Year-end Answers

Perhaps all the enthusiastic readers of Harderblog will provide answers to some of the questions posed at the beginning of this year. It was hoped, of course, that over the course of 12 months, time would provide clarity and answers. As we approach year-end, we’re not so sure. You’ll recall that the questions we wondered about here last December were as follows:

  1. Will the long-talked about ‘normalization’ of interest rates materialize in 2015?
  2. Will Canadian household debt levels eclipse 170% of disposable income?
  3. What role, if any, will social media play in lumber distribution?
  4. Will $55 oil help or hinder housing starts next year?
  5. Who will be the first lumber producer to establish a reload in Cuba? Or will a NAWLA distributor be there first?
  6. Will the U.S. market demand for Cuban cigars outstrip demand for legalized marijuana in 2015?
  7. Is information technology rendering lumber traders obsolete?
  8. Will U.S. politics figure dominantly in lumber trade with Canada in 2015?
  9. Will rail rates increase to offset any reduction in fuel surcharges?
  10. How will the exponential growth in computer power impact our business in the next 12 months?
  11. Is personal integrity in business considered to be less significant, more significant, or about the same as in the past?
  12. Will security issues, including concerns over international terrorism, directly impact the lumber business?
  13. Where will Interfor stock be priced in 12 months?
  14. How many new members will be added to the Billion Board Foot Club next year?
  15. Is climate change still mostly about ‘talk’?

It seems reasonable that we consider them one at a time. Addressing Number 15 seems timely. Is climate change still mostly about talk? It seems we got the answer to that in today’s Vancouver Sun headline story declaring “Climate deal won’t be binding”. With 190 countries set to open climate change talks in Paris today, we’re told that the climate change agreement hoping to be adopted at the United Nations conference will be “legally binding” but won’t actually force countries to hit their emissions reduction targets. It signals good intentions on many fronts, including note from our freshly-minted Prime Minister Justin Trudeau that “the momentum is shifting toward countries engaging.” And there we have it. The answer to Number 15.
Next question, please.

Gary Clement

Memorable Hikes

Within our spheres of interest, any reference to hikes has usually involved talk of interest rates, not a walk in the woods. Although rumours of interest rate hikes have been with us for some time, realities of such are mostly distant memory. A real hike in the woods, not so much. Especially for me, last week.

In a favorite book Get Your Shift Together, Steve Rizzo contends that happiness is a state of mind that can be fostered, brought about, with conscious decision in whatever circumstance we find ourselves. That may be true, but a hike in the magnificent, natural surroundings of New York’s Mohonk Preserve with a valued customer last Wednesday certainly brought focus to my camera and vistas of well-being. It’s not surprising that a lumber trader would coincidentally stumble on Scottish-American naturalist and author, John Muir’s quote that “the clearest way into the universe is through a forest wilderness.”

Outlook Mixed

My takeaways from industry connections at the lively LMC Expo in Philadelphia last week suggest year end reviews from analysts point to a mixed outlook for 2016.

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Analyst Paul Jannke, Principal of Forest Economic Advisors (FEA) presented at Friday’s breakfast session. I arrived early, having heard Jannke speak back in 2012 at the NAWLA Regional Meeting in Vancouver. A bull in a Bruins jersey back then (see post here), his presentation was decidedly more bearish on Friday. The four factors explaining this year’s lumber price collapse were familiar (lower than forecast U.S. housing starts, lower export volumes to China, rising production capacity, foreign exchange rates). Of greater interest were the reasons why FEA projects that “markets will likely remain weak through next year”:

  • Mills are anticipating higher levels of consumption (“investing in efficiency”)
  • U.S. dollar to remain strong
  • Domestic consumption growth will be slow
  • Exports to China will continue to be weak
  • Entering a period of seasonal weakness
  • Expiration of the SLA.

At the same time, Jannke cited a number of reasons suggesting minimal downside risk (“the longer the time horizon the better we feel”):

  • Near cost of production for Western SPF
  • Dealer inventories are low
  • Limits to Russia’s ability to supply China
  • Consumption will increase
  • BC will see supply limitations
  • Mills will be more cautious with their planning.

When gauging homebuilding activity (FEA forecasts 1.26 million U.S. housing starts in 2016), Jannke said that sales data is the key stat to watch going forward (“new home sales are presently consistent with just over one million starts”).

Later that morning, I appreciated the opportunity to speak with Jannke at our Dakeryn table on the exhibit floor.  It was interesting to hear him say that lumber market conditions might play a role in the timing of any cross-border trade negotiations (“to help in proving injury”). When I asked how Canadian sawmill expansion in the Southeastern U.S. might play into those negotiations, Jannke downplayed the impact while noting that members of the U.S. Coalition for Fair Lumber Imports include a number of private timber owners. I also asked how so many forest analysts “got it wrong” in their 2015 forecasts for significantly higher lumber prices. Jannke said that while he couldn’t speak for other analysts, FEA had one of the more tempered price forecasts this year ($300-320/M).