Tag Archives: Mountain pine beetle

CR: Lumber Prices near Housing Bubble High

Lumber Prices near Housing Bubble High

by Bill McBride on 4/09/2013  

Demand for lumber is increasing, but demand is still far below the levels during the housing bubble. However supply is lower than during the bubble years too. There are several factors impacting supply including a large number of sawmills still idled (it takes time to restart), the impact of the Mountain pine beetle, reduced maximum cuts in parts of Canada, and the permanent closure of high cost mills.

Note: Here is a great series on the mountain pine beetle from the Vancouver Sun: Pine Beetle

The B.C. government estimates that of the 2.3-billion cubic metres of merchantable lodgepole pine in the province, the beetles have claimed 726-million cubic metres over at least 17.5-million hectares.

Last month the WSJ had an article about some producers increasing supply:

Georgia-Pacific, the largest U.S. producer of plywood … plans to invest about $400 million over the next three years to boost softwood plywood and lumber capacity by 20%.

Much more capacity is needed.

Lumcber PricesClick on graph for larger image in graph gallery.

This graph shows two measures of lumber prices (not plywood): 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.

Lumber prices are now near the housing bubble highs.

Read more at http://www.calculatedriskblog.com/2013/04/lumber-prices-near-housing-bubble-high.html#ztQdV2FMO5DDTqOQ.99


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B.C. Government Responds To Committee’s Timber Supply Report

The B.C. government’s action plan to increase the mid-term timber supply contains a commitment to forest renewal through nine sustained and 11 new actions, said Forests, Lands, and Natural Resource Operations Minister Steve Thomson.

“We’ve long recognized the importance of having a long-term vision for forest management to ensure that future generations will be able to enjoy the economic benefits they provide,” he said. “This plan supports our long-term vision.”

Government’s response to the Special Committee on Timber Supply’s report signals the start of the final phase in its decade-long response to the mountain pine beetle infestation. Since 2001 the B.C. government has invested over $884 million on forest management and economic development in the mountain pine beetle-impacted areas, to assist forestry-dependent communities diversify their economic base.

In 2011, over 53,000 people were employed directly in the forest industry. In 2011, forest product exports totalled $9.95 million. 

“Beyond the Beetle: A Mid-Term Timber Supply Action Plan” puts a sharper focus on increasing the mid-term timber supply and better utilizing timber for bioenergyand other purposes, to complement the traditional focus on sawlogs.

Highlights of the action plan include a 10-year forest inventory strategy, innovativesilviculture practices to grow more trees faster, and landscape fire management planning to reduce risks to the mid-term timber supply.

Over 198 million seedlings were planted in 2011, and it is estimated that over 200 million seedlings will be planted in 2012.

Other key elements of the plan includes proposed new legislation to convert volume-based forestlicences to area-based forest licences, and the creation of a new supplemental forest licence to increase bioenergy opportunities.

The action plan also supports the special committee’s recommendation to ensure any harvesting in areas set aside for old growth, wildlife and scenic values only be considered if it is scientifically and ecologically sound to do so, and has the support of local communities and First Nations.

Some communities have asked the provincial government to consider harvesting within sensitive areas of the timber harvesting land base.

The action plan acknowledges government, communities, First Nations, and forest industry as partners to ensure success, taking into account current fiscal realities. Further funding for reforestation, inventory and fuel management will be reviewed as the fiscal situation improves and the recommendations are fully implemented.

In 2012-13, $30 million is being invested in the hardest-hit mountain pine beetle areas through the ministry’s land based investment strategy.

A history of government’s battle against the mountain pine beetle can be found athttp://ow.ly/eeCn2. Learn more about the B.C. government’s action plan at http://www.gov.bc.ca/http://www.gov.bc.ca/pinebeetle.

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Court favours B.C. in softwood lumber dispute

Court favours B.C. in softwood lumber dispute.

Workers pull graded lumber off a conveyor belt at a mill in Richmond. A ruling by an international tribunal means B.C. lumber producers will avoid a $300-million fine.

Workers pull graded lumber off a conveyor belt at a mill in Richmond. A ruling by an international tribunal means B.C. lumber producers will avoid a $300-million fine.

Photograph by: Richard Lam, Cp Files , Vancouver Sun

British Columbia lumber producers avoided a $300-million penalty Wednesday after an international business court rejected claims by United States rivals that B.C. cheated on terms of a Canada-U.S. trade pact.

The U.S. alleged in 2011 that B.C. producers and the province had used the devastation caused to Interior forests by the mountain pine beetle to justify low stumpage rates – and that export volumes of lumber appeared to exceed the production expected from the harvest of beetle-damaged wood.

The U.S. claimed B.C.’s actions were in violation of the portion of the 2006 Canada-U.S. Softwood lumber agreement (SLA) that covers B.C. timber pricing policies.

However the London Court of International Arbitration, a 129-year-old institution for resolving commercial disputes that charges up to $710 per hour of court time, voted unanimously in favour of B.C. producers. All three members of the tribunal that heard the case are European. One was selected by Canada, one by the U.S., and the third selected by the other two.

“Today’s ruling by the London Court of International Arbitration proves that British Columbia’s market-based timber pricing policies are fully consistent with the SLA, and that B.C. has always honoured its commitments under the agreement,” the province stated in a news release.

“The arbitration panel dismissed the U.S.’s complaint in its entirety.”

Neither B.C. nor the U.S. Lumber Coalition could provide a copy of the reasons for the decision – those will become publicly available in about two weeks.

Jobs Minister Pat Bell, at a media scrum in Vancouver, described the arbitration court’s ruling as “total victory” that “completely vindicated British Columbia.”

“This means long-term stability for British Columbia families, the people that work hard every day in our forests – [they] can look forward to a long and prosperous future,” Bell said.

This was the third Canadian softwood dispute to go before the arbitration court and the first in which B.C. scored a clear victory, Bell said.

“It has demonstrated that the softwood lumber agreement works. The softwood lumber agreement that was created back in 2006 has really worked in favour of British Columbia and has demonstrated that our industry is working within the rules that were laid out in that agreement.

“The thing that makes this ruling particularly unique is the fact that there is no right of appeal. There is no opportunity for the Americans to take this back to the department of commerce or any other legal body within the United States. So this is a full and final ruling. B.C. will continue to be able to ship into the United States in an unfettered way.”

Bell said the court’s decision was timely.

“We are starting to see some recovery in the United States. Softwood lumber shipments into the United States are up about nine per cent year to date. That is particularly good news and we are starting to see prices over $300 [per thousand board feet] on the composite index on a weekly basis. So our companies are profitable, they’ve got a long-term future to look forward to.”

John Allan, president and CEO of B.C.’s Council of Forest Industries, was “very pleased with the outcome.”

“The American claim started out as $499 million approximately and was amended subsequently to just under $400 million. That would have been a significant penalty, should that kind of claim have been awarded against us, but it’s an absolute outright victory for us.”

The U.S. Lumber Coalition said it believed it had presented a “compelling demonstration” that B.C. classified more export lumber as low grade than the harvest of beetle-damaged wood could have sustained.

“The [London court] did not take issue with this conclusion as a factual matter, but concluded it could not rule against Canada on this basis alone. Rather, the [court] found that the United States also had to demonstrate that a particular amount of misgrading could be attributed to each specific BC government action.

“Because there were multiple B.C. actions that had the effect of misgrading timber, together with the legitimate damage caused by the mountain pine beetle, the specific effect of any one B.C. action on the grading of logs that no longer exist could not be determined,” the coalition said.

Steve Swanson, chairman of the U.S. coalition, said that “while the coalition vehemently disagrees with the [London] panel conclusion, we respect and appreciate the efforts of this panel and the U.S. government to grapple with the complex issues involved in this case.”

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Fibre optics in the forest sector

Fibre optics in the forest sector.

Diversification is the key to survival of the industry after pine beetles, market collapse
A Laser Ace bulk carrier is loaded with logs on northern Vancouver Island for export to Asia. Supplied by Lemare Lake Logging Ltd.

A Laser Ace bulk carrier is loaded with logs on northern Vancouver Island for export to Asia. Supplied by Lemare Lake Logging Ltd.

When Canfor Corp. president Don Kayne talks to customers, whether in the United States or in China, they all ask the same question: who has the fibre to supply them with lumber in the future?

Customers follow the news. They have seen the annual timber harvest in British Columbia reduced because of the mountain pine beetle infestation. They know the B.C. government is considering controversial measures such as logging in forest reserves to keep mills supplied with timber. It raises questions about B.C.’s ability to supply global markets in the years ahead.

“Who has the fibre. That’s what they are asking now,” Kayne said in an interview at the company’s Marpole head office.

That’s the defining question for the B.C. forest industry as it moves into the post-beetle future.

Canfor management asked themselves that question a number of years ago. The company has 14 wood manufacturing plants in B.C. and has been making lumber from beetle-killed wood at some of its mills for 15 years.

“We have learned how to process it,” said Kayne.

The future of the B.C. forestry sector was cast in 1994 when the tiny mountain pine beetle began showing up in unheard-of concentrations in the forests along the eastern slopes of the Coast Mountains. It quickly spread east, moving into forests where loggers harvested timber for sawmills, which in turn produced lumber and wood chips. The chips were sold to pulp mills, which made a long-fibred commodity pulp in high demand on global markets. When lumber prices were low, pulp prices were generally high.

Since then, the beetle has killed almost 60 per cent of the pines in the province and has changed everything in the process.

Besides learning how to mill it efficiently, companies have diversified. Both West Fraser Timber and Canfor have bought mills in the southern U.S.

Canfor has also diversified in B.C., buying timber tenures in the province’s southeast, which was spared most of the impact of the beetle. It is some of the best timber in the province.

Companies also have been investing in their mills. Canfor is spending $300 million on new equipment alone.

As a result, Kayne has no doubts that Canfor will not only be making enough lumber when the recovery finally comes, but it will be producing a higher-quality product from mills that are in the global top quartile for cost and efficiency.

“We can demonstrate that we can be sustainable into the future.”

Companies like Canfor are proving that despite the challenges that face the forest industry — from the beetle, to the collapse of the U.S. housing market and softwood lumber taxes on American exports — it is not only surviving but has used the downturn, the worst in memory, to develop a sustainable industry.

It will be smaller but more diversified, with new customers like China playing a much larger role.

Lumber is the largest sector in the B.C. forest industry on a value basis. Despite depressed prices, sales of B.C. wood products still brought in $5.9 billion in 2011. Pulp, the second component of the industry, produced sales of $5.2 billion in 2011.

The industry as a whole contributed $7.62 billion to the provincial GDP in 2011, five per cent of the province’s $157.5 billion GDP for all industries.

Industry CEOs say never again do they want to be tied to only one market. When the U.S. housing sector imploded in 2007, B.C. lumber sales dropped from a high of $12.4 billion in 2004. Prices fell 54 per cent and production also declined by 25 per cent over the same period.

Kayne is not counting on the U.S. ever recovering to the pre-2007 level, when housing starts surpassed two million units a year.

But one million starts a year is achievable. That market, coupled with new markets in China and other Asian countries, is the foundation for the future, he said.

Forest companies saw the downturn coming and prepared for it. Canfor’s Plateau sawmill at Vanderhoof has been cutting beetle wood for 13 years.

The mill was modernized over that time period as management and employees learned how to best cut the logs. The company also made investments in kilns for drying the wood evenly at many of its mills and focused on the finishing end of the manufacturing process to produce the highest quality lumber possible.

Making transition

Canfor is not alone in preparing for a future where timber supplies are in decline, but its strategy demonstrates that B.C. forest companies are making the transition successfully.

Although the pine beetle is an Interior pest, it is expected to have an impact on the coastal forest industry as well — except the industry is betting it will be positive.

The coast’s largest forest products company, Western Forest Products, is sitting on the largest pine beetle-free supply of timber in the province: 3.1 million hectares of forest that provides an annual harvest of 7.5 million cubic metres of timber.

In 2004, when Brookfield Asset Management engineered the restructuring of Western, it had a long-term strategy: let the beetle eat its way through the Interior timber supply. In the face of timber shortages, those who have logs, like Western, will thrive.

The coastal forest industry — unlike the Interior where high-speed mills turn out lumber from generally uniform logs — produces a wide range of specialty lumber products from species like cedar, fir and hemlock.

They are generally manufactured in custom mills, where the emphasis is on extracting the highest value from each log.

But the fibre crunch created by the beetle is expected to raise all lumber prices, not just the prices of two-by-fours.

Diversification has not been restricted to seeking new fibre supplies or new markets alone. In both the sawmilling and the pulp sector, diversification has also meant developing new revenue streams.

Mills are turning to bioenergy to fuel their own energy needs and, in the case of pulp mills, selling the green power they generate into the grid.

At Mercer International’s Celgar pulp mill at Castlegar, for example, the company spent $102 million in capital investments, mostly to increase its power generation ability to create a dual revenue stream: one from pulp and one from clean energy sales.



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