Mixed Signals

A post today from the National Association of Home Builders (NAHB) seems to underscore reality that forecasts right now are murky at best (See Eye on the Economy: Mixed Signals as Spring Data Bloom).
Stormy weather beset with tornadoes across the U.S. South and Midwest is an unfortunate metaphor for challenging times. Prevailing conditions define uncertainty in markets in which managing risk would seem to be a big part of management strategies throughout the distribution chain. So far, Spring has not unveiled answers for questions such as: Is US housing construction activity set to resume in better weather? Are China’s wood markets presently oversupplied? If so, how does that impact North American market pricing?

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Signs of Spring – Vancouver, BC Photo Credit: ejh

World’s Smallest Sawmill

In adjusting BC sawmill production to shrinking fibre supply, some are suggesting that the miniature sawmill operating in Victoria is an extreme reaction. My brother Matt recently returned from a visit to the mill, and reports the producer is a founding member of the One Thousand Board Foot Club. The following images were provided by Miniature World, who notes Little Mill’s Lumber Company was “eleven years in the making”, and is “a working sawmill in all its intricacy and design, right down to scaled down blades and band saws used in the milling of raw logs into lumber.”

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miniature sawmill 2

Politics in View

Politics and BC Forestry are never far from making news. A weekend story in The Vancouver Sun (see Future of sawmill industry jobs jeopardized by overharvesting) suggests issues surrounding timber harvest volumes into a hoped-for post-beetle era remain contentious. Some outtakes:

  • “Companies operating around the sawmill town of Houston overshot the volume of green non-pine timber they were expected to log by the equivalent of almost 29,000 logging truckloads between 2009 and 2013, after limits were set in 2008. ‘That’s green wood that was supposed to be there for the midterm harvest,’ said NDP forestry critic Norm Macdonald.”
  • “..the issue around Houston is whether the province is allowing companies to steal timber supplies from the forest now that could have been used to maintain jobs in the future.”
  • “’For them to be hitting that (green timber) harder than they should, and not be held accountable for it, it’s an issue for sure,’ said Bill Holmberg, the mayor of Houston where West Fraser Timber is set to close its sawmill on May 9 – at the cost of 225 jobs – as part of its strategy to cope with reduced future timber supplies.”
  • “’The switch from harvesting dead pine trees to live non-pine trees means the midterm timber supply is starting to be cut now and not five to 10 years in the future,’ said Tim Ryan, of the BC Forest Practices Board. ‘That means the (reductions) to (annual harvest) may happen sooner rather than later.’”
  • “..there is an argument to be made that in areas such as the Morice, which were hit first and hardest by the beetle infestation starting in about 1999, loggers have reached the midterm, according to Doug Routledge, VP at the Council of Forest Industries.”
  • “Routledge argued that other timber supply areas are at, or close to hitting, midterm conditions – areas around Burns Lake, Vanderhoof, Prince George and Quesnel, which have been at the heart of the beetle infestation.”
  • “Forest Minister Steve Thomson said the overharvest hasn’t gone unnoticed and he expects the companies to stay within their harvest limits until new harvest levels are set.”
  • “Chief Forester Dave Peterson said that around Houston, if loggers can’t stay within their limits for non-pine harvest, they won’t be allowed to harvest their complete timber quota, although he acknowledges they are close to exhausting dead pine.”

As more timber supply areas in this province approach the end of salvageable dead pine, some might be asking how we reconcile projections for offshore shipments to keep growing year after year.

Creating Demand

There are times when lumber distributors wish they had the concerns associated with Disney’s ‘Frozen’ marketing strategies. “It seems ludicrous,” CBC News tells us here, “but even though the Frozen franchise has made over $1 billion US, Disney likely left money on the table.”

In the report, Steve Kates, an associate professor in the Beedie School of Business at BC’s Simon Fraser University, said that he’s surprised Disney – considered a “quintessential service marketer, right up there with Google and Apple” – made a mistake when it came to ordering enough of the Frozen-themed dresses from its overseas manufacturers. Or did they? Kates suggests that while the shortage is causing consumer frustration, all those empty store shelves are enhancing perceived value. Toys “R” Us spokeswoman Victoria Spada said the chain considers Frozen a “top-trend girls property,” and has scaled up orders for merchandise into the fall to satisfy demand.

And what about all those parents like me, whose daughters have pretty much changed their names to Elsa and Anna? Are we supposed to just Let it Go?
“It’s a good opportunity to teach kids about patience,” advises Kates.

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Elsa er Evie.. settles for a Cinderella dress, in January

Genetically Engineered Trees

When poet Joyce Kilmer said “.. only God can make a tree” it followed that religious reasons are cited by some for questioning scientific processes that would change forestry with genetically engineered trees.

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Photo Credit: pfaf.org

Business Vancouver reports that a researcher at UBC has genetically modified poplar trees to make the wood fibre easier to break down into pulp. It means processing requires fewer chemicals and less power. The new technology is described here as “a huge leap in terms of environmental benefits and commercial viability for the industry.”

Could we soon see a genetically modified forest in Quesnel? Not before society is ready to accept trees and plants designed for these applications, we’re told. It’s reported that Canadians are reluctant to accept the virtues of genetically modified organisms (GMO). UBC wood science professor David Cohen adds, “There are people who feel really strongly it is against their religion to use GMO and there’s no amount of science, there’s no amount of logic that’s going to change their minds. In terms of 10 years from now, having genetically modified forests in Canada, I would bet against that pretty heavily.”

Related: Genetically engineered trees hailed as environmental breakthrough, Vancouver Sun

$400 Lumber? maybe next year..

In response to questions surrounding the latest underwhelming US housing market data this morning, Mark Kennedy at CIBC World Markets told BNNpent up demand is staying pent up at the moment.” But while pointing to the severe winter in much of the U.S., Mark also suggested it’s too early for the recent disappointing U.S. housing market data to be considered an established new trend.

Unlike some financial institutions, CIBC’s 1.130 million forecast for U.S. housing starts this year has so far not been recalibrated. However Mark did confirm lower lumber price expectations today; the Q2 estimate is down from US$420/M to US$350/M, and the overall 2014 average price estimate has been adjusted to US$367/M (from US$400).

Interestingly, these lower price expectations have not tempered bullish analyst outlooks for forestry stocks – West Fraser and Interfor in particular. A link to this morning’s full BNN interview is available here.

Turtle Derby

Turtle – during kids visit to Dr. Sun Yat-Sen Classical Chinese Garden yesterday, Vancouver – Photo Credit: Krys

“The most frustrating thing for a lot of investors is just how gradual the U.S. housing recovery continues to be..”
– Mark Kennedy, April 23

Bio-economy

The bio-economy encompasses “the production of renewable biological resources and their conversion into food, feed, bio-based products and bioenergy via innovative and efficient technologies provided by Industrial Biotechnology. It is already a reality and one that offers great opportunities and solutions to a growing number of major societal, environmental and economic challenges, including climate change mitigation, energy and food security, and resource efficiency.”
(Source)

convention_2014_speaker_04_1Session #4 at the 2014 Council of Forest Industries Convention earlier this month explored the current state of bio-economy in BC and future business opportunities. Ken Shields, President and CEO, Conifex Timber Inc, was one of three presenters. His impassioned presentation was packed with thought-provoking content, all capped with a call to action. It set the stage for a flurry of audience questions, punctuated by a memorable and respectful exchange with Dave Peterson, Chief Forester of the province. A transcript of the presentation is available at the COFI website here.

“The forest industry in Sweden and Finland captures revenue from about 16 million cubic metres of log harvest residuals consumed in more than 1,000 heat and power plants. These two countries operate 10 times the number of heat and power plants we operate in Canada, and they utilize fibre that typically ends up in burn piles in BC.”

“Conifex would be most pleased if policy shapers in BC spent more time studying what is taking place in the bio-economy at the international level. The best opportunity to maximize the social, environmental, and economic benefits from our Mountain Pine Beetle-impacted forest inventory is to host new businesses with greater fibre-paying capability. We need to transform the business model for the BC forest sector away from a focus on sawlogs, to a broader focus on sawlogs and in-forest biomass procurement.”

– Ken Shields, COFI Annual Convention, April 2, 2014