Frozen

Cold enough for ya? In the language of lumber we’re often talking “hot” or “cold” when it comes to markets. Especially so these days.

The National Weather Service says that “a cold blanket of air with a strong cold front will keep temperatures 10-30 degrees below normal today across a large portion of the continent as far south as Texas. In addition, wind chill values are forecast to be minus 30F or lower across the Dakotas, Minnesota and Wisconsin.” Same thing in Nebraska and Iowa, causing some truss plants in the Midwest to put a freeze on production after the weather service issued warnings for wind chills of minus 40F. Extreme cold weather continues to impact rail car supply, in turn heating up competition for trucks.

The image below was provided by Rod Wiebe at Vedder Transport. When frost provided his daughters with some extra ice time in normal balmy southern coast areas, it’s as special as an outdoor game at Yankee Stadium in New York or Dodger Stadium in LA.

In the language of cold, even a gaggle of four-year-olds at our daughter’s birthday party Saturday was entranced with Frozen, the hot new movie from Disney. Speaking of which, I will be off the balance of this week.. in search of a sunny break in Anaheim..

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“Pond Hockey in B.C” (Photo credit: Rod Wiebe, Vedder Transport)

On the ground.. in India

Further to recent information regarding India as a potential market for B.C. lumber, a good friend recently returned from a three-week business trip to Delhi. Sohan and I experienced many sticky wickets while playing on the same club together in the B.C. Mainland Cricket League. A leader on the pitch with a deceptive outswinger, Sohan is also a successful entrepreneur in the import/export field. When I caught up with him earlier today, he offered up an interesting summary of what he found in India.

Housing in India is primarily brick and concrete, confirmed Sohan. The use of wood is typically limited to furniture, doors, and windows. He reports that Meranti, a cheaper hardwood species group of genus Shorea trees from Malaysia, Indonesia, and the Philippines, is widely used in the housing industry. “Any houses or apartments I visited, the quality of doors and windows was quite inferior to what we’re accustomed to seeing here in North America,” said Sohan. He suggests the Northern and Eastern regions hold the biggest growth potential for Canadian softwood lumber. “Wood-frame housing is common in these mountainous regions; importers are located in Kashmir, Himachal State, Punjab, Gujarat, Assam, Arunachal State, among other places.”

“I did not hear anything regarding switching to wood in the big cities, so how much lumber is required just for furniture, I am not sure. I saw a few yards in Delhi and all I could see there were unprocessed teak logs. Unfortunately, I did not get a chance to visit the places I mentioned above due to limited time, as they are all different states and involve serious travelling.” With little knowledge of Spruce-Pine-Fir, Sohan concluded that Indian timber traders need to be educated in Canadian softwood lumber. “I did not find any lumber approaching the quality produced in B.C. It’s difficult to see them upgrading because they will have to pay the price too. Having said that, I think lumber export to India needs to be explored much more. The main hub is at a place called Kirti Nagar industrial area in New Delhi, where most lumber importers are situated.”

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A Saturday in August – at Trafalgar Park Cricket Ground, Vancouver (2007)

Who’s in?

A report in the Financial Post today refers to the Toronto-based Tricon Capital Group Inc. here. We learned back in November that Tricon is “All in.. on the U.S. Housing Recovery“.

Of greater interest in the article however, is a quote from David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., regarding the U.S. housing market: “We’re in the midst of one of the worst winters since the records began and even with that, the data are coming decently to say the least. In particular, housing refuses to buckle..”

Meanwhile, the National Association of Home Builders (NAHB) explains here that “a useful gauge of the overall state of the housing recovery – and potential for growth – is the NAHB/First American Leading Markets Index (LMI). The number of markets reaching and exceeding their last normal level of economic and housing activity continues to advance, albeit slowly. The LMI contains 56 markets in which the index is at or above one, which means the last 12 months’ average of single-family housing permits, home prices and employment levels are at or above their last period of normalcy. The national index for January remained at .86 meaning that the U.S. market is only 86% of the way back to normal as evaluated on the basis of prices, jobs and building.”

One mill sales manager in the the B.C. Interior this week described the lumber market at present as “aggressively sideways”.  Which raises the question: If there is underlying support for lumber prices today, in the midst of severe winter weather across much of this continent, what will spring bring? I invite your response to the poll question below:

Markets Meeting..

Last evening over dinner I had the privilege of reaffirming valued connection with Mark Kennedy, Executive Director, Forest Products Equity Research at CIBC World Markets. Mark was in Vancouver ahead of CIBC’s 17th Annual Whistler Institutional Investor Conference, happening tomorrow through Saturday at the Fairmont Chateau Whistler. This prestigious conference is invitation only, with presentations from over 90 prominent North American companies forming the agenda. The forest products component will feature senior executives presenting from Interfor, Conifex, Western Forest, West Fraser, and Canfor.

Mark described the U.S. housing market as “red hot” in 2013, while suggesting growth will continue more gradually in 2014. He emphasized that new home building in the U.S. is occurring at a much lower rate than fundamental long-term demand. In anticipation of a strong North American lumber market through 2015, Mark continues to recommend building products equities, including CFP, WFT, IFP.A, WEF, CFF, and NBD.

I also had the pleasure of meeting Andrey Omelchak, Portfolio Manager at Montrusco Bolton Investments, and Ali Qureshi, Institutional Equity Sales at CIBC World Markets. Evidence of fragility in all market elements these days came to the fore in the lively exchange of questions streaming between financial markets expertise and a lumber trader’s cash-wood implication interests.

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With Mark Kennedy, 1-21-14

Bucks to Battle Beetles

In Prince George, it’s reported the University of Northern British Columbia (UNBC) is one of five universities across Canada that will receive special funding enabling critical MPB research to continue for another five years. The Prince George Citizen tells us here that the research group is known collectively as TRIA-Net. UNBC professor Dr. Dezene Huber, a Canada Research Chair in Forest Entomology and Chemical Ecology says, “So far, the TRIA project has been able to sequence the genomes of the beetle, the tree, and the fungus that allows the insect to break down the tree’s defences. We have discovered many new aspects about the physiology of the organisms in the system. With TRIA-Net, we intend to look at how differences in a host tree’s defences affect pine beetle larvae survival over the deep cold of winter.”

The MPB epidemic continues to threaten boreal forests across North America. In west-central Alberta, beetles arrived for the first time ever in June 2006. We’re told strong winds occurred at the same time beetles emerged from their pine hosts, and carried them 400 kilometers from central BC into the region (Source). In Colorado, the beetle infestation has now spread across 3.4 million acres. And earlier this year, scientists warned us that over the next two decades, billions of mountain pine beetles from B.C. are expected to devastate forests in Ontario, Quebec, and the Maritime provinces.

~Sawdust~

  • No mention of shrinking fibre supply in all the news of late concerning big market potential for Canadian softwood lumber in India. As reported here, Canada’s natural resources minister Joe Oliver was on a six-day trade mission to India this week. While he notes India import demand might be considered a decade behind China, he suggests “when it happens we’re looking at an additional market in the billions.” Analyst Paul Quinn, RBC Capital Markets predicts a “slower growth story than we’ve seen with China” but adds “it’s going to be yet another place to put lumber which continues to tighten the market.” Canfor CEO Don Kayne says India holds “tremendous future potential,” adding the federal investment will “expand our reach in this rapidly growing economy.”
  • In the United States, Reuters explains the 9.8% drop in December housing starts announced this morning: “It was the largest percentage decline since April, but housing starts were coming off a multi-year high reached in November and the decline was smaller than economists had expected. In addition, cold weather appeared to be a factor.” A significant 33.5% tumble in the Midwest is explained by unseasonably cold weather.

Sideways Momentum

A Sideways Market is said to occur “when the price trend of a certain trading instrument has been experiencing neither an uptrend nor a downtrend.” Investopedia expands“Price activity oscillates between a relatively narrow range without forming any distinct trends.. a horizontal trading range or ‘channel’ is formed.. market participants can exploit a sideways market by anticipating breakouts either above or below the channel.”

2x4Policies notwithstanding, these are confusing times for ‘market participants’ in lumber circles. Equilibrium is evident (“the state in which market supply and demand balance each other and, as a result, prices become stable”). “What goes up must come down – and vice versa – doesn’t sound like a very sophisticated investment theory, but that, in a nutshell, is mean reversion,” says the Financial Post here. “If the current market price is above its average, it is expected to fall, representing a potential sell situation. Conversely, a buying opportunity exists if the market price is currently below its average.”

Hmmm. Mark Kennedy, CIBC confirms the long term average of WSPF 2×4 #2&Btr over the past 28 years (in today’s dollars) is US$370/MFBM. The price as reported by Random Lengths has oscillated between the narrowest of ranges, $372 and $375, for four consecutive weeks now. With all this in mind, can the extreme hand-to-mouth buying patterns in evidence in lumber markets today be any surprise?

A New Era

When the B.C. Truck Loggers Association (TLA) convenes their 71st Annual Convention and Trade Show in Vancouver tomorrow, the theme will explore industry renewal. “The Business of Logging – A New Era, is about renewal,” says Dwight Yochim, TLA Executive Director. “Contractors are looking to re-tool, re-capitalize and re-hire in order to ensure they have the capacity to support a growing coastal harvest.”

Following Premier Christy Clark’s arrival in an off-highway logging truck at last year’s TLA Convention, expectations will be high when she returns for an encore presentation at Thursday’s sold-out luncheon. At a Friday breakfast meeting, Minister of Forests Steve Thomson will speak to maximizing the opportunities for the coastal forest industry. According to Yochim, “The goal is to address the issues that must be overcome in order to safeguard logging and road building capacity and make sure coastal logging contractors can re-invest in their operations and employees.” Amongst many other speakers, Daryl Swetlishoff is scheduled to provide perspectives on various global markets and the Super Cycle as it applies to the coastal forest sector. Full convention guide available here.

Earlier today I spoke with Brenda Martin, Director of Communications at TLA. She notes the TLA Convention this week represents a return to Vancouver after four consecutive years in Victoria. The Westin Bayshore Hotel, convention headquarters, is sold out. It was particularly interesting to hear Brenda point to a possible trend of people beginning to return from the oil patch to the coast, to start/resume careers in a recovering forest industry. Intangibles for skilled workers include the West Coast lifestyle and being closer to family. Brenda also suggested that forestry contractor struggles cited in a TLA-commissioned report by Harry Nelson, assistant professor of forest policy and economics at UBC, are improving.

You can follow @truckloggersBC for all the goings on. The TLA is described at their website as “the official voice of independent forest contractors located throughout B.C.’s coastal region. Organized by truck loggers in the 1940’s, it was established to promote their voice in policy and legislation.” The “grassroots connection to coastal communities” is evident in the TLA’s 70th Anniversary Legacy video below.