Trimming the Trees

The declared B.C. lumber industry expansion plans into China are interesting in the face of information reported in The Vancouver Sun where concerns over shrinking fibre supply are real:

Canada’s forest products industry is booming but faces a long-term threat from climate change, according to a new federal report tabled in the House of Commons. The industry, while enjoying thriving and growing markets in Asia and a rebound in U.S. housing construction, could see its long-term supplies jeopardized, according to 2013 edition of Natural Resources Canada’s annual report, The State of Canada’s Forests. “Canada’s forests are undergoing significant changes as a result of a changing climate, including more frequent fire, drought, and disease and insect attacks,” the report states. “This increase in disturbances.. could impact Canada’s supply of quality fibre in the long run, posing some risks to both industry transformation and sector competitiveness. Innovative, science-based policy solutions, mitigation strategies and forest management approaches will therefore be needed to help decision-makers at every level navigate the way forward.”

The impact of these variables is likely to become increasingly significant in the future. It brings to mind the COFI Convention back in April, when B.C. Chief Forester Dave Petersen confirmed that the greatest risk where future timber supply is concerned is climate change. He told us that “adapting to that change in climate” is the most pressing priority in resource management.

U.S. Housing Market

An exhaustive breakdown of the U.S. housing market was released yesterday by Mark Kennedy, CIBC Equity Research. The CIBC report was summarized as follows:

  1. Building permits in October 2013 at 1.034 million jumped 6.2% from September and were up 13.9% from a year ago levels (Housing starts data for September 2013 and October 2013 are scheduled for release on December 18 due to backups resulting from the U.S. government shutdown).
  2. The U.S. housing market is building new homes at a much lower rate than fundamental long-term demand. The increase in the 30-year mortgage rate seen earlier in 2013 will not detract, in our view, from improving new home construction. New home construction should have a long runway.
  3. We estimate U.S. housing starts of 930,000 in 2013 and 1,130,000 in 2014. Our 2013 and 2014 WSPF lumber price estimates are $350/M and $400/M, respectively. WSPF prices for the month of November 2013 were $382/M.
  4. We believe a gradual improvement in the U.S. housing market will continue, leading to a strong North American lumber market through the 2014/2015 time frame.

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