Q&A – Final Five for 2015

Answers to the five remaining questions from the Harderblog Top 15 Questions for 2015:

5. Who will be the first lumber producer to establish a reload in Cuba?
Hasn’t happened yet.

8. Will US politics figure dominantly in lumber trade with Canada in 2015?
In one of our most popular posts of the year, Ben Gann, Vice President Legislative Affairs and Political Affairs, National Lumber and Building Material Dealers Association in Washington, DC. confirmed that electoral politics of both countries figured dominantly in lumber trade in 2015. “It is unlikely that we will see a new (softwood lumber) agreement until next fall at the earliest, but probably not even then,” projected Gann, back in September. “Both countries are prohibited from taking unilateral action for one year following the expiration of the agreement. Even if it is October 13, 2016, and there is no agreement, I doubt either country will launch a trade action. Both countries appear willing to reach an agreement after a new president takes office in the U.S.” See Double Whammy.

9. Will rail rates increase to offset any reduction in fuel surcharges?
No – in fact rail rates decreased slightly over the course of the year ($2-3/M).

10. How will the exponential growth in computer power impact our business in the next 12 months?
The very thesis of exponential growth in computer power is acknowledged to have limits. Says physicist Kaku here, “.. there is an ultimate limit set by the laws of thermal dynamics and set by the laws of quantum mechanics as to how much computing power you can do with silicon. That’s the reason why the age of silicon will eventually come to a close,” arguing that Moore’s Law could “flatten out completely” by 2022. Where do we go once Gordon Moore’s axiom runs out of steam? Kaku hypothesizes several options: protein computers, DNA computers, optical computers, quantum computers and molecular computers. And then he makes a bet: “If I were to put money on the table I would say that in the next ten years as Moore’s Law slows down, we will tweak it. We will tweak it with three-dimensional chips, maybe optical chips, tweak it with known technology pushing the limits, squeezing what we can.”

13. Where will Interfor stock be priced in 12 months?
At time of posting, Interfor stock is at $13.76, down over 40% from $23.34 peak (Feb 20, 2015).

Billion Board Foot Club

How many new members will be added to the Billion Board Foot Club in 2015?  For the answer to Question Number 15, we turned yesterday to the analyst who coined the term to classify the largest softwood lumber producers on the planet. Russ Taylor, President of International Wood Markets Group Inc. told us yesterday: “It looks like there will be no companies added to the Club in 2015. The three closest companies (one each from Canada, USA and Europe) were all around 900 million FBM in 2014 and I am quite sure that none were able to increase output by 10 per cent. Back in 2005, there were 22 companies in the Club vs. 11 in 2014! Back in 2005, nine were between 1.0 and 1.2 billion, so when the market collapsed, most of these companies had production declines of 30-50%. So, it takes a long time to build back up production. A few have grown through acquisitions, but all of the 11 in 2014 were also in the Club in 2005.”

Nine members of the Billion Board Foot Club are on this continent: West Fraser, Canfor, Weyerhauser, Georgia Pacific, Resolute Forest Products, Interfor, Sierra Pacific Industries, Hampton Affiliates, and Tolko Industries.


Source: timber-online.net


I said to the man at the Gate of the Year,
“Help us to see beyond clouds that lurk here.”
He looked at me, then declared with a smile:
“Be still as the snowflakes and listen awhile —
The heart has its seasons created in time,
That beats with a rhythm steady as rhyme.
Spiritual gifts are tools — reassuring
In times of uncertainty — a secure mooring.”
He claimed constructing a house of the Spirit
Holds out a promise for everyone in it —
Directions in building, shape parts of the journey —
Distance to goals that time cannot hurry.
A seasonal invitation to pause;
To wonder, imagine, — it’s Santa Claus!
Not about lumber supplies, or their cost;
Market share gained, nor market share lost.
Find tools of hope that cast away fear;
Retrieve a faith placed in storage last year.
Believe again those powers in truth;
Speak of a beauty lasting past youth.
Re-cycle happiness from memory banks;
Brush away dust from a drawer labeled ‘Thanks!’
Simplify needs, experience joys;
Laugh with the kids, relax with their toys.
Make time for worlds that build from within,
Dream of White Christmas — sing it with Bing!
Reaffirm goodness in others; risk caring.
Let the heart lead in loving, in sharing.
Savor old friendships; investigate new —
Call up an uncle or aunt you once knew.
The wise man said: “All of these signposts so clear –
Point to success on the road to next year.”
I searched his eyes; then asked “How far?”
He merely smiled and said:
“Follow the Star.”

– Ernie Harder, Dec. 2001


Lumber Traders Obsolete?

Time to answer Question Number 7 for 2015: Is information technology rendering lumber traders obsolete?
While it seems reasonable to surmise the pool of lumber traders is getting smaller (consolidations in North America, vanishing lumber agents in China), information technology is not rendering lumber traders obsolete. It would seem that there are intangibles traders bring to the marketing function in the lumber business that, and we might have to agree with Donald Trump here, will always be necessary to fashion an effective deal! In fact the challenge of interpreting change in prevailing market uncertainties is probably greater than ever. Change no doubt calls for ever-shifting adjustments and demands of accommodation which of itself might be said to enhance the opportunities that a good lumber trader offers in today’s lumber market environment.

~Dak the Halls~

First United Church doubles as Vancouver’s Downtown Eastside (DTES) homeless shelter. A recent visit in support of First United, one of several Dakeryn charities (including Downtown Eastside Neighbourhood House, North Shore Crisis Services Society) brought home the realities of daily challenges many on the margins of society face. I had the opportunity this past Sunday morning to listen to Reverend Sally McShane, the minister at First United. Her reflection on recurrent theme that “we are possibility” reinforced an awareness of our own privilege and “possibilities” to make a difference in the lives of the less fortunate.


With Wendi Lawrence, Building Manager at First United Church Social Housing Society, and Chris Sainas, Dakeryn (Dec 10, 2015)

Oil and Housing

On December 30, 2014 we asked Will $55 oil help or hinder housing starts next year? The answer may not be entirely clear on this as year-end activity in the U.S. in particular finds lumber market activity brisk with upbeat November housing reports. Builders are reportedly stepping up home construction broadly across the U.S., suggesting the housing market will help anchor the economy amid global turbulence and projected four more interest rate hikes next year. So far the winter weather that has known to shut down building, in the lead-up to Christmas in past seasons, has not played a large part. Builders broke ground on 1.173 million units, when calculated at a yearly rate, in November, up 10.5% from a month earlier, the Commerce Department said Wednesday. Construction climbed at roughly the same pace in the first 11 months of the year compared with the same period in 2014.   


A pair of Harderblog questions for 2015 were answered this week:

Will Canadian household debt levels eclipse 170% of disposable income?
The answer came from Statistics Canada this week with the announcement that household debt compared with disposable income rose to 163.7 per cent in Q3, up from 162.7 per cent in the second quarter. In his Vancouver Sun column this week, Craig Wong reaffirmed earlier reports that household debt and Canadian housing market imbalances have been key concerns for economists and policy-makers. Interesting to note that while Canadian consumer debt levels in relation to disposable income have been increasing at what many economists consider to be a dangerous and alarming rate,  U.S. patterns of household debt to GDP ratios at end of second quarter of 2015 were reported to be at 79.76 per cent.

Will the long-talked about ‘normalization’ of interest rates materialize in 2015?
It’s a tale of two economies. In the U.S., where household debt is falling and consumer confidence is rising, the Fed raised rates this week above their near-zero threshold for the first time since 2008. In Canada, we were told last week the BOC would consider pushing interest rates as much as a half percentage point into negative territory in the event of a crisis.


HT: The Greater Fool Blog

Social Media and Lumber

What role, if any, will social media play in lumber distribution? The answer to Question #3 for 2015 is provided in this informative webinar for homebuilders hosted by Weyerhauser. In the webinar, Mollie Elkman at Group Two Advertising tells us, “In our industry, social media is no longer a secondary marketing medium. In today’s world, it has to be a cohesive part of your overall marketing plan. Media isn’t evolving, it hasn’t evolved – it’s 100% changed”.

In this post we referred to a survey which found 80% of lumber and building material distributors and retailers have a presence on social media. While the acknowledged challenge continues to be defining social media’s practical value to business, some might argue that “proving ROI” is a tired excuse for not committing the significant time and resources required to do it well. Clearly the intangibles are enough reason to engage. “Social media immediately breaks down that barrier between personal relationships and business relationships,” says Elkman.

Much has been written about social media “best practices”. For best practices in our industry, I recommend checking out Canfor on Twitter here. Also, the meaningful content at Weyerhauser’s blog section here is an excellent example of “posting with a purpose”. Of course blogging is merely one social platform. In the past almost five years at Harderblog, it has certainly opened many doors to expanded relationships directly and indirectly associated with lumber.

“I often hear ‘this isn’t the right medium for our buyer’ and I have to call BS on that one because it is the right medium for every buyer. It’s how you use the medium. If it’s not working for you it means you’re not using it the right way.”
– Mollie Elkman, President, Group Two Advertising


Lumber Markets and Terrorism

While CNN “terror analysts” quibble over definition of murder in concerns over mischaracterizing mass killings as acts of terrorism, it seems timely to answer another one of the Harderblog beginning of the year questions: Will security issues, including concerns over international terrorism, directly impact the lumber business? Short answer: No. Lumber markets are not much different than most financial markets in their response to what’s making news. As explained at Investopedia:

“Markets detest uncertainty, which is why the knee-jerk reaction of markets to a terrorist attack is initially invariably downward. But markets have proved enormously resilient to such attacks in the past and after the initial negative reaction, the focus turns to economic fundamentals as conviction grows that such attacks are usually the work of radicalized elements acting in isolation.”

Reports tell us that it will be business as usual in the wake of the killings in Paris or San Bernardino.

It’s worth looking at the question in a bit more depth. We note there are many articles written on the effects of terrorism on business. In considering the impact specifically on the lumber business, it seems that the area of transportation of product to market holds one of the most relevant areas of direct concern. An article in this paper reconsiders the effects of terrorism on trade: “The conventional wisdom is that trade with a nation affected by terrorism involves higher risks. The consequent rise in the transaction costs is akin to a rise in transportation costs, which tends to reduce trade.”

We’ve read other reports suggesting that transportation and insurance costs are anticipated to increase because of security surcharges on cargo in a riskier business environment. In fact, some reports indicate an increase in property and casualty premiums of 12% to 30%, or higher in various cases. Other reports indicate that some insurance companies have even increased the number of countries subject to “war risk” surcharges. This means shipping lines must notify marine underwriters before their vessels move into designated waters, as these vessels may be subject to significant additional insurance premiums. Customers will most likely assume the additional cost.

In consideration of lumber shipments by rail to North American markets, some reports suggest that transport of hazardous materials could be more vulnerable to greater risks of acts of terrorism.

“On any given day, thousands of trains move across the American landscape. Each one of them presents a potential threat to the safety of individuals and families, to the continued functioning of our communities and our economy, and to the life of our great cities. Whether carrying millions of workers to and from their jobs, or providing the safest means of transporting hazardous materials, or bringing food and agricultural necessities to consumers, railroads pose an inviting target to would-be terrorists. Yet no significant act of terrorism has been directed against U.S. railroads, and we lack hard information on the nature of the terrorist risks involved in rail transport. This report highlights the potential threats, examines the response of government and the rail industry to the post-9/11 security responsibilities, and suggests ways in which public policy and rail operations can be better directed to meet the challenges of security in an age of terrorist activity.”

In this regard, the passage last Thursday of a $325 billion Transportation Bill by U.S. Congress is seen as a major step toward funding enhanced infrastructure in U.S. markets, lending promise of better controls on transportation routes critical to moving lumber safely.

Close But No Cigar

The answer to our beginning of year question on whether or not the thawing of trade relations between Cuba and the U.S. could mean demand for Cuban cigars outstripping demand for legalized marijuana is clear.  It’s not close. Demand for legalized pot wins hands down.

This year has seen plenty of engagement around the topic of legalized marijuana on either side of the 49th Parallel. Cuban stogies perhaps not so much. Even if the embargo is lifted, best sales case scenario is that the Cuban cigar makers would expect to capture 25-30% of the U.S. cigar business. They predict selling between 70 million and 90 million cigars annually. Now when it comes to marijuana demand in relation to legalized activity in states closest to our borders, it’s noted that Washington State’s reported collection of $70 million of taxes on $257 million in sales in the first year of legalized marijuana sales through July exceeded expectations.

The legalized recreational sale of weed in Oregon beginning in October heralds a new era of bullish pot demand forecasts in the Pacific Northwest. Budding entrepreneurs report that demand in Oregon will far outstrip the supply. “There won’t be enough weed in Oregon for everyone who wants to buy it so they will still need to come to Washington.” We’re also told that for another year, concentrated marijuana for vaporizers and “edibles” can only be found legally in Washington.

Truth be known, we recognize that the world is focused on issues far more significant than Cuban cigars or marijuana sales. Still, to satisfy discerning readers’ demand for answers to those beginning-of-the year Harderblog questions, watch for more answers in follow-up posts soon.  For now, enhanced  lumber market activity is keeping our minds sharp; focused on wood, not weed.