Laying the Lumber..

No more. It’s what used to be the case, when hockey players used to whack each other on the shins. In old time hockey, it was all done with wooden hockey sticks. Over the weekend, a story in the National Post asked who killed the wooden hockey stick? “No two were ever the same. Each was as unique as the individual player, as unique as the individual tree. Once ubiquitous, wood is in full retreat. Now a relic, a poor man’s twig that not a single NHL forward or defenceman.. still employs. Meanwhile, in the wider hockey world, wood sticks have dipped to a 25%, and dwindling, market share.”

These days, if NHL players were on the ice, they’d be whacking streaking wingers’ shins with costly composite sticks rather than “laying the lumber” with traditional “Sher-wood”, similar to the weapon my uncle Pat demonstrated many years ago on my family’s Prince George backyard rink.

“A Perfect Storm”

That’s how The Province describes a combination of factors contributing to resurgent lumber prices. The ‘perfect storm’ reported here refers to evidence of gradual recovery in the U.S. housing market at the same time as demand from China has been ramping up, layered now with expectations of increased demand for wood products to rebuild the devastation caused by Storm Sandy.
Of course what needs to be added to the mix, which the article omits, are concerns over available shrinking fibre supply to satisfy that demand. Certainly, the U.S. housing crash in 2008 saw many skilled workers cross over to other, more prosperous heavy industries such as oil and gas. However, worries reportedly over “massive labour shortages as mills and logging camps get back to work” seem to fly in the face of more pervasive concerns surrounding dwindling timber supply.

No doubt the many factors at play represent a story of both opportunity and challenge. This lumber trader-blogger has been invited by CBC Radio The Early Edition to share in a live discussion on the story this Tuesday morning at 6:50 a.m. PST. Hope you tune in!

“Wild West”

A report in The Guardian tells us that sustainable forestry strategies in Liberia are being undermined by logging companies exploiting “loopholes” in the law to strip the forest there. Evidence points to misconduct by both government and the logging companies, including forged documents and communities being defrauded out of their forest rights. Basically logging operators are now in total control of huge tracts of Liberian forest with no regulation of their activities. “Thousands of logs are still being exported to China and the EU; this year alone, France was the leading importer of Liberian timber behind China.” See full story here.

Reports from last week’s NAWLA Traders Market in Chicago indicate nary a single lumber market bear was in attendance. The looming fibre shortage has gone mainstream. It’s no secret. Perhaps we shouldn’t be surprised at growing timber investment around the world: see links to recent examples in B.C. here, New Zealand here, Russia here.
Further to yesterday’s post, the notion that these deals “open doors” to markets in Asia, when China’s wood fibre shortage will soon be three times the annual B.C. timber harvest, seems a stretch. Is the horse already out of the barn?


It’s reported that China Investment Corp (CIC), one of the world’s largest sovereign wealth funds, is close to closing a $100-million deal to purchase a stake in Vancouver Island forest company Island Timberlands. Some interesting spin outtakes from the full story in The Vancouver Sun:

“CIC is believed to be making the investment in Island Timberlands as a hedge against inflation, according to the Journal, but Mason said the fact that CIC is also acquiring an asset in high demand in China likely plays into the investment. ‘We know we have assets that the world wants. This is proof of that,’ said Mason. ‘If this plays out as it has in other commodities, I think we are going to see the Chinese making more investments in fibre-related areas.'”

“CIC already has a large stake in Vancouver-based mining giant Teck Resources, buying a 17.2-per-cent stake in 2009 for $1.5 billion. Teck president Don Lindsay has stated in the past that CIC’s holding in Teck has enabled the mining company to form important business relationships in China. Mason said he expects CIC’s reported investment in Island Timberlands could also open doors in Asia. ‘At the end of the day, what do we have a competitive advantage on? It’s our fibre. Our fibre gives us an edge. It isn’t easily replicated,’ said Mason. ‘We have a comparative advantage in growing trees and that’s where we get the best value. It’s something we’ve got and they need. We should focus on growing more of it.'”

“China has been investing in the B.C. forest sector already, said Gerry Van Leeuwen of the consulting firm International Wood Markets. He said Wood Markets forecasts that China will have a wood shortage of 200 million cubic metres a year by 2017, about three times the amount of the annual B.C. timber harvest.”

Remembrance Day

Canada will observe Remembrance Day this Sunday.
Throughout B.C. and across the country, small villages and towns will remember the sacrifice of young lives in wars that Canadians have fought and died.  In Fort St. James, Stuart Lake Lumber is no longer in operation.  However, Remembrance Day will unfold there again, just as it did back in 1999, when my dad wrote about the outdoor ceremonies in the town center here.

He also provided these images of the Vimy Memorial, taken during a pilgrimage to France and Belgium this past June to trace the history of Canada’s involvement in the First and Second World Wars.
We’re told the Canadian-led attack on Vimy Ridge marked the only significant success of the Allied spring offensive of 1917, and won for Canada a separate signature on the Versailles Peace Treaty that ended the First World War. It’s been said that for Canada, “Vimy marked the birth of a nation.”

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“Carved on the walls of the monument are the names of 11,285 Canadian soldiers who were killed in France and whose final resting place was then unknown. Standing on the monument’s wide stone terrace overlooking the broad fields and rolling hills of Northern France, one can see other places where Canadians fought and died. More than 7,000 are buried in 30 war cemeteries within a 20-kilometre radius of the Vimy Memorial. Altogether, more than 66,000 Canadian service personnel died in the First World War.”

“Algo Trading”

While financial markets hope for a Presidential winner by the opening bell, a disturbing report today from Bloomberg takes a closer look at a growing trend toward replacing traders.. with machines. The recent spurt in lumber marketing memos and policies might naturally lead some wholesalers to read between the lines. So far as we can tell however, there are no plans afoot to automate the wholesale function. Still, if computer algorithms can now “respond” based on market liquidity, can robotic firms be far behind?
“It’s natural to push away from humans.. it’s been gaining momentum” said Peter Tchir, the founder of New York-based TF Market Advisors. Adds Bonnie Baha, head of global developed credit at Los Angeles-based DoubleLine Capital LP: “I don’t think it’s driven by a desire for efficiency as much as a desire to control costs. The cost of a major trading error which could possibly be avoided by having a real human person sitting and thinking about things will far outweigh the personnel costs they save by firing all these guys.”

Taking Inventory

There was quite the piece over the weekend in The Vancouver Sun, addressing some of the many ‘post-beetle’ challenges unfolding in the forest. Perhaps most discouraging in the face of dwindling timber supply and declining forest health, is the significant volume of wood fibre that is reportedly being wasted in the field, symptomatic of a much deeper forest management problem.

The article goes on to delve into concerns surrounding the provincial government’s ‘action’ plan Beyond the Beetle, punctuated by a woeful lack of funding. Forests Minister Steve Thomson admits “there could be a snag” regarding a commitment to update inventories for example, since needed funding “will be determined in the context of the current fiscal challenges within government”. BC grapples with forest health.. Vancouver Sun Nov 3-2012

“What we need is dedicated action. We need resources. The government is saying the right things, but what I don’t see in any of the government reports is the dedication of funds, whether it’s dollars, or labour, or employees, to implement all these plans that are now being put into paper and reports. I read the ministry’s response to the legislative committee report, and they were dedicating money in the year 2013-14. I thought it was a typo.”
– John Allan, COFI