Madison’s News Archives: May 2011

Forest Industry Expectations ; Madison’s Timber Preview ; BC Transportation Issues a Reality ; Forest Fires, Alberta ; US Housing Starts ; BCGEU Report ; Ontario Tenure Reform ;Paper and Forestry Conferences ; Mad Investment Rx ; Global Forest Industry Recovery Forecast ; Japan Housing Starts ; Housing Starts, Canada ; Pulp Strikes ; BC Community Action ; Madison’s Timber Preview ; CN Centre-Beam Rail Car Quota ; Russian Log and Lumber Exports, 1Q 2011 ; Flooding in Manitoba and Quebec ; Paper Strike, Finland ; Softwood Lumber Research ReferendumBC Forest Practice ; Prince George Inland Container Port Choked ; Japan Lumber and Panel Update ; Paper Workers Strike in Finland ; US Storms Continue ; Prince Albert Pulp Mill ; Senior Chinese Housing Officials Tour BC ; West Coast Cargo ; Madison’s Timber Preview ; Labour Settlement ; US Home Building ; March Global Pulp Shipments ; US Storms, Wildfires ; Eacom’s Big River Sawmill ;Catalyst Curtails, Mill Fire

May 30, 2011

Forest Industry Expectations

Further to last week’s piece in your Madison’s Lumber Reporter on the multitude of forestry, pulp and paper, and bioenergy conferences recently held in Vancouver, BC, Madison’s is providing more details on the many fascinating presentations. Full economic recovery in the US and western Europe still seems a way off. Each speaker at least touched by, if not deeply focussed on, what they thought the scope and timing of a return to strong economies in the developed world will be. Valuable data on economic growth in emerging markets was also discussed.
At the Pulp and Paper Products Council International Pulp Week conference, Paul Leclair, VP and Chief Economist at the PPPC explained that the only good news in the US economy lately has been job creation, and that new hiring must continue.
“Big European banks have been exposed to counties with sovereign issue,” detailed Leclair. “In the developing world there is concern about inflation, especially regarding food prices. The global economy will grow by 3.5 per cent this year but most of that growth will be in the developing world.”

More Expert Opinions

Lloyd Atkinson, Economic and Financial Consultant, agreed that there have been significant changes to financial relationships globally.
“It is difficult to make sense of the multiple market crises plaguing the world economy,” explained Atkinson. “We are not going to return to business as usual. China and Brazil are major resource players. The current volatility is not going to go away. There are forces at play that we don’t understand.

“There will be very anaemic growth out of western Europe. Austerity will be the byword, as it already is in the UK. Japan will begin to feel the consequences of its aging population, a problem that will also visit Europe soon and the US farther in the future. In the US the debt-to-deficit problem will continue. Economic expansion nationally will be offset by contraction on state and local levels.
“It is important to note that in the US, recovery has been lead not by job creation, but by productivity. The US recovery is not job-lead. It is productivity that is growing, with job creation to follow. In addition, the US is the only country of all those suffering economically in the world right now that has a taxing capacity. While the politicians may not have a taxing will, the tax burden on US citizens is minimal.”

“China, meanwhile, has put all its eggs in one basket,” Atkinson said. “Along with the rapid growth, huge changes, and rising inflation, there is a future labour shortage looming. There are not enough babies being born in China. When that labour market tightens there will be wage pressures. The profit position of Chinese companies is going to be impacted.”

At PricewaterhouseCoopers’ Global Forest and Paper Industry Conference, Robert Johnston, Director at Eurasia Group, made a presentation titled ‘Natural Resources and Geopolitical Risk‘.

“China is rebalancing,” began Johnston. “The growth of China’s exports is complete, the country is now shipping goods toward the interior, away from the coast. This move will be structurally important in the medium to long term. For China, any external focus will be only on areas that directly border that country.

“In the middle east, a lot is going to hinge on what happens in Syria. That country is not self-contained, it impacts Lebanon, Israel, and Iran especially. If the government of Syria collapses there will be major changes to that region which will be highly destabilizing. Despite middle east tensions, as long as the Saudis hold, and given new sources of oil like Iraq, Brazil, and developments in hydraulic fracturing, the outlook for oil supply seems OK.

“In terms of natural gas, there will be increasing demand as US President Obama shuts down coal plants.”

“In Canada, the Harper government should focus on China as the most important customer for Canadian exports,” declared Johnston.

Lynn Michaelis, Senior economist for RISI, cheekily titled his presentation ‘History is a Mystery, but the Future is Clear‘.

“Despite massive monetary stimulus in the US, economic growth in 2010 has only been 2.3 per cent,” stated Michaelis. “The historical average is more like 8 per cent. The US housing market is not responding to low home prices and high inventories for sale. There has been massive wealth loss in the US due to homes losing value. Currently lumber demand from the US is down to 40 million mfbm. Thankfully for Canada, China has added demand for 1 billion mfbm.

“In March 2011, 40 per cent of existing US home sales were distressed properties, and 30 per cent were all-cash deals which will likely be converted into rentals. There is a pent-up supply problem, not pent-up demand, because the ownership-by-age rate is still higher than before the building boom. Therefore there is not much need for single-family units, but there is a need for more condos.
“New home building will be 1.4 million annualized by 2013, but what type of housing will this be?” Johnson concluded.

Paul Quinn, RBC Capital Markets Analyst, stated that 28 per cent of US mortgages are in negative equity, and financing costs are probably going to rise.

Frédéric Bouchard, Partner at PwC, explained that US housing starts and the North American lumber industry hit rock-bottom in 2009 and 2010, and that 2011 is already looking better.

“There was a 50 per cent drop in lumber demand from the US since 2005. China coming in as a new customer helped but still does not make up for that drop,” said Bouchard. “US lumber production was cut by 13 billion mfbm since 2009, a 60 per cent cut, which is good news for Canada.”

The Census Bureau on Wednesday released US housing starts for April, down more than 10 per cent over March. However a large proportion of that drop is represented by multi-family building, down 24 per cent. Single-family starts fell by 5 per cent.

Mike Zarembski, Senior Commodity Analyst at issued a note Wednesday saying, “The sharp decline in housing starts comes despite growth in the overall economy, as home buyers seem to be focussing on ‘cheaper’ previously-owned homes — particularly those in foreclosure. With home builders continuing to struggle, the demand for lumber has also slumped considerably.”

Existing home sales in the US for April are essential flat, falling only 0.8 per cent, said the National Association of Realtors Thursday. However existing home prices have started to rise as bargain-hunters begin to suspect home prices have hit bottom. The median price of an existing home rose 2.4 per cent to US$163,700, from US$159,800 in March.

It remains to be seen which of the analysts and economists presenting at the conferences last week will be correct, about when US home building will recover and what that recovery will look like. It is obvious that the extended winter and continued bad weather across North America, now leading to flooding as warming temperatures quickly melt the large snow pack in Canada, have done nothing to motivate an increase in permits for new home building. If those willing to make extended forecasts are to be believed, the late start to spring will lead to a long and late summer this year. With everything pushed back a couple of months, eventual new home building in the US may still be occurring come October. On the other hand, some industry sources believe that if lose the spring surge is lost, the best one can hope for is a flat market the rest of the year.

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines the latest figures out of Japan for plywood manufacturing and supply, as well as government reports of plans and funding for rebuilding and reconstruction of areas damaged by the recent earthquake and tsunami.
Contact us any time for a subscription.
Contact us any time for a subscription.

Contact us any time for a subscription.

BC Transportation Issues a Reality

Efforts by various west coast transportation hubs to deflect Madison’s inquiries into reports from lumber producers of lengthy delays moving wood have been proven false this week. West Fraser Timber, Canfor, Tolko and Western Forest Products have partnered to charter a newly-built cargo ship for the next year, to give those firms more control over the movement of their products.

The first fully loaded sailing for the ship, owned by d’Amico of Italy, is slated for the end of May from Vancouver. Seven round-trips are planned for the next year, which would bring a total of 175 million board feet of lumber to China.

Please refer to the April 21 issue of your Madison’s Lumber Reporter for details, and the May 6 issue for an update.

Forest Fires, Alberta

As of Friday morning fires have burned 4,500 hectares in the Slave Lake area of Alberta. A report released to 7,000 evacuees Thursday confirmed 374 lots are destroyed and another 52 are damaged in Slave Lake. The Lesser Slave Lake region has 59 lots destroyed and another 32 are damaged.

Alberta Wildfires

87 wildfires were still burning on Wednesday and 23 of those considered out of control. The ferocity of the burning continues to create numerous problems. Nearly 500,000 acres of forest have been burned since the emergency began on the weekend, more than the province lost in all of 2010.

The worst damage is concentrated in the Lesser Slave Lake region of northern Alberta, about 200 km (125 miles) north of the provincial capital of Edmonton. There, fires destroyed 40 per cent of the town of Slave Lake on the weekend, forcing officials to evacuate most of the 10,000 residents of the oil, gas and forestry hub.

The province of Alberta announced Wednesday a $50-million relief fund for immediate assistance for evacuees staying in Athabasca, Westlock, Edmonton and other centres.

Oil and gas companies with operations in the region have confirmed that well over 100,000 barrels of daily production has been temporarily halted – equivalent to about 5 per cent of Alberta’s overall output. Unless the fires rapidly abate, the production shutdowns threaten to impair the cash flow and earnings of companies unable to sell their crude.

US Housing Starts

The Commerce Department said on Tuesday US housing starts dropped 10.6 per cent to a seasonally adjusted annual rate of 523,000 units. March’s starts were revised up to a 585,000-unit pace from the previously reported rate of 549,000 units.

Groundbreaking last month was depressed by a 24.1 per cent tumble in volatile multi-family homes, where starts for buildings with five or more units dropped 28.3 per cent. Single-family home construction fell 5.1 per cent.

New building permits dropped 4 per cent to a 551,000-unit pace last month. March’s permits were revised down to a 574,000-unit pace.

Home Building, US

Existing sales in the US dropped 0.8 per cent to a seasonally adjusted rate of 5.05 million in April from March, the National Association of Realtors reported Thursday. They were down 13 per cent from a year earlier, when a federal home-buyer tax credit ignited a buying frenzy.

In April, inventories for sale jumped by 9.9 per cent. The 3.87 million homes available mark the highest number since September 2010. It also translates to 9.2 months of supply.

The national median existing-home price plunged 5 per cent to US$163,700 from a year ago.

There are over 900,000 residential properties sitting on banks’ balance sheets right now, of which 600,000 have yet to reach the market, according to RealtyTrac. Another 1.2 million properties are currently in some stage of foreclosure, of which a mere 20 per centhave been listed for sale. Behind that, an additional four million properties are in some stage of delinquency — not yet in foreclosure but on their way there.

Banks have been taking longer to foreclose on properties — as long as 800 days in New York and New Jersey, 600 days in California and 400 days in Florida, for example — which pushes the listing and sale of those homes out further than earlier anticipated.
The bright spot is the drop in loans that are at least 90 days late or in foreclosure. About 8.1 per cent of loans were seriously delinquent in the first quarter, the lowest level since early 2009, the Mortgage Bankers Association said. About 4.5 per cent of loans were in the foreclosure process, down from the 4.6 per cent record high in the previous quarter.

BCGEU Report

The British Columbia Government and Service Employees’ Union released a report Tuesday titled “BC Forests In Crisis: A Community Call for Reform” after holding a series of community dialogues earlier this year in Castlegar, Campbell River, Kamloops, and Prince George, BC.

The community dialogues gave the BCGEU the chance to engage with community leaders to get a grasp of the key issues and problems facing forest-dependent communities, and hear possible solutions.

Find the entire report at

Ontario Tenure Reform

The province of Ontario passed its Ontario Forest Tenure Modernization Act (Bill 151) in its legislature Tuesday.
Under the new system, Ontario will introduce two new forest management models for harvesting wood from Ontario’s forests:
One, Local Forest Management Corporations will now manage Crown forests and oversee the competitive sale of the timber in a given area
The other, Enhanced Shareholder Sustainable Forest Licences: a group of mills and/or harvesters that collectively form a new company to manage Crown forests under the Sustainable Forest Licence that is issued to them.

This new Act has not passed without controversy. But that was only because northern Ontario was cut out of the bill’s hearings after tremendous opposition from the mayors of Timmins, Thunder Bay, Ignace, Espanola, Sioux Lookout, and Iroquois Falls. The northern communities wanted the bill’s progression slowed so the government would consult with their residents. Suggested amendments from the Ontario Forest Industry Association and the Ontario Bar Association were ignored.

The third reading, which occurred Tuesday morning, was limited to just 1 hour of debate.

May 24, 2011

Paper and Forestry Conferences

The forest industry’s 2011 conference season kicked off with a bang this week. Conveniently grouped in rapid succession at various locations in downtown Vancouver were: the Pulp and Paper Products Council’s annual International Pulp Week; PricewaterhouseCooper’s annual Foresty and Paper Conference; and the BC Bioenergy Network conference, together running from Monday, May 9 through Thursday, May 12. Economists, analysts, industry professionals and CEOs from across North America, Europe, and parts of Asia weighed in on their estimations of the current state of the forest industry, and provided forecasts for the future. This week Madison’s will focus on the CEO presentations, then follow up with details of other presenters in the coming weeks.
Ilkka Hämälä, CEO of Metsa Botnia, which operates four sulphate pulp mills in Finland for a total annual production of 2.5 million tonnes of bleached pulp, spoke on Monday at International Pulp Week.

Analyses and Forecasts

“There are two or three key drivers affecting the global pulp market at the moment,” began Hämälä . “The scope of growth of demand from Asia is still not known, and what this will mean for producers in Scandinavia — and by extension
for fibre supply out of Russia — is uncertain. Consumption of fibre in Europe has not yet recovered from the recession, and a question remains as to whether there will be further decline in demand.

“The product mix is changing; tissue, packaging board, and viscose are the growing customers for pulp producers.

“There is a big question about the future importance of biomass. Will there be competition for raw material between pulp producers and energy producers?”

“While production of pulp and paper globally is growing, there are questions about how to manage logistics,” continued Hämälä.

“Distribution within Europe is good, in China it is not bad because at least there are products to ship back in containers. Elsewhere it is difficult to create a logistical network for every aspect of the industry.

“There is a growth trend developing for the production of recovered paper. Recycled rates in the developing world must improve, in order to further grow this market, the supply of materials must be stable.”

BILT Paper is a subsidiary of The Ballarpur Group, India’s largest manufacturer of writing and printing paper. BILT Paper is focussed on the manufacture of bulk coated and uncoated paper, and viscose grade fibre, at its three facilities in India and one in Malaysia. Company CEO Yogesh Agarwal launched his presentation with some hard figures.

“India has a US$1.5 trillion economy and a forest base worth US$304 billion. 10.8 million tonnes of paper is produced in India annually, using 45 per cent recycled fibres. The average mill size is quite small, especially in the non-wood based sector. Wood-based paper makes up a very small percentage of production in India,” Agrawal explained. “China and India together are responsible for 70 per cent of global paper production growth, with China taking the lion’s share.

“BILT produces 3 million tonnes of uncoated and 460 tonnes coated paper annually. Theoretically India is a paper exporting country, largely of coated grades, but a net importer of the lower grades especially uncoated.

“The requirements of the packaging sector are changing in India, with delivery now going directly to the customer outlet.”
“Sourcing fibre is a challenge,” continued Agrawal. “There might be more people in India than trees. 8 million tonnes of wood annually is used by the pulp industry, with expectation of that to grow to 12 million tonnes by 2013. At US$122, log prices are not the worst but still not good. The average distance for wood to travel to a pulp mill in India is 2,000 km. There is no trade-off in favour of scale in this region.

“In India recycling and wastepaper collection is only about 26 per cent while in the rest of the world recovery is 40 per cent. Currently there is a fragmented market, and distribution is key,” concluded Agrawal. “Previously prohibitive customs duties are now less than 10 per cent so India is poised for growth.”

At Wednesday’s PwC conference, Chad Wasilenkoff, CEO of Fortress Paper, spoke about that company’s unique position in the paper sector. Subscribers to Madison’s bi-weekly Timber Preview will be well aware of the emergence and growth of Fortress Paper.
“We started with a shift from commodity to specialty, from volume to value,” said Wasilenkoff of the Fortress Paper business model. “In general we look at macro trends for the future, we consider there are a lot of distractions out there. For example, the collapse of the US housing market is just noise, although a very loud noise.

“More critical is population growth, and the transformation of that growth, which is putting pressure on land, biomass, and fibre. There is more pressure on food and energy requirements, in the long terms prices are going to be higher. There is also going to be more political conflict, especially coming from the world’s poorest 2 billion people. Fibre security is going to be a critical issue,” declared Wasilenkoff.

“Cotton can not keep up with the global demand for textiles, therefore dissolving pulp is the future specifically in terms of utililizing wood for rayon.”

In the afternoon Rick Doman, President and CEO of Eacom Timber spoke about producing lumber in eastern Canada. “North America’s lumber producers are shifting their focus from accessing fibre to using fibre more efficiently. In that regard Eacom will be improving recovery at the mill and utilization of the forest,” began Doman.

“The attractiveness of producing lumber in eastern Canada stems from lower energy costs. In the future transportation will be an issue, and Eacom will benefit due to our proximity to Canada’s population base and also to the large US markets. Eacom ships out of Trois Rivieres and Montreal, so the European market is also easily accessible. Freight rates are attractive.

“The challenges of working wood in eastern Canada include higher logs costs, especially when taking into account the smaller log size. The additional export tax charged to Quebec and Ontario producers selling into the US should come off in July or August.

“Eacom has put capital into our mills to upgrade efficiencies and also for green energy technology, and has cut costs on the distribution side by shipping directly to customers. The company is opening a distribution centre in the UK and will be soon in northern Europe as well.” explained Doman.

“Going forward freight costs may become a liability, and log costs between western and eastern Canada need to be better balanced, although both are still lower than in the southern US.

“In the next three to five years more western Canadian lumber will ship to China, which will naturally increase demand for eastern Canadian wood from North American customers,” Doman concluded.

The clearest indication Doman gave in terms of a forecast is: once US housing gets to 70,000 annualized starts there will be lumber shortfalls and the price of wood is going to shoot up. This assessment was echoed by the various presenters at PwC, as well as speakers at PaperWeek. By the time US housing starts get up to 1.4 million lumber is going to be very valuable.

Joe Nemeth, President and Chief Executive Officer of the Canfor Pulp Limited Partnership, spoke next about producing pulp in western Canada.

“There is 1.2 million tonnes of Canfor capacity in Prince George. Canada still represents about 50 per cent of global northern bleached softwood kraft (NBSK) production, and Canfor will continue to invest in our asset base,” began Nemeth. “The common perception that pulp and paper is a traditional product, is a sunset industry, is flawed. Our production is totally sustainable, we take waste and make something useful out of it. There is almost 100 per cent utilization at our mills, when energy cogeneration is taken into account. Canada’s pulp and paper production is the single largest green power industry globally.”

“The pulp and paper industry, together with the forest industry in general, needs to market itself better. We need to educate the public, especially the younger generations and the emerging markets, to tell our story proactively,” charged Nemeth.

This last sentiment was also expressed by Doman, as well as other presenters throughout the three days of speeches. Madison’s will delve further into this important subject of perceptions and future trends in consumption over the next few weeks.

Madison’s Investment Rx

The May issue of Madison’s Investment Rx has gone out to subscribers. Don’t miss out on critical information on log supply, lumber production, transportation constraints, log and lumber shipments, and much more. Get in on this vital analysis for your lumber investments.
Contact us any time for a subscription.

Contact us any time for a subscription.

Global Forest Industry Recovery Forecast

The global forest and paper industry is showing the first signs of a recovery, according to a report by PricewaterhouseCoopers. However, Canadian forest-product exports to the US have declined by 50 per cent since 2005 and other obstacles for local forest companies remain.

“While we are seeing some positive signs of recovery for many companies, there is hesitance to being overly optimistic,” Frederic Bouchard, PwC’s national deals leader for forest, paper and packaging, said in a statement.

PwC said the top 100 public companies’ aggregate Return on Capital Employed (ROCE) -a key indicator of a sector’s financial health -increased in 2010 although levels varied regionally. Global ROCE has been improving steadily to an estimated 4.8 per cent in 2010, up from 3.2 per cent in 2009 from 2.4 per cent in 2008.

PwC Forestry Forecast

The US and emerging economies in Asia, including China, have the highest ROCE (5.8 per cent and 5.2 per cent respectively), PwC said.

PwC also noted that North America experienced a strong revival in the number of merger and acquisition deals after a virtual collapse in 2009.

Meanwhile, PwC said the possibility to convert wood fibre for new purposes, including heat and power, biofuels and chemicals, is going to expand dramatically over the next decade.

“New biomass energy plants and biofuel refineries are returning to the most fundamental use of lumber for heat and power,” said Bouchard. “As a result, energy will again be the baseline use for wood over the more traditional uses of paper. The energy sector’s growing interest in biomass will change demand patterns, as well as industry practices.”

PwC said more cross-industry partnerships will spur efforts to promote wood as a great building material, new sustainable packaging solutions, and more capital for research and development and investment in technology.

Japan Housing Starts

Japan’s new housing starts were 63,419 units in March, down 2.4 per cent from the same month in a year earlier, which decreased for the first time in ten months, according to the Ministry of Land, Infrastructure, Transport and Tourism.
Floor area also decreased, by 0.5 per cent, after an interval of 13 months, to 5,750,121 square metres, according to the Japan Lumber Journal.

Home Building, Japan

Damage from the Great Eastern Japan Earthquake is already affecting the trend of housing starts, says the Japan Lumber Journal.
Housing starts in the three prefectures affected by the earthquake and tsunami, dropped by 19.2 per cent, according to the Japan Lumber Reports.

By application, housing starts of owner-occupied houses increased. However, those of rental houses continued their decrease for the sixth consecutive month. New condominiums, previously on an uptrend, decreased for the first time in ten months.

The growth rate in single-family houses, which had been increasing by double-digit for more than one year, slowed down to 9.6 per cent.

By structure, wooden houses jumped to 35,425 units, up 4.4 per cent, owing to the growth in owner-occupied houses and built-for-sale single-family houses. The percentage of wooden houses increased 2 points from the same month in the preceding year to 55.9 per cent.

Housing starts are expected to mark year-on-year decline from April until around summer.

Housing Starts, Canada

Canadian housing starts slipped 3.1 per cent in April, hurt by weakness in the condominium sector, the latest sign higher interest rates and new mortgage rules have cooled a recent property boom. Starts slipped to a seasonally adjusted annualized rate of 179,000 units, Canada Mortgage and Housing Corp said on Monday.

Canada Home Building

April housing starts in Canada took a big hit from multiple-unit family dwellings, which include condominiums. The segment dropped 5.1 per cent to 96,000 units. Closely watched urban single-family homes rose 3.4 per cent to 64,100 units in the month.

Regionally, urban starts were soft in Ontario and Quebec, while British Columbia, the Prairies and the Atlantic areas saw increases.

Rural starts were estimated at an annual rate of 18,900 units, down from 21,500 in March.

The housing news was not all glum. The Canadian Real Estate Association on Monday lifted its forecast for national sales activity, which it thinks will reach 441,100 units in 2011. This would still be a year-on-year decline of 1.3 per cent.

The new estimate compares with the 1.6 per cent year-on-year decline it forecast in February, which itself had been revised higher.

Much of the improvement is due to stronger-than-expected sales in British Columbia in 1Q, the industry group said.

The surge in sales of multimillion dollar homes in the area has also prompted CREA to up its national average home price forecast as well. It now expects the average price to rise 4 per cent to $352,500, compared with February’s view of a 1.3 per cent rise.

Job Action

Strikes at Finnish forest companies expanded on Friday, taking the total number of white-collar strikers to around 2,500 and prolonging disputes in one of the country’s leading industries.

Stoppages at a number of mills were brought forward having initially been planned for next week, said Antti Rinne, leader of the clerical worker’s union Pro.

The strikes involve white-collar workers at the Finnish sites of UPM-Kymmene, Stora Enso, Metsaliitto (which includes M-real), and South Africa-based Sappi.

Actions at some plants started last month over pay. The industry is ready to raise white-collar pay by 2.5 per cent, but the union has demanded 3.5 per cent and new salary brackets.

Strikes at UPM and Sappi are due to end on May 26 and actions at Stora Enso and Metsaliitto could last until June 9.

In Canada, following a breakdown in labour discussions between Tembec representatives and the union representatives at the Tembec high-yield pulp mill located in Matane, QC, unionized employees did not report to work Tuesday morning and went out on strike.
Consequently, all production activities have been suspended indefinitely.

Tembec is monitoring the situation very closely and is putting into place measures that will ensure uninterrupted supply to its customers.

The plant in Matane employs 143 people, of which 99 are unionized, and ships to customers in North America, Europe and Asia.

May 15, 2011

BC Community Action

Further to last week’s widely re-circulated piece in your Madison’s Lumber Reporter about British Columbia’s current forest practices, and ominous warnings from various elements of the industry about lack of stewardship, there is a groundswell of activity looming on the public level around this important issue. Municipalities, specifically in pine-beetle affected areas of the interior, are beginning to take control of interface management for fear of massive forest fires in dried out, dead timber stands. Provincial government union members have been organizing Forestry Dialogues in areas of the province dependent on the forest industry for their livelihoods. Individuals with experience in forest land management in BC both on a corporate and a government level, biologists, and environmental activists, are working separately and in concert to, at a minimum, bring forestry issues to the forefront of political discussions and, possibly, to enact change.

Groundswell Around Forestry Issues

Bill Bourgeois, PhD, RPF, spent 35 years working in the forests of BC for, among others, MacMillan Bloedel, Lignum, then Riverside after the takeover, and the Forestry Research Program. Bourgeois explained to Madison’s in a phone interview Tuesday that toward the end of 2009 he became frustrated and angry with the lack of forest management and the lack of reception to his concerns.
“By the autumn of 2010 I was getting invited to discussion sessions; there was a groundswell of initiatives forming with a range of attendees,” explained Bourgeois. “Environmentalists, industry contractors, professional foresters, biologists, academics, environmental lawyers, policy guys, students, were all as passionate about this issue as I was. I realized that the environmentalists and the small lumber producing industry had the same concerns, but differed on what needs to be fixed.

“We are currently operating with 120 volunteers from across this province. Our overall objective is to raise the profile of forest management before the next election, so it becomes a platform. We consider forestry in BC to be in crisis. The decision-makers — which includes industry, bureaucrats, and politicians — are using the poor economic situation to maintain a very short term forest vision. These decisions can have a drastic impact on the future of the forests. It is a big concern,” said Bourgeois.

“As an example, Weyerhaeuser in the mid-1960’s focussed on high-yield forestry, meaning the restocking of timber for maximizing return in eventual lumber production, and MacBlo later continued on that policy. Weyerhaeuser didn’t care about the birds, the burrowing owl, they cared about maximizing lumber production revenues. BC in the past decade has tended not to do that. Even if one is managing a public asset there is still a responsibility to invest in it. One must invest for the longer term, right now there is no return so there is no investment in the forest, in our opinion,” detailed Bourgeois. “There is a need to separate the management of the woods from the management of the mills. A mill manager’s performance measure is based on the cost of producing a 2×4, and as long as a woodlands manager is reporting to the mill manager a short term vision remains. They should be independent, as has become the trend in the US where timberland is privately managed.”

Bob Peart is a biologist with experience in BC land use since the 1980’s, having worked for the provincial government, First Nations, environmental groups, conservation agencies, as well as having been self-employed.

“I am a concerned and very active citizen,” explained Peart to Madison’s in a phone interview Tuesday. “Mainly I worry about land use issues, park land, and ecosystem health.

“In an effort to put forest management back on the table of public dialogue, we have formed a think-tank of sorts consisting of 45 people from across the province, loosely organized under the umbrella of Environment on the Edge. We have had three gatherings of the full group and two or three smaller discussions about strategy. To our minds the issues in forestry right now are all related to Crown land. There is an expectation that public land will be managed to provide resources and bring in revenue. But in fact the resource is being poorly managed, and there are many issues spread all across the province. If 95 per cent of BC’s forest is public land, why can’t that be managed; why isn’t there stewardship of that so residents will have it as a resource for the future? The land is not being restocked, and the cut rate is increasing,” charged Peart.

Yet another effort to bring BC’s forest stewardship, or lack thereof, to the front of public debate is a series of community dialogues organized by the BC Government Employees Union. Called “BC Forests. Our Future”, the dialogues have so far taken place in Castlegar, Campbell River, Kamloops and Prince George. A BCGEU spokesperson explained to Madison’s in an interview Wednesday, “We want to hear from communities about how they are affected by the economic downturn, by deep cuts to the Ministry of Forests, and to the Forest Service. We want to hear how that affects them and what they would like to see going forward. We are putting together a report culminating everything we have learned, which will be available to the public once it is done [in a month or two].”

The dialogues were held by invitation, but no one was prevented from attending. There were about 40 people at each session, a handful of those being BCGEU members. In Campbell River other attendees included; First Nations, the local Chamber of Commerce, United Steelworkers members, city councillors, provincial Members of the Legislature, forestry consultants, and various environmental and conservation groups. A similar mix of attendees made up the Prince George session, as well as representatives from the Central Interior Logging Association, the mayor of Prince George, University of Northern British Columbia forestry students, and a federal political candidate.

“Our members were bolstered by the support and concern of the broader community,” explained the BCGEU spokesperson. “We received good public support; there is a high level of concern in the community at the lack of forest management. There is a desire to revitalize the forest industry in ways that benefit communities. Local communities are frustrated over the lack of local control in the face of government changes over the past few years.

“Our members feel stress from the impact of job losses and mill closures. There are increased workloads for the people that are left, and there is not as much administrative support as there used to be. Our members do not get as much time in the field as they did before. In general there is frustration over the continued inability to achieve value-added revenue, people don’t like to see raw log going offshore. There is also concern about the lack of public oversight. In view of the cutbacks, there is not as much compliance and enforcement activity as there was in years past, and our members are concerned about professional reliance,” detailed the spokesperson.

At the Dialogues a wide range of solutions were offered, the discussion demonstrated a shift in peoples’ thinking. Specifically, attendees agreed that there is a “need for greater public investment”, according to the BCGEU. “We noticed a difference in priorities in different communities. In the interior there is more concern about forest fires, while on the coast people expressed concern about the management of forests on private lands, which don’t fall under FRPA, and the inability of municipalities to impact private land directly neighbouring them.”

Bourgeois heads up the Healthy Forests-Healthy Communities initiative, a non-partisan, volunteer-supported group focussed on concerns and recommendations of experts and community members in the hopes that together, experts and citizens can provide opinion on the preferred future for the province’s forest resources. Partners to the Healthy Forests-Healthy Communities initiative include BC Forests Society, Canadian Institute of Forestry, Outdoor Recreation Council of BC, Thompson Rivers University Department of Natural Resource Science, UBC Faculty of Forestry, Vancouver Island University Department of Forest Resources Technology, and more. This initiative can be found on the web here [ ]

Peart works closely with Environment on the Edge. There is a large group phone meeting planned for next week to plan public engagement activity for the summer and through autumn. Group members are also actively involved in writing background papers, which will be shared with the Healthy Forests-Healthy Communities initiative.

The BCGEU has detailed forestry dialogue resources, and video, available here [ ]

Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines alarming new US tax refunds being used by companies with pulp and paper operations in the US. Upon the elimination of the previous credit being used through the 2009 Highway Bill, sometimes referred to as the black liquor tax credit, producers are now using the 2008 Food, Conservation, and Energy Act, or Farm Bill, to obtain even greater tax refunds.

Contact us any time for a subscription.

CN Centre-Beam Rail Car Quota

Lumber producers in British Columbia were surprised this week to receive faxes from Canadian National Railway declaring a ‘weekly quota’ on centre-beam rail cars headed to the CN Surrey Thorton yard. While mills can receive as many cars as they require, there is now a limitation on how many can be sent to that facility.

We have a half dozen customers in BC using the Surrey facility,” said Mark Hallman, CN media representative for corporate and financial issues, to Madison’s.

“We are in direct conversation with customers to discuss the movement of product to that facility.

“That’s as much as we are going to say on the subject,” concluded Hallman abruptly.

“I can confirm that CN sent out communiction to customers in BC regarding how many centre-beam rail cars they can send to that distribution centre,” explained Kelli Svendsen, CN media representative for operations in Vancouver, to Madison’s more helpfully.

“We will be working with customers regarding their needs.

“The issue goes to capacity, the supply chain, and turn-around of trucks coming into the Surrey facility and going out again. At the moment there is a supply vs. capacity issue,” detailed Svendsen further.

Russian Log and Lumber Exports, 1Q 2011

During the first few months of 2011, total softwood and hardwood log exports from Russia have been up by almost 40 per cent compared to the same period last year, as reported in the Wood Resource Quarterly.

Wood Exports, Russia

Stemming from Russia’s announcement of a sharp increase in raw log export taxes in 2009, that country’s total log exports fell from 51 million cubic metres in 2006 to about 22 million cubic metres in 2009 and 2010, according to Wood Resource Quarterly.

From 2008 to 2010, exports were up 18 per cent, reaching an all-time high of 17.5 million cubic metres last year. So far this year, exports have been over 50 per cent higher than the same period last year; 2011 may very well be a record-year.

China is the largest market for Russian logs, followed by Uzbekistan, Japan and Egypt. Shipments to China tripled between 2007 and 2010; during the first quarter this year, exports were 150 per cent higher than the same quarter in 2010, says WRQ.

Flooding in Manitoba and Quebec

A high water advisory was issued for large parts of Manitoba Thursday. 3000 homes are under water along a 150 km stretch of the Richelieu River in Quebec stretching from Montreal’s south shore to the border with New York.

Canada Floods

Spilling far past its banks, the Assiniboine River in Manitoba has risen steadily to almost surround several homes, a church and commercial properties along nearby Highway 26. The municipality of St. Francois Xavier has distributed up to about 50,000 sandbags to many of approximately 100 houses along or close to the Assiniboine.

The provincial government has held the Assiniboine’s flow to 18,000 cubic feet per second since Tuesday, said Steve Topping of Manitoba Water Stewardship. He added precipitation might create a higher flow — up to six inches — in the coming days on the river between Portage la Prairie and Winnipeg.

Rains have stopped in Quebec but flood waters continue to rise. After a snowier-than-usual winter, floods have covered rows of streets along the Richelieu River — up to one kilometre in some areas.

About 650 soldiers are helping protect swamped areas of the province by placing sandbags and by evacuating people.

Paper Strike, Finland

Finnish clerical workers’ union Pro on Wednesday handed in another strike notice affecting the paper industry after starting a three-day strike at UPM-Kymmene mills earlier than originally planned.

Pro said it had taken the decision to start the UPM-Kymmene stoppage early because of the employer’s attempts to hire strikebreakers.

The new strike is to begin at 19 May, affecting Metsäliitto and Stora Enso facilities for three weeks.

An ongoing two-week strike at Metsäliitto and Stora Enso is to end next week. Pro started the strike two days earlier than originally planned, also amid strikebreaking claims.

Tuesday’s talks to resolve the pay dispute failed, with no date for a resumption of dialogue agreed.

US Softwood Lumber Research Referendum

Progress is being made on the Softwood Lumber Research, Promotion, Consumer Education and Information Order, a federal initiative out of the United States Department of Agriculture. Please refer to the October 22, 2010 issue of your Madison’s Lumber Reporter for background information. A referendum will be held May 23 to June 10 to determine if domestic softwood lumber manufacturers and importers approve the implementation of the proposed order. To be eligible to vote, interested parties must have manufactured and/or imported 15 million board feet or more of softwood lumber during 2010 in the US.

If the Order is approved, a group will be created that would add an assessment to lumber sales and use the money for marketing and promotions similar to milk producers’ “Got Milk?” campaign. An official familiar with the plan stressed to ProSales Magazine Tuesday that the marketing money wouldn’t be used for consumer advertising but rather would be directed at the builders, architects, and others who have the greatest influence on choosing construction materials.


May 9, 2011

BC Forest Practice

The long-dreaded US claim against British Columbia’s beetle-kill harvest pricing practices has been tabled at international court, documents have been filed and the arbitration schedule is set. Most sources figure it’s all over but the crying. Pressure exerted over the past several years by some of BC’s lumber producers on the industry in general and forest stewards in particular to not speak publicly about forest practices for fear of “giving ammunition to the US” no longer carries any power. Voices from across the province have been popping up in the mainstream press on a regular basis lately, bringing forward claims of poor stewardship and unfulfilled obligations, which themselves have elicited responses from government, agencies and organizations.

Madison’s has garnered a landslide of accusations and criticisms of late, with almost every source insisting that comments be kept off the record. Thankfully, the fear of losing jobs and losing business, and the anxiety of repercussions from speaking up are evaporating. In this two-part examination, Madison’s will first bring forth various opinions of what is going on in BC’s forests right now. Then next week will delve into new models of community involvement in forest practices.

In 2010 BC’s forest sector accounted for 18.7 per cent of the province’s goods-producing industry GDP, 30 per cent of goods exports, and 26 per cent of total manufacturing shipments, according the the BC Ministry of Forests, Mines and Lands Service Plan released February 2011. The volume gain from silviculture investments is forecast at 7.3 million cubic metres. That report also states that BC’s total timber harvest volume was 45.3 million cubic metres, while the Ministry forecast $419 million in revenue from Crown forests in the 2010/11 fiscal year. That compares to approximately 78 million cubic metres from Crown lands in 2004/05 according to the First Nations Forestry Council, and $1.28 billion actual and estimated revenue from Crown forests in 2004/05, according to the BC Ministry of Forests 2004/05 Service Plan.

This amounts to an approximately 60 per cent drop in harvest and a 67 per cent drop in revenue from 2005/05 to 2010/11. A combination of the deep and protracted downturn in US home building since 2006 and the increased harvest of salvage-grade beetle-kill timber is generally credited for this discrepancy in ratios.

“The underlying issue today is of tenure,” explained Anthony Britneff, recently retired from a 39-year career with the BC Forest Service, to Madison’s in a phone interview Wednesday. “Tenure holdings have been strengthened to the forest products companies as the government has increasingly taken a direction toward privatization over the past 25 years. The previous emphasis on the public interest and multiple forest values is much weaker now.

Stewardship and Obligation

“There was an approximately 90 per cent funding cut for silviculture reforestation in 2002. Some of that was increased in 2005 but it’s still a fraction of what it used to be. The concern is that silviculture funding is less than half of the previous decade, but there are more trees dying,” said Britneff.

“Right now we are seeing a return to pre-1978 timber-centric practices. Other values like water, soil, air, recreation, visuals, grass lands or cattle lands, etc. have been put at a very low priority. The current legislation emphasizes timber extraction at the expense of everything else.

“In 2001/02, the BC government told the forest industry to take responsibility for inventory and forest health under Defined Forest Area Management (DFAM), which the companies didn’t want to pay for. So DFAM failed.” said Britneff.

Throwing their hats into the ring of this increasingly hotly-debated subject are Suzanne Simard, professor of forest sciences at UBC, and Kathy Lewis, professor of ecosystem science and management at UNBC. Their joint piece, published April 8 in the Vancouver Sun states in part, “Signs that we are losing our grip on stewardship are evident in declining forest health and in expanding understocked forests — also known as NSR (Not Satisfactorily Restocked) — over an increasingly clear-cut and fragmented landscape. Public consultation over land-use planning has taken a back seat to efficiency of resource extraction from our forests. [ . . . ] With the enactment of the Forest and Range Practices Act came ‘results-based forest management’ and ‘professional reliance’. [ . . . ] Disturbingly, scientists and foresters are observing that young simplified plantations of single-species have declining health due to insect, disease and abiotic damage, and this is projected to worsen with climate change. The area of NSR has increased dramatically in the past decade due to inadequate reforestation of harvested, burned and beetlekilled land. [ . . . ] There is no meaningful assessment of the cumulative effects of multiple land-use tenures that overlap with forestry, such as for energy or water resources. Forestry is still largely practised on a block-by-block basis. [ . . . ] There is a troubling lack of legislative process, policy or research in place to enable forest stewardship and protect environmental values.”

Madison’s has heard NSR repeatedly in the past couple of years as a serious and growing problem. A proper forest inventory seems to be falling into bureaucratic no-man’s land.

“One way harvesting companies can get around reforestation obligations is by using a small scale salvage program, which amounts to several hundreds of thousands of hectares over the past decade for which no records are kept of these operations,” detailed Britneff. “The issue to a forestry professional is that previously this land would be re-planted because it had been logged, but at this point we can only estimate that between 300,000 and 500,000 hectares are NSR because there are not enough trees left on the landscape for the forest to regrow.

“Mid-term tree survival rate of many plantations is not good, especially in the southern interior, and there is not sufficient monitoring going on to ensure forest health. The government is fobbing off the public interest on forest companies, who — like the government — do not want to pay for forest stewardship.”

April 26 a piece on this subject by Sharon Glover, CEO of Association of BC Forest Professionals, appeared in the Vancouver Sun. Taking time out of her busy schedule Thursday, Glover explained a few of these critical issues to Madison’s.

“There are ways of measuring forest health, there is compliance and enforcement on the part of government. In well over 90 per cent of the cases we [the ABCFP] look into, there is nothing wrong in the forest. Upon investigation there are high levels of compliance,” said Glover. “When looking at the numbers, claims of poor forest health and poor practices are not supported.”

Madison’s asked about the high success rating; if in over 90 per cent of the cases examined everything was in compliance, but isn’t there a much decreased number of assessments being made in total, due to significant funding cuts to BC’s forest sector?

“There are certainly issues in the forest and things we would like to see improved,” answered Glover. “We would like to see more work done with forest inventory. Our last report was in 2006 and needs to be updated. We have asked the government for better data.

“Tenure changes last year are another issue,” continued Glover. “Currently there is area-based tenure, with a single company working a cut block that can design which trees to take and a silviculture prescription. There is also volume-based tenure where a particular cut will include a wide area which a number of companies have permission to harvest. In this instance nothing in the legislation forces different tenure holders to work together, and our forest professionals have noted problems, particularly in the interior.

“NSR is linked with inventory. Proper forest inventory is critical in making a judgement on what needs to be restocked,” Glover explained.

Madison’s then asked about the recent elimination of the log scale, with data only being collected by the cruise.

“If there is no scale, there is no data,” said Glover. “The cruise-based policy was a decision of the government. There are, however, other ways of collecting inventory, professionals can focus on other estimations.

“The government sets the laws which govern forestry. Our members have a responsibility to uphold forest laws, but it is actually the tenure holders who must comply. Under the Forests and Range Practices Act (FRPA), tenure holders do not have to take a forester’s recommendations. There is currently no check by government on a tenure holders obligation to uphold FRPA.

“Foresters provide three options to the tenure holders, of which some are better than others. Tenure holders may choose poorer options, in terms of soil, wildlife, biodiversity, water, as opposed to simply the timber harvest. In these cases there is no check by the government into forest health. If one of our members believe poor stewardship is happening, their choice is to speak up or walk away.

“Proper forest stewardship has long term benefits. If the government wants the land to look different then it needs to tell the tenure holders to invest in their financial responsibility,” concluded Glover.

The real question remaining is if the BC government is at least complying with insight provided by its own forest professionals. The March 2009 Forest and Range Evaluation Program (FREP) contained a list of recommendations for the Forest Stewardship Plan Stocking Standards. These recommendations included; an immediate need to review the Timber Supply Review, the need for short and long term research on the impacts of forest health agents affecting immature pine, a need for extensive and long-term monitoring of free growing stands throughout BC; and a list on which general improvements to stocking standards should be based.

Given the volume of budget cuts to the forest service over the years it is difficult to see how any of these recommendations could possibly have been achieved. Madison’s reached out to a staff member at FREP Thursday. In reference to
research, the Ministry has a number
of species and site preparation trials in
clearcut situations that were established
approximately 20 to 25 years ago. There
are other trials in a variety of Silvicultural
systems projects where staff is looking
at pine growing under pine stands and
in clearcuts in the Chilcotin. Silvicultural
Systems projects are studying pine when
growing in a mix of other species, and
other research is addressing pine performance in the presence of aspen. There are
also trials that are concerned with the effects of roots disease on pine.

Regarding monitoring, the Ministry is
conducting stand development monitoring – close to 500 cutblock assessments
so far – and has reported out in a number
of documents. The Ministry is also addressing the relevance of current stocking
standards given forest health impacts and
climate change. Ongoing monitoring is occurring.

Prince George Inland Container Port Choked

In the central interior of British Columbia, shipping is the problem that has everyone in a panic. The docks are choked in the Prince George inland container port facility. Some makers have received notice that no more shipments will be booked into the PG yard until enough containers have left to create more space. Conditions reminded one trader of the old days, when “some loads are again going break bulk to fit in ships without containers,” he noted. That’s something we haven’t seen in a long time.

Japan Lumber and Panel Update

Japan’s wood products wholesalers experienced aggressive purchases of imported plywood in March, but buyers are now cautious of chasing high priced plywood, according to the Japan Lumber Reports.

Undamaged plywood manuracturers on the west coast are returning to full production levels and the distribution system is normalizing.

Wood Supply, Japan

The Lumber Price Market Investigation Committee of the Tokyo Lumber Wholesalers’ Association held its monthly meeting in Shin-kiba on April 4, according to the Japan Lumber Journal.

Participants pointed out a slowdown in cargo movement for lumber items.

Prices of North American logs, shipped in April, are increasing both in America and Canada. As the freight is also growing, the importing cost for those logs is soaring.

Traders noted that in the future, purchasing prices are most likely to rise, as the yen is weakening.

Total plywood production of the six manufacturers on the Pacific coast of the Tohoku region is 60,000 cubic meters per month, approximately 30 per cent of all the production in Japan, says the Journal.

Ainsworth Engineered will increase production of JAS OSB at facilities in 100 Mile House, BC, and Grand Prarie, AB, according to Japan Lumber Reports.

Paper Workers Strike in Finland

Members of the Proliitto union at Stora Enso and Metsäliitto have become the latest Finnish paper industry workers to go on strike in the ongoing dispute over pay. Some 1,500 staff across the two companies went on strike April 26, after a planned two-week walk out was moved forward one day by the union in order to pressure government mediated bargaining.

All Stora Enso and Metsäliitto workplaces including Metsa-Botnia, M-real and Metsa Tissue are affected by the strike, which started at 6am and will go on for two weeks plus a day.

Earlier this month, some 1,000 white-collar workers at UPM-Kymmene went on strike for two weeks, costing the company around 1 million euros (US$1.45 million).

Finland Paper Strike

National Conciliator Esa Lonka on Tuesday met union representatives and management but was unable to propose mediation. No further talks have been announced.

Stora Enso has been targetted for the next wave of full strikes, after the company allegedly attempted to force overtime on employees during a lawful overtime ban at the beginning of April.

US Storms Continue

Hundreds of tornadoes ravaged the south coast of the United States this week, with more storms expected on the weekend. 330 people died and 5,484 were injured in a path of damage that covered more than 2,500 miles. The total number of tornadoes to hit this month alone was 267, though the actual number is said to have been much more, close to 500.

Storm Damage, US

Based on a preliminary storm survey by the weather service, the strongest tornado was an EF5 in Monroe County, MS., which had estimated peak wind speeds of 205 mph.
The fast-moving funnel clouds destroyed homes and property across six states over two days.

Damage surveys of the hardest-hit areas of central Alabama were still being conducted Friday. As many as a million homes and businesses there were without power, and 2,000 National Guard troops had been activated to help in Alabama. The governors of Mississippi and Georgia also issued emergency declarations for parts of their states.

An Alabama nuclear power plant that lost power Wednesday evening as a result of the severe storms remained safely shut down on Thursday, the Tennessee Valley Authority said.

Alabama officials estimate that up to 25 per cent of the poultry houses in the state were destroyed or damaged by Wednesday’s devastating tornadoes, likely killing millions of birds.

State government officials in Alabama, the number-three chicken-producing state behind Arkansas and Georgia, said Thursday that preliminary reports indicate about 200 poultry houses were destroyed and another 180 were damaged by the fierce storms.

Prince Albert Pulp Mill

Indonesia’s Paper Excellence has finalized its purchase of the Prince Albert pulp mill in Saskatchewan.

The mill has been closed for 5 years. Paper Excellence plans to invest $200 million into the mill, to convert the facility to a dissolving pulp mill which will be used for the production of a variety of products, including rayon.

“Saskatchewan has been a great place to operate with our mill in Meadow Lake,” Paper Excellence’s Canadian Vice-President of Operations Ed Roste said in a company press release.

The government of Saskatchewan is providing a letter of commitment for the $500,000 per year that it is allocating towards training of new mill operators in new mill processes during the mill’s first two years of operation under its new owners.

Paper Excellence expects to create at least 200 direct jobs at the mill. The new owners are planning to accelerate the restarting of the mill, and are hoping they will be able to restart forest operations this autumn, in time for a spring 2012 restart.

Senior Chinese Housing Officials Tour BC

Senior Chinese housing and urban-rural development officials, including high-ranking Chinese vice-minister of Housing and Urban-Rural Development Qiu Bao Xing, met with their Canadian counterparts in Vancouver this week to discuss how BC wood-frame construction can help solve China’s housing and building needs, Jobs, Tourism and Innovation Minister Pat Bell announced.

A joint working committee has been created where BC will get an opportunity to share expertise in wood-frame building design, advanced wood technologies and wood’s environmental benefits.

The vice-minister’s stop-off in Vancouver included a visit to BC’s first six-storey wood frame condo under development in Richmond. The province recently changed its building code to allow construction to six storeys.

China has called for a a major housing build in the next five years of 36 million affordable units, 10 million each in 2011 and 2012.
Combined with China’s annual building rate of 10 million housing units, it has British Columbia eyeing the 86 million units that could be built in the next five years.

May 2, 2011

West Coast Cargo

North America’s west coast lumber producers and wholesalers are adjusting to a large-scale change in customer base during the protracted downturn in US home building. Through 2010, sawmills and exporters earned an understanding of new customers for wood products out of China, Taiwan, and Korea. At issue were different methods of ordering, different credit arrangements, different volumes, even different product sizes as most Asian customers prefer lumber cut to metric measurements.

Transportation Issues

In 1Q 2011, with US demand still low compared to historical figures, it is the Asian market that continues to hold up lumber production in North America, especially on the west coast. Response time in the supply chain, however, is proving to be cumbersome in view of the changing direction of wood transported. Until recently, most lumber products moved from the west coast to transportation hubs like Chicago, IL, or Memphis, TN, to then be distributed further to individual customers. In 2010 that direction shifted, with wood generally moving to and down the coast to the next available port, then being loaded onto ships to feed growing Asian demand.

Problems have been continually reported, specifically through this winter, of delays on the rails and of truck shortages. Due to the sharp downturn in the US economy, and the fact that the lumber industry was hit very hard immediately after the crash of US home building in mid-2006, the reaction to gradually increasing demand for forest products into the export market has been quite slow. It seems that transporters, both on the road and the rails, are waiting for proof that the business of lumber is indeed recovering before deciding to serve that industry’s changing transportation needs.

Last week’s comments by several west coast sawmills and wholesalers printed in Madison’s Lumber Reporter sent customer service reps at a couple of port facilities in Vancouver to inquire with their forestry contacts about claims of delays in loading wood onto ships. The latest figures out of Port Metro Vancouver show that container traffic from that facility is actually down in March 2011 compared to January. There were less empty containers on the docks, but there were also less containers in total.

So where is the problem, exactly? Are there containers full of wood really waiting to go out of Vancouver, Prince Rupert, Tacoma, Seattle and others, or is the delay on the rails from the mill to the coast?

Madison’s contacted container operators at Nanaimo, Vancouver, and the Vancouver Fraser Port Authority this week. All stated that for container traffic, a delay of more than two weeks is quite unusual and would cause all exporters, not just for forest products, to complain loudly. Breakbulk, or loading into ship’s holds without containers, will often see a longer delay of even up to a month. However the vast majority of wood products from the west coast goes by container.

In 2006 the Port of Vancouver (now Port Metro Vancouver) exported 9.7 million tonnes of containerized commodities of which 85 per cent or 8.3 million tonnes were resource commodities, according to Transport Canada. Major resource commodities including specialty crops, lumber, woodpulp, and other forest products, accounted for 6.3 million tonnes and 0.481 million export TEUs (twenty-foot equivalent units) in 2006.

Port Metro Vancouver’s foreign and domestic shipments plunged in November 2008, according to an October 2010 Institute of Chartered Accountants of British Columbia report titled “Beyond Numbers”. Between 2008 and 2009, after several years of strong growth, container traffic through Port Metro Vancouver declined by 10 per cent, with almost one fifth of this drop attributable to a decline in loaded inbound containers. At the Port of Prince Rupert shipments to the new container facility grew by 46 per cent in 2009, although that facility still operated at well below full capacity, says the ICABC.

Perhaps more telling, the ICABC report explains that while the US is still BC’s most important trading partner, its share of BC exports has declined during the past decade, from 67 per cent in 1999 to 52 per cent in 2009. During this same period, the Pacific Rim grew in importance as a trading partner for BC, with its share of BC exports growing from 24.5 per cent to 36 per cent. The Pacific Rim market (excluding Japan) grew from 9.1 per cent in 1999 to 22.4 per cent in 2009, with China and South Korea accounting for most of this growth. Between 2000 and 2009, the value of forestry exports declined from almost 50 per cent of BC’s export mix to 30 per cent. Pulp shipment volumes have increased in the same time frame.

According to Port Metro Vancouver’s own statistics, the volume of containerized outbound lumber in the past couple of years has increased by 32 per cent, from 2.2 million metric tons in 2008 to 3.3 million metric tons in 2010. In breakbulk, log volumes outbound have dropped by 24 per cent in the same time period, from 8.1 million metric tons to 6.2 million in 2010. The volume of lumber exported by either method through Port Metro Vancouver jumped 36 per cent in February 2011 compared to one year earlier, to 624,237 metric tons from 459,437 metric tons in February 2010. Log exports, however, dropped by 17 per cent for that time period, from 1.6 million metric tons in February 2010 to 1.3 million this year.

A contact at Vancouver Fraser Port Authority detailed to Madison’s in a phone interview Wednesday that in 2010, 93 per cent of total lumber volume shipped from that facility was in containers, while 10 per cent of logs and 59 per cent of pulp were loaded into containers.

“There are no container shortages here on a monthly basis,” the source said.

A long-time source at the Port of Nanaimo explained that most ships going out of Nanaimo are bulk carriers, loaded with grain, coal, logs, etc.

“It’s true that there is not a huge amount of containers around,” the source said. “But if there were containers loaded, going nowhere, people would be screaming.”

Another source, responsible for operations at a large logistics service provider to the pulp and paper industry located in Richmond, BC, told Madison’s Tuesday that facility is “at capacity” right now, yet product loaded into ocean containers “this week goes out next week.”

“We’re shipping as hard as we can ship. It always seems like there are not enough containers, but no port would allow a delay of more than two weeks. The volume of product shipped weekly is increasing, but steadily. It’s certainly not a hand-to-mouth situation [with container supply],” said the source.

Another source, at a large transloading company in New Westminster, BC, which provides integrated transportation services for forest products from mill to final destination, explained to Madison’s Tuesday, “It’s possible that in the past couple of weeks something got pushed, for example if 100 containers of water or something like that, were sent to Japan. But extended delays of container traffic of over a month at the port are just not the current reality.”

According to Port Metro Vancouver, there was less container traffic in March than in January 2011. While there were fewer empty containers, there were also fewer total containers. Port Metro Vancouver statistics show that 106,143 containers moved through that port in March, compared to 116,513 in January, a 9 per cent drop. 12,106 containers were empty in March compared to 14,466 empty containers in January, a decrease of 16 per cent.

Madison’s Investment Rx

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Madison’s Timber Preview

This week’s issue of Madison’s Timber Preview examines additional methods of valuing the forest land base beyond the traditional timber stands and the land itself. Higher-and-better use, in all its permutations, are looked at.
Contact us any time for a subscription.

Labour Settlement

After issuing 72-hour strike notice Tuesday, the United Steelworkers returned to the bargaining table with the Interior Forest Labor Relations Association, this time with a mediator. As of 4:00 am Friday morning, a tentative agreement had been reached. USW members will vote to ratify in the next two to three weeks, with the Union recommending its members vote in favour of the deal.

US Home Building

US home construction in March bounced back from the previous month’s very low levels, but overall numbers remained weak. Construction of homes and apartments last month jumped 7.2 per cent from a month earlier to a seasonally adjusted annual rate of 549,000 from a revised 512,000 in February, the Commerce Department said Tuesday.

Building permits climbed 11.2 per cent from a month earlier to an annual rate of 594,000. The month’s results were driven by rising construction of single-family homes, which made up more than three-quarters of all starts. Single-family construction was up 7.7 per cent to an annual rate of 422,000.

US Home Building, Sales

The National Associaton of Realtors reported Wednesday that existing home sales in March rose 3.7 per cent to 5.10 million units, yet total sales were off 6.3 per cent in year over year comparisons. Single family sales rose 4 per cent to 4.45 million compared to February, but fell 6.5 per cent in year over year comparisons.

The median existing home price rose 2.2 per cent to US$159,600 from February’s US$156,100. Median prices were down 5.9 per cent in year/year comparisons. Unsold existing home inventories rose to 3.549 million from 3.498 million units. Months’ supply fell to 8.4 months from 8.5 months previously.

Confidence among US homebuilders fell in April. The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, the Washington-based group reported Monday.

March Global Pulp Shipments

The Pulp and Paper Products Council reported Thursday world pulp inventories last month fell to 32 days of supply at current usage, as sales to China surged 99 per cent from a year earlier. World pulp shipments in March rose to 4 million metric tons, up 22.6 per cent from a month ago and up 17.4 per cent from a year ago, according to the trade group. Shipments to China were up to 951,000 metric tons from 477,000 tons a year ago. As for supplies, softwood pulp inventories stood last month at 24 days of world usage, low enough to provide potential support for prices.

Global Pulp & Paper

The PPPC reported hardwood pulp inventories stood at 40 days of usage in March, a level that’s considered adequate to meet demand.
“The fundamentals point to higher prices with lean global inventories, strong Asian demand and limited capacity gains over the next 18 to 24 months,” said Mark Wilde, market analyst at Deutsche Bank, in a comment.”
The PPPC collects data from operators of 80 per cent of world capacity, including producers in Argentina, Brazil, Canada, Chile, Germany, Japan, New Zealand, Norway, South Africa, South Korea, Spain, Sweden and US.

US Storms, Wildfires

The US Small Business Administration announced Thursday it will provide the people of North Carolina with the most effective and customer-focussed response possible to assist homeowners, renters, and businesses with federal disaster loans.

A storm system moving out of the Rockies is set to produce dangerous thunderstorms, including damaging winds, large hail and possibly tornadoes, over a significant portion of the Plains and Midwest today and Friday, says the National Weather Service. Kansas and Missouri southward to northern Texas and northern Louisiana will be the region most likely to be hit with damaging storms through tonight, including Kansas City, Oklahoma City and Dallas. The risk area will stretch from Oklahoma to Ohio on Friday and Friday night, encompassing St. Louis, Indianapolis, Nashville and Cincinnati.

Meanwhile massive wildfires ripping across the bone-dry state of Texas have claimed the lives of two firefighters and consumed more than 730,000 hectares and nearly 400 homes.

A cold front which brought some relief after weeks of battling the blazes was expected to lift on Friday as higher temperatures returned to the Lone Star state.

The fire service warned that it will take several consecutive days of rain to counter the underlying and persistent drought conditions across the state.

A section of State Route 83 north of Sonoita, AZ, south of Tucson, was closed down for nearly two hours on Wednesday afternoon after a wildfire jumped the roadway and continued burning across the Empire Ranch.

Thursday morning, Bureau of Land Management officials estimated that the fire had consumed 1,500 acres and was 30-percent contained. Full containment was expected later in the day.

Eacom’s Big River Sawmill

Carrier Lumber Ltd, out of Prince George, BC, informed the Big River and Area Forestry Committee on April 15 that it has made an offer to Eacom Timber Corp. to buy the Big River, SK, sawmill closed since 2006.
Eacom bought the sawmill for $3 million from Domtar Corp. in 2009, but had trouble securing its desired timber allocation.

Carrier is planning a major expansion. The company operates a mill near Prince Albert, SK, already has an allocation under the Prince Albert Forest Management Agreement and has indicated it would work with the town and First Nations to increase its allocation.

Catalyst Curtails, Mill Fire

Last week Catalyst Paper announced it was curtailing production at its Snowflake Mill, AZ, by approximately 5,500 tonnes of recycled newsprint in order to adjust for limited availability of affordable, quality waste paper.
The company said it would take approximately six days of downtime over the next several weeks to carry out maintenance activities, including a three-day mill-wide shut, preventing the need for employee layoffs.

Catalyst Paper then reported a fire Tuesday in the storage yard has shut down production and destroyed approximately 14,000 tonnes of recovered waste paper.

The fire broke out at approximately noon Monday in the waste paper storage area. The mill’s emergency team responded immediately and several local fire departments were called in to help contain the blaze.

There were no serious injuries reported.