US economy. In 2011, the US government deficit-to-GDP ratio is at 4.7 per cent. [ . . . ] We see US housing starts at 580,000 to 600,000 for two more years, then up to 1 million starts in 2013.

“Currently 25 per cent of US mortgages exceed the home value. For five years the US was overbuilt. followed by another five years of underpinning. The Case-Schiller Home Index in 2011 has stabilized, but at a low rate.”

On an interesting side note, Mohr said that “gold has remonetized, and is heading higher.”

Business Council of BC Executive VP of Policy, Jock Finlayson, titled his presentation “Responding to Global Economic Forces“.

“The world economy is four times more dependent on trade than it was in 1950,” began Finlayson. “We are moving to an increasingly multi-polar economy. [ . . . ] Between 2007 and 2011 emerging markets have had approximately 25 per cent GDP growth, while the developed world has had between four and ten per cent. By 2015 the largest economy in the world will be China, with the US second, and India third.”

Finlayson continued once the loud murmurs of the room subsided, “This is due to a disparity of public finance trends. Public finance debt of emerging markets will fall at the same time as their economies grow. We are in for a protracted period of financial stress in the developed world. [ . . . ] In the US, business sectors not related to housing and construction are doing well, with lots of cash should they choose to use it. The US is suffering from painfully high levels of indebtedness and the job crisis is not improving. The underlying employment rate, if people who have stopped looking for work and people working only part-time are taken into account, is actually closer to 15 per cent. Currently there are three job seekers for every position available, a ratio not seen in 60 years.

“The latest figures show that US household net worth is down 20 per cent since 2006.”

There was time for only a couple of questions from the floor, one of which was about Canada’s relatively high corporate taxation rates.

In answer Jock Finlayson said, “There will be public sector retooling and retrenchment in Canada. There is a public finance crunch, as the government has to avoid going further into debt. However the situation in Canada is not as bad as in other advanced economies.”

Madison’s feels compelled to note an interesting sighting on the way back to Vancouver. Jobs Minister Pat Bell was on the same plane, as were the Japanese delegation, and one of the fellows who made the presentation about India. Incidentally, in one of those random occurrences that makes life interesting, BC Civil Liberties Association Director David Eby (who ran against BC Premier Christy Clark in a by-election after Gordon Campbell stepped down) was also on the plane. While waiting to board, Pat Bell mentioned to Madison’s a meeting slated for Monday morning in Prince Rupert, BC, and deliberated on which method of transportation to use to make the early-morning timetable without having to travel all night yet keeping in mind high travel costs. On arrival in Vancouver Madison’s was surprised to see Bell purchasing a ticket for the Skytrain, taking the Canada Line into downtown. “Come on Pat, where’s your limo!?,” Madison’s teased. It was difficult to resist the opportunity to take a photo of our Minister of Jobs, Tourism and Innovation with his $7.50 public transit ticket, but the cheesiness factor suppressed that urge.

Madison’s Investment Rx

This month’s issue of Madison’s Investment Rx has gone out to paying subscribers. Supply chain problems, log supply, depleted lumber inventories, and weather conditions regionally throughout North America are examined.

Contact us any time for a subscription.

AbitibiBowater Fire in Thunder Bay

A structural fire in AbitibiBowater’s No. 5 paper machine sent five people to hospital on Monday night. Four people were treated for smoke inhalation while a fifth suffered a blow to the head on a piece of equipment as mill staff knocked the fire down.

The call came in around 11:15 pm on Monday night. Thunder Bay Fire and Rescue arrived on scene to deal with spot fires that kept popping up in different sections of a ventilation system. A thermal imaging camera was used to check for any remaining hot spots once the fire was out.

Three pumpers, a command unit and 14 firefighters responded to the incident.

Canadian Housing Starts

The pace of home construction in Canada slowed last month as builders started work on fewer condominiums and apartments, Canada Mortgage and Housing Corp. said September 9. Housing starts in August fell to a seasonally adjusted annual rate of 184,700 units — down from 204,500 in July.

The seasonally adjusted annual rate of urban starts decreased by 10.2 per cent to 165,800 units in August. Multiple urban starts were down by 15.5 per cent to 101,400 units, while urban single starts decreased by 0.3 per cent in August to 64,400 units.

Housing Starts, Canada

Canada housing starts in urban areas dropped 10.2 per cent to 165,800 units — mostly due to fewer multiple-dwelling starts. Multiple urban starts fell 15.5 per cent to 101,400 units, while urban single starts decreased by 0.3 per cent in August to 64,400 units.

Rural starts were estimated at a seasonally adjusted annual rate of 18,900 units in August, down from 19,900 in July.

The actual number of housing starts of all types in August was 16,464 across the country — down from 17,111 in August 2010.
However despite the drop, BMO economist Robert Kavcic noted that residential construction is still running at “a healthy clip” with the average for 2011 down only fractionally from the robust pace set in 2010.

“Canadian housing has performed much better than expected this year, no doubt helped by still-low interest rates and firm (but moderating) job growth,” Kavcic wrote in a note to clients.

“Looking past the dip in August starts, the bigger picture is that Canadian housing remains quite healthy.”

Plywood Inventory, Japan

On August 25, Japan’s Forestry Agency held a conference to exchange information with related bodies on the supply-and-demand situation of plywood in Japan following the Great East Japan Earthquake and Tsunami, according to the Japan Lumber Journal.

The Japan Plywood Manufacturers Association, Japan Plywood Wholesalers Association, Japan Lumber Importers’ Association, Japan Wood-Products Information and Research Centre, Japan Federation of Wood-Industry Associations, National Federation of Wood Material Production Industry Cooperative Associations, and Japan Printed and Colored Plywood Manufacturers Association all participated in the conference.

Japan Plywood Situation

The Journal quotes various participants:

• On the supply side, we are trying to return the production to what it was before the disaster as soon as possible. Quake-stricken plywood factories have restarted part of their production lines.

• On the demand side, we are expecting the demand after the autumn will increase because housing starts in the last three months showed year-on-year increase.

• Imports of plywood, after having reached a peak in May, began to drop, and are expected to decrease further in August and September. With sufficient stocks, the volume is estimated to be around the usual amount (between 200,000 and 300,000 cubic metres per month).

Wayne Clogg to Retire from West Fraser

Senior Vice-President of Woodlands, Wayne Clogg, has announced his intention to retire at the end of 2011.

Clogg joined the Company in 1980 and has served West Fraser in a number of senior management roles including, most recently, having overall responsibility for woodlands and fibre management for the Company.

September 18, 2011

Softwood Lumber Arbitration

It was with trepidation that Madison’s this week opened the newly-released expert witness report to the latest US-launched arbitration under the 2006 Softwood Lumber Agreement by Jonathan Neuberger of San Francisco, CA-based Economists Incorporated. The 91 page document explains the current US claim against Canada, specifically in terms of British Columbia’s timber harvest practices.

Reading through the details, Madison’s understood that Canada must draft an equally strong defense. Without such a detailed written case in its favour, the lumber producers of BC that ship into the US will most likely be paying the extremely punitive additional duty requested by the US in its Statement of Case.

Please refer to the August 26 issue of your Madison’s Lumber Reporter for a summary of the US claim.

Expert Witness

As explained in our previous coverage of this subject, the US claims that alleged changes to the BC timber pricing system in spring 2007 are not grandfathered into the SLA. The scope of these allegations are expanded upon in Neuberger’s report.

The full report can be found on the Office of the US Trade Representative’s website here

In that report released this week,Neuberger states in his Summary of Opinions on page 4, “I considered the possibility that the increase in Grade 4 was largely due to the MPB epidemic. I found evidence of significant misgrading even after considering the effect of the MPB epidemic. [ . . . ] any loss in the quantity and value of lumber caused by the MPB is not large enough to explain the significant increases in the amount of logs assigned to Grade 4.”

Neuberger found that in the first year of the new grading system, put into place in April 2006 and grandfathered into the SLA, the actual average share of logs assigned to Grade 4 was 17.8 per cent. Neuberger deems this to be a “reasonable benchmark”. Referencing BC government data on the timber harvest and stumpage rates, Neuberger found that after the grading change in spring 2007, “the volume of Grade 4 logs rose first into the 20-35 per cent range for the remainder of 2007, then into the 35-60 per cent range for 2008, peaking at almost 66 per cent in 2009, before falling slightly in 2010.”

On Page 28 Neuberger points out, “The relevant question is what caused the Grade 4 percentage eligible for the C$0.25 rate under the new grading system to rise over the next three years to virtually the same level as the combined Grades 3/4/5 percentage (that also received the C$0.25 rate) under the old grading system.”

On the Canadian side, both federal and British Columbian provincial politicians have repeatedly stated that the rate of harvest for Grade 4, or beetle-kill, timber has increased because there is a need to remove as much of the dead trees before the wood degrades beyond use for merchantable lumber.

In response to Canada’s defense, the Office of the US Trade Representative states that a huge proportion of this discounted-stumpage timber was indeed used for merchantable lumber, therefore charging the salvage rate of C$0.25 amounts to a government subsidy to BC lumber producers.

Citing four mill studies carried out by Forintek in 2007/2008, Neuberger maintains there was misgrading of logs as Grade 4 because, “if lumber recovery and value were significantly lower in Grade 4 logs, the Prince George test should indicate a much higher grey-stage loss than the Quesnel test.”

The response to the US Claim from Canada so far has been that sawmills in the worst of the pine beetle-devastated areas have upgraded equipment and processing in order to make better use of dry, grey, beetle-kill logs. It seems the brunt of the US claim relies on data which indicates that, in those circumstances, the logs did not meet the 50/50 rule and should not have been valued at the $0.25 salvage rates.

Neuberger next cites a later study by a private company updating the Forintek data, which found “the merchantable shares of the lumber produced at different attack levels were: green no attack, 87 per cent; four-year grey-attack, 80 per cent; eight-year grey-attack, 73 per cent, and 12-year grey-attack, 67 per cent.” Neuberger comes to the conclusion that “These relatively small decreases in lumber recovery and lumber grade recovery factors, reflecting significant shelf-life of MPB logs, are inconsistent with a multi-fold increase in Grade 4 starting in early 2007.”

Neuberger’s assessments are flawed when it comes to the lumber market. On page 25 he goes into some detail on lumber shipments and prices, and the narrowing difference between the price of WSPF KD 2×4 #2&Btr and #3/Utilty. Using a regression with the natural logarithm, Neuberger claims that “The coefficient for the share of exports that went to China was statistically insignificant, and the coefficient on the time trend variable was statistically significant and negative, which indicates that even after holding constant the effect of increased demand from China, this price spread was declining.”

This is too simplistic an assesment. In 2008 the volume of BC lumber shipments to China could be considered ‘statistically insignificant’ when compared to its shipments to the US, especially in view of exponentially-rising 2011 export volumes to China. However the realities of establishing a new market and customer base can not be ignored. Certainly BC producers, faced with the steady decline of demand from the US, would have offered deals and temporary discounts on the first shipments of wood going to China. It is only lumber shipments going from Canada to the US that are subject to and monitored under the SLA. There are market factors at play beyond simple export figures which should not be ignored.

Another potentially conflicted aspect of Neuberger’s report is the comparison between BC and Alberta of the average unit value of exports of lumber to the US. It will be interesting to see what reasoning the Canadian side will use to refute Neuberger’s statement that “the value of lumber from BC did not decline relative to the value of lumber from Alberta, consistent with the view that the quality of lumber in BC did not fall as the Grade 4 share rose.”

At its essence the Neuberger report, and the US claim, centre on the timing of changes to BC’s timber pricing structure, bringing up questions of what conditions precisely were grandfathered into the 2006 Softwood Lumber Agreement and when. In the Neugerger document, assertions and arguments are heaped on each other for pages on end. Structurally, the report moves on to other subjects then returns to a topic previously discussed. Unravelling the repetition and weeding out extraneous claims (including accusations of ‘cooking’ or kiln-drying logs to force more cracks than would naturally appear in order to qualify as Grade 4) reveals a fairly tight, but not insurmountable, case.

An equal amount of diligence must be pursued by the Canadian defense. For example, applying alternate logarithms, and a more accurate description of timber harvest practices than simply looking at government figures on harvest levels and stumpage rates.
There is more going on in the woods than can be revealed on paper, or in a spreadsheet.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the latest moves by Conifex Timber, including a new deal to purchase the lumber sales business of Welco Lumber and the transportation and logistics operations of Navcor Transportation Services, both long-standing contracts of Conifex.

Contact us any time for a subscription.

Canada Building Permits, International Trade

The value of Canadian building permits jumped by 6.3 per cent to $7 billion in July, matching a record set in May, 2007, Statistics Canada said Thursday.

Residential permits rose by 14.6 per cent to $4.3 billion, the third consecutive monthly gain, on an increase in multiple-family dwellings. Much of the strength was accounted for by Ontario.

Non-residential permits slipped by 4.5 per cent to $2.7 billion on a 40.1 per-cent drop in the value of the industrial component. The overall value of all permits was 11.6 per cent higher than in July, 2010.

Building Permits, Trade, Canada

A separate report from Statistics Canada revealed that new house prices continued to edge higher in July.

The agency’s New Housing Price Index rose 0.1 per cent in July, following a 0.3 per cent advance in June. The metropolitan region of Toronto and Oshawa was the top contributor to the increase in July.

In other news, Canada’s merchandise exports rose 2.2 per cent and imports edged up 0.5 per cent in July. As a result, Canada’s trade deficit with the world narrowed from $1.4 billion in June to $753 million in July.

Exports increased to $37.3 billion, as volumes rose in most sectors. Overall, volumes rose 4.1 per cent, while prices declined 1.9 per cent. Machinery and equipment, automotive products, and industrial goods and materials were the main contributors to the gain in the value of exports.

Imports grew slightly to $38 billion as prices increased 0.9 per cent and volumes decreased 0.4 per cent. In July, imports from Japan surpassed $800 million, a level similar to those observed prior to the earthquake and tsunami in March.

Wildfires Continue

A 20 hectare fire near Kelowna, BC, which forced the evacuation of 550 homes, was extinguished earlier this week.
Meanwhile stubborn fires continue to rage across drought-stricken Texas. Some 1,386 homes have been destroyed over 34,038 acres in the Bastrop County Complex fire. County officials said the nearly 850 firefighters battling a blaze near Austin continue to make progress in containing the historic fire.
As of Thursday the fire was more than 30 per cent contained.

More Wildfires

More than 3.6 million acres in Texas have been scorched by wildfires since November, fed by a continuing drought that has caused in excess of US$5 billion in damage to the state’s agricultural industry and that shows no sign of easing.

In the past seven days the Texas Forest Service has responded to 186 fires burning some 156,517 acres across the state.
Firefighters are battling massive blazes in Montgomery County, north of Houston, and Cass County, northeast of Dallas near Texarkana.

The Houston-area blaze has scorched more than 15,000 acres and destroyed 75 homes. It is about 60 per cent contained, according to the Texas Forest Service.

The Bear Creek fire in northeast Texas has burned anywhere from 25,000 to 40,000 acres, and state forest officials did not have a containment figure on Friday morning.

Elsewhere, heavy smoke hung in the air Friday over Goldendale, in Washington State, where a wildfire has charred more than 8 square miles, or 5,300 acres, and forced the evacuation of about 75 homes.

Washington is experiencing an especially late start to its fire season following a winter with heavy snows and a cool spring.
On the Olympic Peninsula, fire managers on Friday expect that they’ll be able to contain a wildfire that started August 31 in a wilderness area near Brinnon.

In Montana numerous wildfires ringing the Bitterroot Valley are being coaxed on by a stubborn high-pressure system that has brought unseasonably warm temperatures and low humidity levels, prompting local health officials to urge residents to be aware of the air they breathe.

The 4,558-acre Up Top fire continued to burn actively on both sides of the Skalkaho Highway in Montana on Thursday.

Japan Housing Starts

New home building in Japan rose considerably in July, according to the Japan Lumber Reports. Total housing starts were 83,398 units, a 21.2 per cent increase over one year ago.

Seasonally adjusted starts were at 955,000, a 16.9 per cent increase over June and the highest level since December 2008.
Construction interrupted by the East Japan earthquake in March has finally resumed at normal levels as builders rushed to meet the government-sponsored housing eco point system, which expired on July 31.

Housing Starts, Japan

Japan’s new owner’s unit starts in July were 32,382 which is the highest level in almost three years, says the Reports.

Rental units also reached a record high of the past two and a half years, at 30,464 units. Condominium building continued as the largest type of new construction in Japan with a 79.6 per cent increase compared to one year ago.

New wood-based units rose by 20.3 per cent, with a 55.7 per cent share of all new construction.

Ainsworth Lumber Management

Ainsworth Lumber Co. Friday announced the appointment of Jim Lake, currently VP, Operations as President and COO, after President and CEO Richard Huff announced his retirement today.

Lake would report directly to the board of directors.

Jim Lake joined Ainsworth in June 2010 and since that time has led a significant improvement in operating performance at the Company’s mills. When he joined the Company, he brought over 25 years of industry experience having held the position of VP Operations at Grant Forest Products and prior to that, VP Manufacturing at Louisiana Pacific Corp.

September 11, 2011

Construction in China

Troubling signs out of China’s booming construction industry this week might point to a slow down in new building projects in that country. Tightening credit opportunities and restrictions on access to funding have already manifested as lower demand by China’s importers of wood products from North America. China has expanded its property control measures this year, raising down-payment requirements and mortgage rates to ease gains in home prices. The government said last month it will rein in residential prices in smaller cities.
China’s huge land mass and ballooning population make sizable regional differences in both new construction and property ownership trends.

Home Ownership

The Asian Development Bank released a report in early August titled “Asia 2050: Realizing the Asian Century“, which found that China, already the second largest economy in the world, is set to overtake the US economy by 2020. If China’s growth continues as expected, 75 per cent of that population will qualify as middle class by 2030, the ADB report says.

Chinese Premier Wen Jiabao said in a Qiushi magazine, an official publication of the ruling Communist Party, essay this week that the nation needs to focus efforts on curbing housing price gains in second- and third-tier cities.
“We must unswervingly curb irrational housing demand, continue to strictly implement differential housing loans, tax policies and restriction on purchases,” Wen wrote.

However, China “must not slacken” on its plan to build affordable housing, Wen said in the article, adding the government will increase monitoring of those cities that fall behind in construction of these cheaper homes.

China will expand its efforts to curb price gains in smaller cities after limiting home purchases in Beijing and Shanghai, according to a July 14 summary of a State Council meeting chaired by Wen. The government said so-called second and third-tier cities which have seen excessive price gains should restrict the number of homes each family is allowed to buy, according to the State Council.

In 2008, Beijing helped support a faltering global economy by unleashing a wave of bank lending that fuelled China’s construction industry – and commodity exporters everywhere. Now, with global markets buckling under concerns of a double-dip recession in the US and sovereign-debt woes in Europe, China’s high inflation means it can’t perform a similar trick without watching prices shoot up further.

Lu Qilin, an analyst at Shanghai Deovolente Realty said to the Shanghai Daily Wednesday “It is time to take action when speculators, who are barred by the housing purchase restrictions in metropolises like Beijing and Shanghai, have been going to smaller cities.”

“Although Taizhou’s economy has grown rapidly, which supported rising property prices, the large inflow of speculative funds will easily create a dangerous bubble,” Beijing News reported. It added that the newly-enacted policy in Taizhou may curb rising prices.

In July, only 14 out of 70 cities saw a fall in property prices, and growth spiked in second- and third-tier cities.
Some analysts were worried that local governments in second-tier cities may be reluctant to use such curbs for fear of hurting their property sector, which drives their economies, according to Shanghai Daily.

In a bid to cool down real estate speculation, national officials are building a database, to be shared among 40 cities, where information about property ownership will be readily accessible.

“The shared database will involve two procedures,” an official from the Ministry of Housing and Urban-Rural Development told the Beijing Times on Sunday. “First, records about properties and their ownership would be sorted out and put into the database. Then information about earlier sales of properties will go online.”

The database will reveal when people buy several properties in some of these 40 cities. Analysis of these records will show the money flow from one city to another, thus helping the authorities to supervise more closely the housing market in different areas and reduce speculation.

The regulation stipulated that families that planned to buy houses should apply for a properties check from the authorities, and they should have records of personal income tax or social insurance paid in the city for at least one year out of the previous two years.

More than 20 second- and third-tier cities have decided to impose purchase limits and more cities are likely to follow them. The whole process will be finished by the end of August and local governments may release their regulations in September.

With many low-income residents still lacking adequate shelter, experts say the government should focus on welfare housing projects in its effort to address the country’s out-of-whack housing market.

The Central Government has vowed to build a total of 36 million welfare apartments within the next five years.

Taken regionally, some areas of China — such as Ordos, a city with a population of less than 2 million, in the province of Inner Mongolia — are seeing continued long term spikes in investment and construction.

Cranes and construction projects are everywhere. Tens of thousands of homes have been built since 2006 that are snapped up as soon as they are launched, according to Asia Channel News Tuesday. It’s said that some of the rich buy property by the blocks, while waiting for the price to appreciate, but the homes have been left empty. Indeed, price per square metre has risen to more than US$1,000, from US$300 five years ago.

The millionaires or billionaires who have gone rich overnight have turned to investing in property as a way to store cash, stockpiling on empty units. But locals are optimistic that the occupancy rate will rise, as soon as amenities such as hospitals and schools are completed, says Asia Channel News.

Stephen Joske, director of the Economist Intelligence Unit’s China Regional Forecasting Service, said Wednesday to Abu Dhabi’s The National, “It is an urbanization that got ahead of itself”. He added that vacancy rates in many of the areas of urban China he has studied are above 20 per cent.

Longhorn Beetle Found in Eastern Canada

The beetle that decimated Halifax’s Point Pleasant park has appeared in New Brunswick, but a Nova Scotia forestry expert says the bug could pose more of a threat to trade than to trees. The Canadian Food Inspection Agency has confirmed the presence of the Brown Spruce Longhorn Beetle near a campground within the Kouchibouguac National Park in New Brunswick. This is the first find of that beetle in New Brunswick, and the first outside of Nova Scotia. It is suspected that the pest was transported to New Brunswick on firewood.

The beetle, which first landed in Halifax, NS, from Europe a decade ago, has a very “sporadic” spread, Andrew Fedora, executive director of the Federation of Nova Scotia Woodland Owners, and relies on humans to get anywhere, often hitching a ride on untreated firewood.

But Ken Hardie of the New Brunswick Federation of Woodlot Owners said there’s no reason to panic.

“It’s a bug in a trap,” Hardie said, pointing out there are hundreds of traps to monitor for new species in New Brunswick. “There’s no harvesting that takes place in parks,” Hardie said, noting that a quarantine of the area shouldn’t affect woodlot owners.

Alberta Forest Products Shipments

Shipments of lumber, panelboard, pulp, and paper manufactured by Alberta Forest Products Association-member companies totalled approximately $550 million for 2Q 2011, representing a 7.3 per cent decrease, or $43 million, from 2Q 2010, and down $25 million, or 4.4 per cent, from 1Q 2011.

Lumber Shipments,

Alberta Forest Products Association-member companies shipped 730 million mfbm in lumber products between April and June 2011 with a value of $168.6 million. Part of this production came from the secondary manufacturing sector. Total shipments were up 3.2 million mfbm, or 0.4 per cent, from 2Q 2010, but weaker prices caused values to slip $28.1 million, or 14.3 per cent. Compared to 1Q 2011, lumber shipments were up by 73.5 million mfbm, or 11.2 per cent, but values decreased by $23.6 million, or 12.3 per cent.

AFPA-member panelboard operators produced 302.5 million square feet of 7/16 inch equivalent product in 2Q 2011 valued at $68.6 million. Production was up 7.8 million square feet, or 2.7 per cent, but value decreased $26.9 million, or 28.2% per cent, compared to 2Q 2010. When looking at 2Q 2011 versus 1Q 2011, panelboard production was up 17.4 million square feet, or 6.1 per cent, and value declined $0.9 million, or 1.3 per cent.

US Mortgage Lawsuit

The Federal Housing Finance Agency, which represents mortgage giants Fannie Mae and Freddie Mac, is getting ready to file lawsuits against “more than a dozen big banks” saying they misrepresented the safety of mortgage-backed securities that led to billions in losses. The suits could come as early as Friday and no later than Tuesday, “shortly before a deadline expires for the housing agency to file claims,” reported the New York Times Friday morning. The suits are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

Mortgage Lawsuit, US

The suits stem from subpoenas the finance agency issued to banks a year ago. The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than US$30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least US$900 million.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least US$20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a US$10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities AIG bought.

Wildfire Season

Hurricane Irene performed the useful service of a 90 per cent dousing of the stubborn wildfire in Virginia’s Great Dismal Swamp, while firefighters this week managed to get most of the wildfires burning in southern California under control.
Other US states continue to battle smaller blazes.

North America Wildfires

The Toquerville Falls Wildfire, in southwestern Utah, had blackened 207 acres of grass, mixed brush, pinyon and juniper trees and was 30 per cent contained as of Friday morning, said Nick Howell of the Color Country Fire Management Office.

Raging wildfires in northern Texas had burned about 6,200 acres of land by Friday morning, aided by strong winds and high temperatures earlier in the week. The blaze has so far destroyed at least 39 homes and nine recreational vehicles and is only partially contained, Tom Berglund, an officer with the Lone Star Incident Management Team said Friday morning.

In Oklahoma fires have also destroyed dozens of homes and up to 4,000 acres, Oklahoma City fire Deputy Chief Marc Woodard said also Friday.

Venezuela Seizes Smufitt Land

In a bid to double the amount of Venezuelan land under cultivation, President Hugo Chavez has nationalized large swaths of Venezuela’s economy, including much of its vital oil sector.

Thursday Chavez ordered the removal of Irish cardboard maker Smurfit Kappa Group from all its farm land in the agricultural state of Portuguesa.

Chavez seized 1,500 hectares of land from the Dublin-based paper products company in 2009, claiming that Smurfit’s eucalyptus plantations have dried sources of water for irrigation in Portuguesa that should be used to grow vegetables.

Agriculture Minister Juan Carlos Loyo said Smurfit still operates on about 12,000 hectares, or 29,640 acres, of land between the central plains states of Portuguesa and Lara.

Smurfit Kappa, which is Europe’s biggest maker of cardboard boxes, counts the South American country as one of it’s smallest markets, generating about 4 per cent of its €6.7 billion in revenues last year for the company.

September 06, 2011

BioEconomy and Forestry

The term ‘bioeconomy’ refers to the conversion of biomass such as trees and agriculture products into bioenergy, biochemicals and biomaterials, and has far-reaching applications in the health and chemical sectors. The emergence of an international bioeconomy reflects a growing market demand for products that are sustainable and come from natural renewable resources.

British Columbia

A newly formed committee of BC’s Members of the Legislative Assembly will focus on ways to expand the province’s bioeconomy to support job creation and economic growth. The group, chaired by John Yap, Liberal MLA for Richmond-Steveston and Parliamentary Secretary for clean technology, will establish guidelines to support growth in the sector. The committee of MLAs includes Parksville-Qualicum Liberal Ron Cantelon, Bob Simpson, Independent, Cariboo North, Liberal Eric Foster of the Vernon-Monashee riding, and Nechako Lakes Liberal John Rustad.

In mid-2007 BC boasted approximately 100 biopharmaceutical companies employing more than 2,600 people, according to the San Diego Business Journal. Biotechnology was also being used to enhance the competitive position of traditional forest- and agriculture-based industries, including aquaculture.

A biotechnology survey released last week by Scientific American found that Canada ranked behind only the United States and Singapore in terms of the foundation for biotechnology. The survey examined intellectual property production and activity, biotechnology innovation intensity, enterprise support, educational and workforce strength, and general economic foundations.

The survey also found that the government of Ontario has demonstrated its commitment to fostering a bio-economy through a wide range of program initiatives. Quebec has been very effective in developing and sustaining policy initiatives that have attracted an enhanced level of biopharmaceutical research and development activities. Saskatchewan is recognized as one of the world’s leading agriculture-biotech research centres, and BC has been the home of some of Canada’s greatest commercial success in biotechnology.

One BC group working hard in this sector is Genome BC, which this winter celebrated ten years of research to create significant social and economic benefits for the province. Genome BC has attracted over 100 major international co-funders and partner organizations, managing a total research portfolio of over $425 million, with a mandate that includes combatting the mountain pine beetle’s devastation of BC’s forests, utilizing the sunflower and beetle-killed wood as alternative fuel sources, and more.

Please refer to the September 11, 2009 issue of your Madison’s Lumber Reporter for details on Genome BC’s work on forestry genomics.

BioEconomy committee member Bob Simpson explained to Madison’s in a phone interview Thursday that BC is dabbling in bioenergy as part of the province’s economy.

“This spring FPInnovations released its final report on Canada’s biopathways, and PricewaterhouseCoopers released a subsequent report. Both agencies came to the same conclusion: the emerging bioeconomy is currently on the cusp of becoming a real economy, and Canada is not well positioned globally to capitalize on its bioeconomic potential.

“Both studies found that BC’s bioeconomy could generate $200 billion in global revenue annually, which is four times what the province’s forest products’ industry currently generates,” added Simpson.

It seems that while BC, and other Canadian provinces, have made strides in the bio sectors, a lot more work could be done for a lot more benefit.

“BC is in a position to be the best in this field, to take a lead,” continued Simpson. “This is because the provincial government owns and manages the forests, and there are large fibre sources available for products in the wake of the mountain pine beetle infestation and with the amount of Hemlock on the coast.

“In June we drafted some fundamental Terms of Reference, as preliminary guidelines. We have met with the forest industry, with FPInnovations and with COFI, and we intend to deliver a detailed plan in October.”

Simpson explained that BC’s forest industry groups have been very interested in discussions of fibre supply, as there is a concern about timber being diverted to energy production rather than for making lumber.

“As a business model for the bioeconomy, generating energy is last. First is extracted as much solid wood, panel, engineered word, and nano-technology — specifically biochemicals — then finally we turn to energy production,” concluded Simpson.

Madison’s will follow up on this story as it develops.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the quickly burgeoning market for cross-laminated timber and its use in taller wood structures, as well as looking at North American lumber producers best able to step into this growing sector.

Contact us any time for a subscription.

Watkins Sawmill Fire

Emergency crews were called to massive blaze that broke out August 19 at Watkins Sawmill Maple Ridge, BC. Firefighting crews spent two hours getting the fire under control, sending tanker trucks to fill up with water in Mission.

Abbotsford fire fighters were called to cover the Maple Ridge area while local crews worked to extinguish the fire.

The mill, a family owned business that produces cedar shakes and shingles, only operates from Monday to Thursday, so no one was injured, an employee said.

According to Maple Ridge fire chief Peter Grootendorst there was also a significant potential for environmental hazard with this fire. One of the buildings housed 80,000 litres of oil-based stain and solvents. But cooperation between Ministry of Environment, public works, firefighters, and search and rescue crews is credited with preventing contamination of the neighbouring Stave River, Grootendorst explained.

With the building reduced to nothing more than charred rubble and scorched sheets of deformed metal, the family has yet to decide the future of their plant.

Canadian Manufacturing Production

The struggles in the US housing market and slowdown in the Canadian market will reduce growth in the wood products manufacturing industry this year, according to a report released Thursday by the Conference Board of Canada in association with the Business Development Bank of Canada.

Stronger annual growth is expected beginning in 2012, as North American markets rebound and the industry continues to make inroads into new export markets such as China.

Manufacturing Production, Canada

The value of Canada’s wood products sector should hit $10.5 billion in 2011 and rise to $13 billion by 2015.

The Conference Board report noted that the federal government’s Green Transformation Program has helped inject much-needed investment into upgrading machinery and technology in the paper sector, but the industry remains oversupplied.

The report’s forecast pegged the economic value of Canada’s paper sector at $8.9 billion for 2011, which should rise to $9.5 billion by 2015.

Meanwhile, also released Wednesday, the Conference Board of Canada’s confidence index — based on a survey of 2,000 Canadians — fell 6.6 per cent to 74.7. That’s its lowest level since July 2009 and the fourth straight monthly decline.

BC’s consumer confidence sits at 86.1 points, compared to 74.7 for all of Canada.

The sharpest decline in August occurred in Quebec, which fell 12.7 points to 67.1, the lowest level among Canada’s regions. Consumer confidence in Atlantic Canada fell 12 points, the Prairie provinces fell eight points an Ontario dropped four points.
The monthly consumer confidence surveys began in 2002 with a 100-point baseline.

Construction Spending, US

US construction spending unexpectedly saw a modest increase in the month of June, according to figures released August 1 by the Commerce Department.

According to the figures, construction spending rose to a seasonally adjusted rate of US $772.3 billion in June, up 0.2 per cent from revised May figures. In general, most economists had expected construction spending to hold level in June.

US Construction Spending

The June construction spending rates are down by 4.7 per cent compared to the figures posted in June 2010.

Private construction spending drove the monthly increase, rising 0.8 per cent to US$493.4 billion. Non-residential private spending, up 1.8 per cent for June to the highest levels since December 2010, was able to offset a 0.3 per cent drop in private residential construction. Residential construction spending, which showed a sharp increase in April, has now shown decreases over the past two months.

Spending on public construction projects, which had shown an increase in May, dropped by 0.7 perc ent in June, driven by a 0.6 per cent drop in state and local construction and a 2.2 per cent decrease in federal construction.

Lower interest rates, easier lending rules and a drop in raw-material costs may keep stimulating a rebound in commercial projects that will help underpin business investment. At the same time, decreases in government spending and a stagnant housing market probably mean a broad-based rebound in the industry will fail to take hold.

Estimates of the 49 economists surveyed ranged from a decrease of 0.5 per cent to a gain of 0.9 percent. The Commerce Department revised the May data from a previously reported 0.6 per cent drop.