Truck Loggers Convention ; US Housing Starts, Home Sales; Japan Lumber Demand and Housing Starts 2011; US Second Arbitration Under Softwood Lumber Ruling ; Building Material Prices ; Madison’s Timber Preview; Housing Starts, Canada; Japan Housing Starts ; Lumber Imports China, Jan – Sept 2010; CN, CP Strike Vote; Canadian Lumber Into India ; Mountain Pine Beetle Battle ; US Home Sales ; Australia Under Water ; Green Transformation Funding ; New Prototype to Utilize Forest Residue ; Soda Creek Fire ; Log Supply ; US Housing Starts ; Containerboard Update ; Canfor, West Fraser Invest ;
January 31, 2011
Truck Loggers Convention
Late Thursday afternoon Madison’s returned from the 68th annual Truck Loggers Association Convention and Trade Show, in Victoria, BC. The theme this was year ‘Positioned to Prosper‘. Having enjoyed the compulsory hospitality, Madison’s gleaned good amounts of worthwhile information from convention speakers and delegates.
In keeping with tradition, outgoing BC Premier Gordon Campbell opened the event Wednesday with a speech in advance of the luncheon. Campbell’s speech, while informative, was significantly more light-hearted than in previous years. A reference by the introducing sponsor, SMS Equipment, that they are actively hiring, then an aside to the Premier that he may like to apply now that he will be out of work, created the opportunity for running jokes throughout the day about Campbell going out for a job in the forest industry. Possibly due to this being Campbell’s last time opening the TLA as Premier, or the attendance of several Liberal leadership candidates, or the fact that the short term outlook for the lumber industry has improved over last year, or a combination of these, there was a sizable turnout by the mainstream media.
TLA 68th Annual Convention and Trade Show
The first panel discussion that afternoon kicked the event into high gear. Clint Parcher of sponsor Coastland Wood Industries stated that 2011 is “not going to be an easy year,” and posed an informal question to the panel, ‘How do you allow a log export profile and still have supply for domestic production?’ The current dilemma facing log suppliers to Washington State and Oregon Douglas fir mills speaks to exactly this issue.
Sam Anderson, CEO of the Master Builder’s Association of King and Snohomish Counties in Washington State, the largest of 800 such organizations in the US, spoke about housing starts and expectations for US home building in the medium term future.
“Any US housing recovery, especially in the west, is entirely dependent on employment,” began Anderson. “US unemployment will not get down to a healthy 5 or 6 per cent for at least five years.”
Anderson went on to explain that five million US home owners are at least two months behind on their mortgage payments, and 23 per cent are underwater. Meanwhile the credit situation has not improved; banks are not lending to builders and are also tightening credit for potential home buyers. Anderson explained further that two-fifths of US home sale transactions “die because appraisals are coming back at less than the buyer is willing to pay.”
Between the lack of funds either for builders or buyers and appraisals based on the latest home sales in a given area, builders are having trouble selling the homes they do manage to build.
A further encumbrance, Anderson detailed, is that “municipalities have cut permitting departments” in response to the home building downturn. This circumstance, when combined with a loss of trades — currently replaced by owners who have been forced to strap on a tool belt as the only way to keep their company going — will serve to slow recovery when it does begin to come about.
“Today the US is over 3.2 million new housing units short of what it needs to satisfy the normal trend of household forming,” concluded Anderson. “Even with the foreclosures and with housing starts beginning to rise, demand for homes will be high but supply short so home prices will spike.”
The rest of the afternoon was alloted to the trade show floor, where the beer flowed freely. There have been some very interesting developments made on the part of Natural Resources Canada, the Canadian Forest Service, and FPInnovations that Madison’s will cover in future issues. Something exciting, which was mentioned in Campbell’s opening speech, is the increase in community forests in BC. Described as ‘any forestry operation managed by a local government, community group, First Nation or community-held corporation for the benefit of the entire community’, there are now 52 community forests operating in BC with another 24 having applied for official status.
Collectively, community forests represent approximately 1.5 per cent of the provincial annual harvest. Perhaps in conjunction, FPInnovations has launched a program providing technical support to the BC First Nations forest sector. More information on this, and other, progress will be highlighted in future issues of your Reporter.
A special session was added in the evening, providing the opportunity for Liberal party leadership candidates to speak. Three attended; George Abbott, former Forests Minister Mike de Jong, and Ed Mayne. Current Minister of Forests, Mines, and Lands, Pat Bell, paid close attention from the back of the room. That the inimitable Vaughn Palmer, of the Vancouver Sun and Shaw Cable’s community channel for Vancouver, moderated this discussion will reveal that the explosive, and often hilarious, tone of the event. The candidates went into some detail about their vision for the future of British Columbia in general and the forest industry in particular. Given Palmer’s style during his introduction, suffice to say that barbs and jabs flew throughout the evening. No topic was off limits, much to the delight of the audience. This is the only occasion that Madison’s actually recorded, for posterity if for no other reason.
The next morning started painfully early given the activities of the previous evening. As always the not-to-be-missed “Talking to the Minister” session began promptly after breakfast. This year moderator Paul Quinn, of RBC Capital Markets, gave a brief summary of the solid wood and pulp markets.
“In 2008, and even in 2007, lumber company share prices across North America showed in the red,” said Quinn. “In 2010 shares are up, mostly due to demand out of China.”
Armed with freshly-released figures out of the BC Ministry of Forests, Mines, and Lands, Minister Pat Bell explained, “BC’s lumber exports were 353 million and 354 million mfbm respectively for October and November, which will put total 2010 exports at 4 billion mfbm.”
BC is working closely with China’s large developers to continue providing expertise and technical information on wood framed home building.
“One of the largest home builders in China was responsible for a half million new units in one year, out of a total eight million,” continued Bell. “A lot of these are six-storey concrete buildings using framing lumber for various purposes like floor joists, infill walls, roof trusses and concrete forming. However another large builder in China, Greenland, specializing in institutional development like schools, has already stated it will be building all of its new projects entirely out of wood; 22 million cubic metres of residential and 13 million cubic metres of commercial construction.”
Questions from the floor prompted updates about recent changes to BC Timber Sales, specifically the status of an advisory committee to assess rules around the timber bidding process, and a confirmation of the previously announced increase to stumpage fees. Major announcements on both issues will be coming soon from the BC Ministry of Forests, Mines, and Lands.
US Housing Starts, Home Sales
December housing starts fell 4.3 per cent to a seasonally adjusted annual rate of 529,000 from an downwardly revised 553,000 a month earlier, the US Commerce Department said Wednesday. However, building permits surged 16.7 per cent to an annual rate of 635,000. Compared with December a year ago, new-home construction is down 8.2 per cent.
The results were driven by a 9 per cent drop in single-family home construction. Single-family homes, which represent more than 80 per cent of all starts, rose a revised 5.8 per cent in November. Construction of dwellings with five or more units rose 25.9 per cent last month.
The US National Association of Realtors reported Thursday that existing home sales in December rose 12.3 per cent to 5.28 million units. Total sales were off 2.9 per cent in year over year comparisons. Single family sales rose 11.8 per cent to 4.64 million compared to the previous month but were off 2.5 per cent in year over year comparisons.
Despite the monthly jump, the housing market remains a weak spot for the economy, which is slowly coming out of a severe recession. For all of 2010, about 4.9 million homes were sold, the worst year since 1997 and down 4.8 per cent from a year earlier.
US Real Estate
The median price of an existing home fell 0.8 per cent to US$168,800 from November’s downwardly revised $170,200. Median prices were down 1 per cent in year/year comparisons. Inventories fell to 3.560 million, from 3.717 million units. Months supply fell to 8.1 months from 9.5 months previously.
The Realtors group said distressed properties accounted for about 36 per cent of sales in December, compared with 33 per cent in November.
At present there are 1.7 million homes either owned by a bank or are in some stage of foreclosure, according to Standard and Poor’s. It would take 44 months at the current rate of sales to clear the market. The numbers are staggering: the Mortgage Bankers Association estimates that there are two million Americans seriously delinquent on their payments and there are another two million bank-owned homes.
The National Association of Home Builders expects new single-family home sales to rise to 405,000 this year, while Moody’s Analytics projects an increase to 540,000.
In 2009, sales of new single-family properties totalled 375,000 units, the lowest figure in records dating to 1963. For the first 11 months of last year, sales ran at an annual pace of 319,640, Commerce Dept data show. Home prices are down 30 per cent from their July 2006 peak, according to the S&P/Case-Shiller index. Values probably will fall an additional 6 per cent before the traditional spring selling season begins, Standard & Poor’s said in a January 10 report.
With competitors driven out of business by the recession and sales likely to climb from record lows, the biggest US homebuilders are poised to benefit from a rebound in demand for new houses this year, says Thursday’s Bloomberg Business Week. Companies are planning to boost the number of developments where they are selling homes by at least 10 per cent in 2011 after buying land at discounted prices and obtaining financing unavailable to smaller builders.
Japan Lumber Demand and Housing Starts 2011
The Japan Foreign Timber General Supply and Demand Liaison Conference projected that total 2011 wood imports would be 3.2 per cent more than last year, which was up 8.3 per cent from 2009, according to Japan Lumber Reports.
Japan Lumber 2011
Forecast
The Liaison Conference determined that total Japan demand for logs and lumber in 2011 would be 11.5 million cubic metres, while 2010 demand is estimated at 11.2 million cubic metres, says the Japan Lumber Reports.
With 2009 demand at 10.3 million cubic metres, the projected increase is of 12 per cent.
A survey of 13 major house builders by the Japan Forest Products Journal found the average number of housing starts for 2011 would be 874,000 units, according to the Reports.
Starts in 2010 recovered to 800,000 units from 751,429 in 2009, the lowest starts since 1964. Detached units built for sale also increased in 2010, by over 20 per cent.
US Second Arbitration Under Softwood Lumber Ruling
In an ominous precursor of what is to come in the newly-filed US claim against British Columbia this week, the third complaint launched by the US under the 2006 Softwood Lumber Agreement, the LCIA today ruled in the US’s favour for the second arbitration, against Quebec and Ontario.
Vast Majority of US Claim Dismissed
The US Coalition for Fair Lumber Imports welcomed today’s London Court of International Arbitration (LCIA) ruling that subsidies provided by the Ontario and Quebec governments to lumber manufacturers in their provinces violate the terms of the 2006 US-Canada Softwood Lumber Agreement . This trade agreement prohibits the Canadian federal and provincial governments from providing new subsidies to the Canadian lumber industry after July 1, 2006.
In late 2006 and 2007, Quebec and Ontario announced and implemented plans to provide hundreds of millions of dollars in grants, subsidized loans, and subsidized loan guarantees to lumber producers. The United States initiated dispute settlement proceedings under the SLA with respect to these new subsidies in January 2008.
The text of today’s LCIA Tribunal decision has not yet been released publicly. However, the Office of the US Trade Representative states that, according to the terms of the Tribunal award, Canada must implement a cure for this breach within 30 days or impose additional export taxes for the duration of the SLA. It is anticipated that these additional export taxes will amount to US$59.4 million.
Canada’s Minister of International Trade, Peter Van Loan, commented that while the tribunal did rule in favor of the US, it did not fully support the Americans’ claim. “I note that the tribunal rejected 97 per cent of the United States’ $1.86 billion claim as having no basis.”
This ruling is final.
Provincial loans, grants, tax credits, and other programs in Ontario and Quebec did not comply with the terms of the 2006 Softwood Lumber Agreement.
January 24, 2011
Building Material Prices
Analyst concrete and steel price forescasts at year-end 2010 were for a decline in the first two quarters of 2011. Floods in Australia have reversed those predictions. Spot prices for coal have already increased due to washed out Queensland mines and infrastructure problems all over that region. Coking coal is an important ingredient for making steel, and is also necessary for concrete and cement production.
Steel and Cement
Recent flooding in Australia has caused an interruption in Queensland’s coal mining, as noted in last week’s issue of your Madison’s Reporter. This is expected to have an effect on global steel and concrete prices. Australia accounts for two-thirds of the world’s production of coking coal and is the second biggest exporter, behind Indonesia, of thermal coal. Analyst projections for prices in the first week of January were gloomy mainly due to continued overcapacity of these commodities. Since then expectations have turned to the reverse with most watchers now forecasting problems sourcing the raw materials to make concrete and steel that will last until spring.
Paul Golby, chief executive of E.ON UK, which has three coal-fired power stations in Britain, explained to the Daily Mail, “The flooding is going to put enormous pressure on coal prices because an awful lot of coal for power stations comes from Australia. It will have a worldwide impact, but for how long we just don’t know.”
South Asian experts say steel and cement companies could sustain a major impact from higher raw material prices, margin squeeze and higher production cost. The impact could have an effect for at least two quarters, according to DNAIndia.
“Forty vessels are idle on the Queensland coast, with not even an ounce of coal available to be loaded and dispatched,” said Amar Bhasin, vice-president, Hindustan Global Resources, an exploration, development and consulting firm based in Australia.
He said most of the railroads in Queensland have been washed away eliminating the option to transport the coal. Six coal terminals with a capacity of over 200,000 tonnes are lying vacant as massive rains and floods have poured into 40 mines, Bhasin said.
“Even when the water subsides, it will take at least six months to rebuild the infrastructure and make it up and running,” he said.
Authorities in Queensland are desperate to reopen its ports, which have an annual capacity of 225 million tonnes. The Dalrymple Bay Coal Terminal said it continues to receive about 180,000 tonnes of coal a day, about 60 per cent of capacity, and has reduced its shipping queue from 50 vessels at the start of this week to about 39 Thursday.
But the port of Brisbane has been less fortunate, remaining shut as floods threaten the city.
Coal prices continue to rise. Coking coal, used in steel production, has hit US$225 a tonne for 1Q 2011, with some analysts suggesting it could rise as high as US$300 a tonne in 2Q once the impact of the floods hits the world markets. Exactly how badly coal supplies have been affected remains unclear, but the Commonwealth Bank of Australia has estimated around 3.6 million tonnes could be lost from Queensland’s thermal coal exports.
Deutsche Bank AG Tuesday increased its forecast for spot prices of iron ore delivered to China this year by 33 per cent to US$175 a ton. They will rise to US$180 in 2012, according to the bank. Export power-coal prices at Richards Bay, South Africa, a market benchmark, will average US$121 a ton this year, analyst Brebner said. That’s up from previous estimates of US$118. The 2012 forecast was kept at US$140 a ton.
“The potential shortage in the coking coal market could become extreme over the course of the current quarter,” Brebner said, citing the floods in Australia. “There could be ancillary impacts in other markets, particularly steel and iron ore, but also thermal coal,” certain grades of which can be used as a proxy for coking coal.
The biggest losers from the rains will certainly be the steel makers. On Thursday, South Korea’s Posco, the world’s third-largest steel maker, warned of sharply higher raw material costs, according to the London Telegraph.
Steelmakers in Japan, the world’s largest coal importer, may seek alternative sources amid concern about supplies due to the floods. Japanese steelmakers imported 58 per cent of their coking coal requirements from Australia last financial year, according to data from Tokyo-based Nippon Steel.
Cement companies which, too, require coking coal are experiencing some cost push.
“For cement companies, coking coal contributes around 10-12 per cent of the total cost. The shortage of both coking coal and thermal coal supplies from Australia has led to a global demand-supply mismatch, resulting in a rise in prices,” said Amit Srivastava, research analyst, Karvy Stock Broking to DNAIndia.
Even before the floods hit, North American construction firms were facing increasing pressure in December as nearly every material used by contractors rose in price, while bid prices for new buildings remained flat, according to an analysis of December producer price index figures released January 13 by the Associated General Contractors of America.
Association officials warned that the price squeeze on contractors is likely to intensify in 2011 as global demand for construction materials grows and domestic demand for construction services remains weak.
Prices for materials used in construction jumped 0.9 per cent in December and 5.4 per cent in all of 2010, while price indexes for finished buildings remained flat over both time periods, noted Ken Simonson, the association’s chief economist. He added that construction costs also outstripped the producer price index for finished goods, which rose 0.6 per cent in December and 4 per cent in 2010.
Madison’s Timber Preview
Mortgage issues in the US continue to exacerbate, this time in the courts over the methods of foreclosure used by lendors across the country. This week’s issue of Madison’s Timber Preview examines the latest court rulings, the impact this will have on mortgage holders and home owners, and highlights upcoming changes by the White House
to federally-owned Fannie Mae and Freddie Mac.
Contact us any time for a subscription.
Housing Starts, Canada
The pace of new home construction in Canada declined in December as the sea-sonally adjusted annual rate of housing starts dropped by almost 30,000 to 171,500. The Canada Mortgage and Housing Corporation said Tuesday that December’s rate was well off the 198,200 pace in November.
There were also wild differences from region to region. The seasonally adjusted annual rate of urban starts was 45.4 per cent lower in Ontario, but 46.8 per cent higher in British Columbia. It was 9.8 per cent lower in Atlantic Canada but 13.5 per cent higher in Quebec and 0.7 per cent higher in the Prairies.
On Monday, Statistics Canada reported that building permits dropped by 11 per cent in November. Permits are a leading indicator of building activity in housing and other sectors.
Canada Real Estate
“Housing starts moved lower in December due to the multiple starts segment, especially in Ontario,” CMHC chief economist Bob Dugan said. The category that includes condominiums was the main culprit, as single detached starts were also down, but minimally.
BMO economist Robert Kavcic was expecting a drop to 184,000. “A cooler housing market and nasty weather in parts of the country likely tempered activity in the month,” he said.
Meanwhile, it was a slightly better than average December for the Canadian resale housing market, the Canadian Real
Estate Association said Friday, although prices and inventory remained little changed from the month before.
The national home resale price was $344,551, up 2 per cent from the same month last year and little changed from
November. The number of listings was also little changed from November, and as in November the stock of inventory
would take 5.8 months to sell at current sales levels. Sales, meanwhile, were down 14 per cent from a year ago, when a new record for December’s sales was set.
About 447,010 homes traded on the Canadian Multiple Listing Service in 2010, down 3.9 per cent from 2010. After grinding to a halt in July after a record setting run-up in prices, the resale market gradually improved in the second half of the year. December sales were 18 per cent higher than they were in July, and CREA said low interest rates are
likely to keep propping up the market – at least in the short term.
Japan Housing Starts
Japan’s housing starts in November 2010 were 72,838 units (up 6.8 per cent from the same month in a year earlier), which reached the 70,000-unit mark for the fourth consecutive month, according to Japan Lumber Journal.
Housing Starts, Japan
November marked the sixth consecutive month of year-on-year increase. Floor area also exceeded the results of the same month in the previous year for ninth month running with 6,492,000 square metres, up 10.2 per cent.
Seasonally- adjusted annual building rate reached the 800,000-unit mark for four straight months with 847,000 units, says the Japan Lumber Journal.
As a result, total housing starts during January-November 2010 were 738,636 units and the annual total is estimated to be about 820,000 units. It is expected to exceed the result of 2009, 788,000 units.
The scale of housing starts has become the 800,000-unit level.
Lumber Imports China, Jan – Sept 2010
The total import of China’s wood raw materials (including logs, sawn timber, sheets, plywood, fibreboard, particleboard, crosstie) from January to September is 36.7 million cubic metres, a 29 per cent increase compared with the same period of 2009, explains the Japan Lumber Journal.
From the dynamic analysis, wood raw materials import in the first, second and third quarter are 10.6 million cubic metres, 12.9 million cubic metres and 13.2million cubic metres, a year-on-year increase of 46.3 per cent, 23.4 per cent and 23 per cent respectively, according to the latest figures released by China Wood.
Wood Imports China
China’s log import for the first three quarters of 2010 is 25.7 million cubic metres, a 22.9 per cent increase compared with the same time in 2009, according to China Wood and reprinted in the Japan Lumber Journal.
From January to September, the increase rate of imported sawn timber, 48.6 per cent, is higher than that of imported
logs, 22.9 per cent increase, but also the quantity is higher.
The imported softwood lumber increase are mostly from Russia and Canada. From January to September, the lumber imported from Russian is 3.2 million cubic metres, accounting for 31.1 per cent of the total imported lumber. The lumber imported from Canada is 2.56 million cu-bic metres, accounting for 24.7 per cent of the total imported lumber.
90 per cent of the Canadian lumber was exported to America before the economic crisis. Since the low lumber demand of America, the lumber export from Canada to China increased greatly, the data increase from 0.67 million cubic metres in 2007 to 2.6 million cubic metres for January to September 2010.
CN, CP Strike Vote
More than 6,000 mechanical and other workers at Canadian National Railway and Canadian Pacific Railway have overwhelmingly voted in favour of strike action in support of their union negotiators.
The strike deadline at CN, the country’s biggest railway, is January 25, and the deadline at CP, Canada’s No. 2 carrier,
is set for February 8, after contracts expired December 31.
The Canadian Auto Workers union, which began talks in October, said it represents 2,100 mechanical services workers at CP and 4,300 employees at CN, a figure the company puts at 3,975. Unionized staff at CN do clerical, shopcraft, intermodal and truck driving work.
Negotiations at CN began in September and are set to resume on Monday in Montreal, while talks with CP in Montreal were underway and expected to run through the weekend.
January 16, 2011
Canadian Lumber Into India
An arbitrary bureaucratic impediment to Canadian softwood lumber imports into India has finally been solved. Due to protracted efforts on the part of both Canadian federal and British Columbian provincial governments as well as various agencies, organizations, and lumber producers, India will finally allow western spruce-pine-fir lumber from Canada with only heat treatment. Fumigation will no longer be required.
India, Softwood Lumber
Former BC Minister of Forests, and current Liberal party leadership hopeful, Mike De Jong, announced at Carrier Lumber in Prince George on Wednesday that India’s Minister of Agriculture has granted approval for the importation of lumber that’s been heat-treated to ensure pests aren’t hiding in shipments. De Jong wants to increase Canadian lumber shipments to India as they have been to China.
Carrier Lumber President Bill Kordyban said to Opinion250 that diversification of markets will benefit companies like his. The current value of Canada’s annual wood exports to India is $40 million dollars. India has the world’s fourth largest economy when measured on a purchasing power parity basis.
Brian Zak, Market Access and Phytosanitary Specialist for Canada Wood, explained to Madison’s in an email that lumber exporters still require three separate import permits for the Spruce, Pine and Fir – as India does not recognize the collective SPF grouping in Schedule 6 of their Regulations.
“Use the following Latin names when requesting Import Permits – see the “Exports Procedures” below:
- Spruce species allowed – Picea engelmannii or Picea glauca;
- Pine species allowed – Pinus contorta;
- Alpine fir species allowed – Abies lasiocarpa.
“Secure your Import Permits first (where applicable) – by getting your Timber Agent or Customer in India to apply to their Ministry of Agriculture.
“A Phytosanitary Certificate is required by India – which can be obtained from our CFIA:
- Once you have received your Import Permits, double check them to make sure they state the correct Latin names and Phytosanitary requirements (match to the rules above);
- Contact CFIA for an inspection of the timber/lumber stock and provide a copy of the Import Permits to CFIA at the time of your CFIA Inspection Request;
- Your Phytosanitary Certificate is good for 2 weeks prior to the vessel departure date.
“Should you have any specific questions you should contact your CFIA office representative. http://www.inspection.gc.ca/english/plaveg/for/cwpc/chtwpcpce.shtml”
Zak further explained that to date the cedar notification procuess remains unclear. Madison’s will inform subscribers of any developments on that front as soon as they happen.
Alberta Pine Beetle Battle
The lack of a major mountain pine beetle inflight in 2010 and an unexpected cold snap during the 2009/2010 winter season have combined to help keep the beetle population in Alberta low. However significant defensive activity continues in that province.
Mountain Pine Beetle, Alberta
Alberta’s action to remove infested trees, coupled with help from Mother Nature, are responsible for the lower number of attacked trees this fall, a government press release in November explained. Removing infested trees reduced the number of beetles that hatched last summer to attack healthy trees, while extreme temperature fluctuations last winter caused higher than normal mortality among beetles.
Aerial surveys, completed in August and September, pinpoint locations and counts of trees attacked in 2009 and 2010. Results are combined with the findings of beetle population trend surveys conducted last spring to determine where and how much removal of infested trees will occur in the coming year. Operational plans for removing infested trees were developed this autumn.
“We are holding our own against the pine beetle,” explained Duncan MacDonnell of Alberta Sustainable Resource Development to Madison’s in a phone interview Thursday.
“The aerial surveys showed that there are still some hot spots from the massive inflights of 2009. 169,000 trees will be cut and burned from areas of priority in west-central Alberta to prevent the pine beetle from spreading further.
“There were no beetle inflights in the summer of 2010, overwinter mortality rates at the end of January and in February 2010 were at peak levels according to our spring mortality surveys,” summed up MacDonnell. “Spring 2011 surveys will show if this winter season mortality rates are also high.
US Home Sales
November existing-home sales rose less than expected, though prices stabilized as fewer houses remained on the market, while demand for new homes in the US rose in November, but prices fell, signaling continued weakness in the ailing housing market.
Home Sales, US
November demand for used homes increased by 5.6 per cent to a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors said December 23.
Still, the price for an existing home edged up for the first time since August, to US$170,600 in November. That’s up 0.4 per cent from the year-ago median price of US$170,000 and an improvement from a downwardly revised US$170,400 in October.
A high level of unsold homes has contributed to the recent drop in prices. The inventory of previously owned homes listed for sale shrunk by 4 per cent at the end of November to 3.71 million available for sale. That represented a 9.5-month supply at the current sales pace, compared with a 10.5-month supply in October.
November sales of new homes increased by 5.5 per cent compared to the prior month, rising to a seasonally adjusted annual pace of 290,000, the Commerce Department said December 24.
The median sales price for a new home dropped by 2.7 per cent on a year-over-year basis to US$213,000.
The number of new homes available for sale slid in November to 197,000, a supply that would take 8.2 months to exhaust at the current sales rate. A six-month supply of new homes is considered healthy. The months’ supply in October was 8.8.
November’s new-home sales figure is down 21.2 per cent from a year earlier, a time when buyers rushed to market with the promise of a tax credit. The incentive expired in April and sales have since floundered.
Uncertainty about the direction of home prices has discouraged buying. High unemployment is turning people away from the market, too. And among those brave enough to sign a contract for a home, some can’t because they’re unable to get financing.
Australia Under Water
Australia had its third-wettest year on record during 2010, according to the Bureau of Meteorology, which said Friday that showers and storms will continue across Queensland into next week.
About 200,000 people scattered across an area the size of France and Germany combined have been affected by the flooding and three people killed. Damage from the floods, the worst in the state in 50 years, has been estimated at US$5 billion.
Fresh flooding was forecast downstream as a result of more monsoon rains.
The muddy inland sea has stranded some of Australia’s best beef cattle on tiny islands, and destroyed wheat and sugar crops.
Australia’s US$50 billion coal export industry has been brought to a virtual standstill. The floods have swamped mines in Queensland state, paralysing operations that produce 35 per cent of Australia’s estimated 259 million tonnes of exportable coal. Australia contributes two-thirds of global coking-coal exports, needed to make steel.
Queensland also produces 95 per cent of Australia’s sugar.
One commodities analyst estimated that 45 to 50 million tonnes of metallurgical-grade coal needed to make steel were under force majeure declarations.
The floods have cut production of coal by about 4.5 million metric tons since the start of December, Colin Hamilton, an analyst at Macquarie Group Ltd., said in an e-mail to Bloomberg.
Asian steel-makers are anxious about Australian supplies, worried the disruptions could outlast their stockpiles, which typically are worth around a month’s consumption.
Analysts at Macquarie, Morgan Stanley and Daiwa Capital Markets expect steel coals to rise as much as a third to US$300 a tonne in the aftermath of the floods, pushing thermal coal prices higher in the process.
Some infrastructure in Australia’s flood-hit Queensland state could take years to rebuild, the head of the flood recovery taskforce, Major-General Mick Slater, said on Friday.
The floods have affected 22 towns and cities across Queensland.
Green Transformation Funding
Prime Minister Stephen Harper was in Windsor, Quebec Thursday to announce an investment of $24.8 million for Domtar under the Pulp and Paper Green Transformation Program. Domtar received $143.5 million under this program in 2009. That is the largest amount given to a single company. This year’s final investment of $24.8 million will be used by Domtar for two capital projects.
The Twin Rivers Paper Company in Edmundston, New Brunwick, received $21 million also on Thursday. The mill plans to use the investment for upgrades that will improve the mill’s environmental performance while producing enough thermal energy to heat more than 1,200 homes.
Minister of Natural Resources Christian Paradis announced Thursday that Irving Paper will receive $10.4 million. Irving Paper will use the investment to upgrade two of its mills in Saint John, New Brunswick.
Brian Jean, Member of Parliament for Fort McMurray–Athabasca, and Parliamentary Secretary to the Minister of Transport, Infrastructure and Communities, announced Thursday that Alberta Pacific Forest Industries (Alpac) will be receiving $62.9 million.
The Cariboo pulp mill in Quesnel, British Columbia will receive an investment of $41.5 million. The Honourable Gary Lunn, Minister of State for Sport, and Dick Harris, Member of Parliament for Cariboo–Prince George co-announced the investment. The Cariboo mill will receive $41.5 million to be used for upgrades.
New Prototype to Utilize Forest Residue
Collège Boréal’s applied research division has unveiled a new prototype designed to make use of wood residues produced by forest harvesting activities.
Developed in partnership with forestry company Niska North Inc. and the Township of Chapleau, this prototype will initially be used to extract various essential oils from wood chips.
It was designed by Matthieu Desbois, a third-year student in Collège Boréal’s Technologie du génie chimique (Chemical Engineering Technology) program, as part of the Research Project course.
“This winning combination allowed Collège Boréal to deliver this prototype after just six months of research and production,” said Giroux to Sudbury Northern Life.
Alain Larocque, co-ordinator of the Technologie du génie chimique program and Matthieu Desbois’ professor, emphasizes the expertise his student has acquired over the course of this project.
“To produce this prototype, a wide knowledge of chemical engineering was required.”
Soda Creek Fire
An explosion caused a fire at Tolko‘s Soda Creek mill in Williams Lake, British Columbia, on Monday afternoon.
The explosion was caused by dust in one of the mill’s motor control centres.
“Essentially it caused a fire inside the walls of the sawmill,” said Williams Lake deputy fire chief Des Webster to the Williams Lake Tribune. “When we arrived we had smoke showing on the outside of the building. The fire had started to penetrate the outer walls in various spots.”
The Williams Lake fire department called in the 150 Mile House fire department for backup. It was a tough fire to get at, but once an attack plan was determined, the fire was quickly extinguished. No one was injured and the damage is said to be minor.
The mill is still currently operating, but at a diminished capacity, while wiring is repaired.
January 09, 2011
Log Supply
The latest downturn for the forest industry is behind us, but producers and wholesalers are still adjusting to altered methods of buying and selling lumber. Stung so badly by the drastic decline in US home building in 2006 and a couple of false starts in increased lumber demand, by 2009 sawmills had curtailed both production and logging in order to save costs. In such an uncertain business environment, no one has wanted to build log supply or stock quantities of wood. With dramatic losses over several quarters in a row, companies were reluctant to make capital investments in either log supply or lumber inventories. The possibility of demand remaining soft, or of prices falling further, deterred companies from committing to restocking. The hard lessons of the past three years have given good cause for forest companies to become extremely conservative in moving forward, at least until they feel there is real proof of recovery.
North America
While it may seem that the building industry and surrounding economy is still slow, that demand continues soft, the facts of 2010 will show that the supply-demand balance has shifted significantly. One year ago stocking wholesalers and builders were able to get highly specified, mixed loads in three days at a good price. By September 2010 secondary wood became extremely tight or even non-existent as the supply chain, having been overstocked to a dangerous level through 2007, finally became depleted. Suddenly customers, lulled into a false sense of security by continued reports of low US home building figures were surprised by the level of real demand out of Asia. Now they are being told by mills they must wait three weeks for their wood, and — oh, by the way! — the price went up. Perhaps ‘surprise’ is not a radical enough description.
Across North America, approximately one-third of contract loggers and one-third of truck loggers have gone out of business since 2006, their equipment sold at auction or repossessed. When demand remained low this lack of forest operation service in the supply chain was not felt at the mill level. As demand begins to ramp up, albeit moderately, lumber producers with little to no logs in their yard and few people to call back into the woods are going to have a difficult time sourcing logs.
For some companies getting logging going again will be simply a matter of recalling dedicated loggers and dusting off the falling equipment. But for many others, there isn’t anyone to call. Meanwhile, demand continues to tick up incrementally, and log piles are minimal. In some cases it may be several months, or longer, to get the log supply chain going again. It is possible that order files at the mill could grow out further than the three to four weeks that they are now, with prices rising all along the way.
While North America slowly pulls out of the economic downturn, demand out of Asia for logs and lumber is changing the face of the game for suppliers. New demand from Asia is causing a shift in log supply and prices from other markets as well.
According to the November Agrifax Forestry Market Report, market prices for New Zealand logs in China and Korea slowed from the rapid rises seen in September and October. Supply and demand for New Zealand logs in China appears to be reaching a balance resulting in slower price rises in November. Tight domestic supplies are driving up local prices and forcing processors to look beyond China for supply, however a lull is expected, as is traditional, during the slower Chinese New Year period. Strong demand for New Zealand logs continues in India.
However that market is struggling to attract volumes due to higher shipping rates to and within India.
With little log supply in China, the import sales prices of Northeast local logs increased steadily, according to China Wood Monthly Market Report’s November issue. In Beijing and the surrounding markets, Russian wood was popular. According to a local expert, this timber market situation and trends in Beijing and surrounding markets will last until the end of 2010 or early next year, says China Wood.
According to the Japan Lumber Reports, the Japanese market for hardwood logs is firming. FOB prices in Japan are expected to further increase due to log shortage and robust demand from China and India. Severe log shortages have been noted at the main log loading ports in Japan, says the Reports. India and China are taking significant log volumes to satisfy active demand for lumber and plywood in their countries, while Vietnam and Pakistan have joined the purchase race. All of these factors are driving log prices ever higher. Due to the high volumes, loading time at the ports has grown from one week to ten days or even two weeks. Adding to this supply chain headache, a shortage of rail cars is delaying deliveries to loading ports in the Far East.
Russia, a traditional supplier of logs, has seen reduced exports to Japan yet prices remain high, which cuts further into demand on the Japan side. In a typical story repeated across North America, particularly on the west coast of the US, the Reports explains, “Sawmills in Japan have very little log inventories but due to sluggish lumber sales and prices, mills hesitate to commit to high log prices.”
In response to new market conditions in North America and demand from Asia, British Columbia’s Welco Lumber has shifted its market share to 42 per cent going to Asia, 32 per cent into the US, and 26 per cent remaining domestically in Canada. Of the Asian market share, 8 per cent is J-grade lumber going into Japan.
A source at 84Lumber explained to Madison’s that even in mid-2009 there was not enough log supply, particularly in the western US, although lumber traders do tend to exaggerate the seriousness of the situation, said the source. Canadian mills are restructuring where the wood is going, putting an emphasis on China, while US customers continue to languish on soft demand. In terms of Douglas fir, most of the US west coast mills own the timberland and by selling logs on the open market thus are pricing themselves out of the lumber business. Douglas fir lumber prices, both green and KD, remain quite low while Douglas fir log prices are reaching record levels.
As mill order files are currently approaching the second week of January and with some Canadian western mills forgoing traditional New Year’s downtime and maintenance curtailments to serve that demand, 2011 looks to start out with a bang. Given the steady increase in both lumber prices and demand since September, there is no reason to expect a sharp reversal in January. In fact, the mills seem to have caught on better than they have indicated. Many of them have come up with fancy new brand names to sell off what is essentially #2&Btr to the US at a premium since there is now an overabundance of demand for #3/Utility going into Asia.
US Housing Starts
Home construction in the US rose in November on the strength of the single-family market, a faint sign of hope for the beleaguered industry.
Housing starts rose 3.9 per cent to a seasonally adjusted annual rate of 555,000 from an upwardly revised 534,000 a month earlier, the Commerce Department said Thursday.
The results were driven by a 6.9 per cent gain in single-family home construction to a seasonally adjusted annual rate of 465,000. Multifamily construction, a volatile part of the market, fell by 9.1 per cent last month.
Single-family homes, which represent more than 80 per cent of all starts, fell a downwardly revised 2.7 per cent in October.
Compared with November a year ago, new-home construction is down 5.8 per cent.
Building permits fell 4 per cent to 530,000 units. Single family authorizations rose 3 per cent to 416,000. Permits off 14.7 per cent compared to one year ago. Regionally, permits rose 2.7 per cent in the West and 1.9 per cent in the South and fell 8.3 per cent in the Northeast and 22.2 per cent in the Midwest.
Home Building, US
The latest data say sales of new homes in the US were down 28.5 per cent in October from a year ago. Inventories of unsold homes are high, and competition is sharp from previously owned homes.
Home values are poised to drop by more than US$1.7 trillion in 2010, according to Zillow Inc., a closely held provider of home price data. This year’s estimated decline, more than the US$1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to US$9 trillion.
Commercial vacancy rates are also improving, “Office buildings in many city downtowns have stopped losing tenants or are filling up again even as the office space in the surrounding suburbs continues to empty,” the Wall Street Journal reported on Monday. “The national office vacancy rate in downtowns was 14.9 per cent at the end of 3Q, the same level as in early 2005—while the suburban vacancy rate hit 29.2 per cent, 2.3 percentage points higher than in 2005, according to data firm Reis Inc. In the first three quarters of this year, businesses in the suburbs vacated a net 16 million square feet of occupied office space…while downtowns have stabilized, losing just 119,000 square feet, Reis data shows.”
Containerboard Update
After edging down by 2,900 tons in October, US total containerboard inventories (at both the box plants and mills) increased by 38,000 tons to 2.274 million tons according to the American Forest and Paper Association. This 38,000-ton November inventory increase compares unfavourably to the 4,900-ton increase seen in the month of November over the last 10 years. Also inventories at the mill level fell by 600 tons while inventories at the box plants rose by 38,500 tons.
Containerboard
November corrugated box shipments increased 5.4 per cent versus November 2009, with shipments of 28.5 billion square feet, according to Credit Suisse, which sees the average of the actual and “average week” change, about 2.8 per cent, indicative of solid market growth.
Chip Dillon, Managing Director of US Equity Research at Credit Suisse believes that the industry is setting up for another round of price increase, which will most likely be announced in Q1 for April 2011. Dillon remains positive on International Paper, Packaging Corp. of America, Temple-Inland, Smurfit-Stone, KapStone Paper, and Rock-Tenn.
Mark Wilde, of Deutsche Bank Equity Research, uses various methods to value the stocks, including PE, P/Book and EV/EBITDA. Overall, these companies appear to be trading near the low end of their normal historical ranges, says Wilde in his monthly Containerboard Monitor.
Canfor, West Fraser Invest
Canfor Corp. has announced it will roll out a $145 million capital spending plan in 2011, of which $120 million will upgrade sawmill efficiency at both its Canadian and US operations. The remaining $25 million will be spent on maintenance projects.
The company said all its facilities are open for improvement, but it has made no decisions as to where the funds will go yet.
Metso Corp. will supply Hinton Pulp, a division of West Fraser Timber Co. Ltd, with a rebuild of their market pulp machine in Hinton, AB. The project will be delivered and installed in late 2011. The value of the order exceeds EUR 10 million. The order is included in Paper and Fiber Technology’s Q4 orders received.
Metso’s delivery will include a new top wire former, press section modifications, air borne dryer rebuild, dry end pulper rebuild, and a new high-capacity cutter layboy.