MADISON’S KEY SOFTWOOD LUMBER MARKET WEEKLY COMMENT:
“ Intense wild fires halted harvesting and shut down mills in BC’s interior. ”
Prices updated July 17, 2017
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All prices are net FOB mill in U.S. dollars per 1000 board feet unless otherwise noted. Green = not dried KD = kiln dried PET = precision end trim R/L = random lengths SPF = Spruce-Pine-Fir Std&Btr = standard & better (a grade)
SOFTWOOD LUMBER INDUSTRY MARKET PRICES, NEWS AND INFORMATION
INITIALLY PUBLISHED IN Madison's Lumber Reporter July 14, 2017:
Weather experts in western Canada have deemed wildfire season in British Columbia this year as “hazard index high” explained wildfire ecologist Robert Gray to Madison’s Thursday in a phone interview. The weather service expects this hot, dry weather pattern will likely hold for 10 - 12 weeks.
“This year is shaping up like 2003,” detailed Gray.
In 2003 was the catastrophic wild re which was extremely damaging to the town of Kelowna, BC, and which actually melted the Tolko sawmill at Barriere, BC. That mill was never rebuilt.
WILDFIRE SEASON 2017
As of Friday morning the number of wildfires in British Columbia was reduced to over 100, from almost 200 earlier in the week.
A media representative at BC Ministry of Forests replied to Madison’s by email Thursday, that so far, the fires have burned over 111,251 hectares, “but we don’t yet know how much of that is timber harvesting land base.”
West Fraser Timber, Tolko Industries, and oriented-strand-board manufacturer Norbord are among the companies that have suspended operations at mills in and around 100 Mile House and Williams Lake, BC, with 1,000 employees from West Fraser alone off work due to the closures, said the Vancouver Sun Wednesday.
Tolko also indefinitely suspended operations at its two Williams Lake sawmills releasing employees to look after their families while the town remains under evacuation alert.
As well, about 30 to 40 logging companies spanning from Merritt, BC, to several hundred kilometres north in Williams Lake have also shut down harvesting operations, according to GlobalNews Monday.
The fire response in BC is starting to include industrial crews, explained Gray.
“Heavy mechanical equipment for forest firefighters is starting to arrive [at the worst-hit] locations,” said Gray. “We may see forest shutdowns [to the public], if the provincial re rating is high enough the province could put in a fire ban.”
This would be in addition to the usual summer bans for industrial equipment — specifically timber harvesting — during the hottest weeks of the summer.
Gray likened conditions in this year’s re season to the catastrophic 2003 re around Kelowna, BC.
“The wet winter this year combined with very hot weather coming on quickly has resulted in heavy fuels in the forest, which have long burnout times.”
In 2003, wildfires in the province cost the B.C. economy $1.3 billion in direct fire suppression costs and indirect economic losses, according to a paper by the provincial Ministry of Forests, Lands and Natural Resource Operations.
The difference this year is that the worst fires so far are located not at a big town but where there are many wood production facilities.
In addition is the bad timing, as these are the very two weeks that the Quebec forest industry takes it’s annual two-week summer shutdown. Most players will have ordered wood for their needs in advance of these usual closures, but the coincidence with BC wildfires this week could cause a perception of looming shortage of supply.
With the recent dimension framing softwood lumber price volatility due to countervailing and anti-dumping imposed by the US this year, even a perception of threat to supply could cause lumber and especially panel prices to rise. Possibly in the short term, or even further out through summer as US home building activity continues muted but improving.
According to the May 2017 survey for the NAHB/Wells Fargo Housing Market Index, out Tuesday, the availability of building materials, especially framing lumber, significantly jumped on the list of homebuilder concerns, revealing that 21 per cent of single-family builder respondents reported a shortage of framing lumber.
US LUMBER SHORTAGES: MAY 2017
This is a striking jump from 2014 when no product or material was cited as being in short supply by more than 15 per cent of builders. In fact, this remained true for most other materials in the 2017 survey. Next to framing lumber, the most widespread shortages reported in 2017 were ready-mix concrete and trusses, with 14 per cent of builders reporting shortages of each.
For nearly all of these materials and products, the recent history has been relatively stable, with the share of builders reporting shortages moving only a couple of percentage points between 2014 and 2017, said the NAHB/Wells Fargo Housing Mar- ket Index. Next to framing lumber, the most widespread short- ages reported in 2017 are for ready-mix concrete and trusses, with 14 per cent of builders currently reporting shortages of each.
LUMBER PRICE INCREASES RESPONSIBLE FOR SHORTAGES
The rising share of builders reporting shortages of framing lumber is consistent with recent increases in prices for softwood lumber. It is virtually certain that an underlying factor contributing to the shortages and price increases is the ongoing softwood lumber trade dispute between the US and Canada, including the duties on lumber imported from Canada levied by the Department of Commerce in 2017.
NAHB analysis found that in 2016, the U.S. consumed more than 47 billion board feet (bbf), while it produced slightly more than 32 bbf.
Lumber production in Canada was down 7.1 per cent from March, to 5,778.2 thousand cubic metres of lumber in April, according to Statistics Canada July 7. Production was 1.8 per cent lower than in April 2016.
Sawmills shipped 5,886.6 thousand cubic metres of lumber in April 2017, up 0.8 per cent from March and 4.1 per cent higher than in April 2016.
National Association of Home Builders analysis of Census Construction Spending Wednesday data shows that total private residential construction spending in the US fell -0.6 per cent in May, the first decline after a strong start this year and the largest one since June 2014.
Elsewhere, final estimates of 1Q 2017 GDP growth (revised up two-tenths of a percentage point to 1.4 per cent) released June 30, show that housing’s share of gross domestic product (GDP) was unchanged at 15.6 per cent.
US Residential Construction Spending and Investment: May and 1Q 2017
The recent slowdown of US Census Construction Spending follows the housing starts declines over the three consecutive months. Nevertheless, the total private residential construction spending is +11.2 per cent higher than a year ago, NAHB said.
The monthly declines are largely attributed to the slowdown of multifamily construction spending. It slipped -3.3 per cent after a decrease of -0.2 per cent in April, but was +3 per cent higher since a year ago. Spending on single-family and home improvements halted their monthly gains in May, declining -0.3 per cent and -0.1 per cent, respectively. Nevertheless, on an annual basis, spending on single-family increased by +7.9 per cent. Home improvement spending was +3 per cent higher since May 2015.
Private nonresidential construction spending slipped -0.7 per cent on a monthly basis. However, it was +0.8 per cent higher than a year ago.
US Residential Fixed Investment
Final estimates of 1Q 2017 GDP growth (revised up two-tenths of a percentage point to 1.4 per cent), show that housing’s share of gross domestic product (GDP) was unchanged at 15.6 per cent, said NAHB June 30.
The home building and remodelling component—residential xed investment (RFI)—increased 0.1 percentage point to 3.6 per cent as a share of GDP. The rst-quarter expansion of RFI added 0.48 percentage point to the headline GDP growth rate (i.e. GDP would have expanded only 0.9% had RFI remained unchanged). Of the 31 quarters since the end of the Great Recession, only ve times has residential xed investment contributed more to GDP than it did in Q1 2017.
The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in home ownership would result in declines for GDP. In the first quarter, housing services comprised 12 per cent of the economy or US$2.03 trillion, falling 0.1 percentage point from 4Q 2016.
On a year-over-year basis, private residential construction spending is up +11 per cent, according to Calculated Risk Monday. Non-residential spending is up slightly year-over-year. Public spending is down slightly year-over-year.
However spending for previous months were revised up.
Home Purchases Boost to Consumer Spending
Using the Consumer Expenditure Survey (CES) data from the US Bureau of Labor Statistics (BLS), NAHB Economics research released Thursday shows that a home purchase triggers additional spending on appliances, furnishings, and remodelling. NAHB’s most recent estimates are based on the 2012-2014 data and show that during the first two years after closing on the house, a typical buyer of a newly-built single-family detached home spends on average US$4,500 more than a similar non-moving home owner. Likewise, a buyer of an existing single-family detached home tends to spend over US$4,000 more than a similar non-moving home owner, including close to US$3,700 during the first year.
NAHB’s latest research updates the 2008 study that was based on 2004-2007 data.
The NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behaviour of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving.
Canadian municipalities issued $7.7 billion worth of building permits in May, up +8.9 per cent from April and the third highest value on record, according to Statistics Canada Thursday. The national increase was mainly the result of higher construction intentions for residential buildings, particularly in Ontario. Seven provinces registered gains in the total value of building permits in May, and every building component increased except institutional structures.
The value of residential building permits issued by Canadian municipalities increased +10.8 per cent from April to $5 billion in May. Six provinces registered gains in the month, with Ontario reporting the largest increase, followed distantly by Alberta and British Columbia.
The multi-family component rose +15 per cent in May to $2.3 billion, following a +6.9 per cent gain in April. Construction intentions were up for every type of multi-family dwelling, led by row houses. Meanwhile, the value of single-family building permits rose +7.4 per cent to $2.7 billion in May, stemming mainly from single homes in Ontario.
The value of building permits issued for non-residential structures rose +5.6 per cent in May to $2.7 billion, marking a third consecutive monthly increase. Alberta and New Brunswick led the five provinces that posted gains in the non-residential sector in May.
The commercial component rose +12.9 per cent in May to $1.5 bil- lion, as increases were registered across several building categories, led by retail and wholesale construction intentions. Every province except Nova Scotia and Alberta reported gains in the value of commercial building permits.