No Woodworking

Unfortunately our field trip for Thursday to Tupper Secondary for woodworking has been cancelled. The supplier for the wood has run out of supplies! So we will have to cancel. Thank you to all the parents who offered to take the time to drive us!
– Evie’s Grade One teacher (via email, May 23)

On the topic of dwindling fibre supply, it’s reported the B.C. Interior accounts for more than 90% of the province’s softwood lumber exports to the United States. So far this year, the significant decline in B.C. lumber shipments to the U.S. (down 20% in the first quarter according to the article) is widely attributed to transportation bottlenecks and export duties. However a bleak report here from The Globe & Mail this week serves as stark reminder to post-beetle, mega-fire, fibre scarcity realities – a land base “ravaged in turn by pests, fire and drought”.. a province with “barely enough timber now available to meet legal commitments to its major forest license holders”. After a recent fly over, B.C. Minister of Forests Doug Donaldson likened the Chilcotin Plateau, 60 kilometres west of Quesnel, to “a moonscape”. Never mind the missing trees; in some places we’re told, firestorms consumed even the soil.

In a report in February, the chief forester noted that the 2017 wildfires in B.C. affected over 1.2 million hectares, the largest impact on record (in about 100 years of record-keeping) for a single fire season. Most of that – about one million hectares – was in the Cariboo region. The fires consumed or damaged almost one-quarter of Quesnel’s timber supply. That is on top of the devastation wrought by the Mountain Pine Beetle epidemic, and sustained drought conditions that had led to fire bans in April – remarkably early. “We just cringe now when we see lightning,” Quesnel Mayor Mr. Simpson said. Now, a growing fir beetle infestation that somehow eluded last year’s wildfires is putting the remaining timber supply at risk. “There isn’t a tree species or a plantation that isn’t under stress due to increasing maladaptation to the current climate,” Mr. Simpson said.
– The Globe and Mail (21 May, 2018)

Meanwhile, Random Lengths reports lumber output in B.C. was down almost 8% in February from the same month a year ago; through the first two months of 2018, production in B.C. was down over 3%. On the bright side, according to Random Lengths, late-shipping railcars are beginning to roll into destinations more readily – welcome short term relief no doubt for razor-thin inventories at distribution yards and North American dealers starved for wood.

Of course in the long run, a global market is in play to influence supply and pricing. When demand for lumber increases, prices climb. When production ramps up, the supply/demand balance swings the other way and prices come off. What happens when production can’t ramp up?

The lion’s share of increased North America lumber production will need to come from U.S. mills.
– Russ Taylor, Forest Economic Advisors (FEA) Canada (19 Jan 2018)

The U.S. labour force is the single biggest constraining factor in U.S. sawmill production.
-Paul Jannke, FEA (5 Apr 2018)

“Moonwalk” – Evie’s space-themed Sports Day last wk

Sharpening the Saw

Its been said that there is power in staying connected to other people in your industry. My fifth consecutive B.C. Council of Forest Industries (COFI) Convention, held in Prince George last week, provided again opportunity to return with ideas to sharpen skills and stay abreast of a rapidly-changing lumbering landscape. The listed takeaways include a surprise at how few marketing and sales types were among more than 550 delegates who packed the Prince George Civic Centre for agenda presentations:

-The prevailing politically-charged environment these days seemed to shape tempered viewpoints from panelists on several fronts. Folks looking for Interfor President & CEO Duncan Davies to deliver pertinent softwood lumber dispute insights were disappointed. His confirmation lauding the work the Softwood Lumber Board is doing to grow softwood lumber demand did not excite. Fortunately a pointed question from the audience, asking why Canadian producers would support the SLB when a number of U.S. members are working to constrain market access, elicited topical response: “The tariffs are wrong. Whether or not the economy is helping to soften the blow, the tariffs should not be there. Inspite of trade matters, we need to continue to invest in our biggest market.” From West Fraser President & CEO Ted Seraphim: “Today, we’re not worried about the softwood lumber dispute. But if the market were weaker, we’d all be worrying about it. So we need to grow demand.”

-While there wasn’t a panel discussion dedicated to timely transportation concerns, Federal Minister of Transport Marc Garneau addressed the situation. He said CN and CP need to do better. He pointed to Bill C-49 (Transportation Modernization Act) but his reporting an improvement in railcar capacity for grain fell flat among an audience concerned with lumber shipments. From Beth MacNeil, Assistant Deputy Minister, Canadian Forest Service: “Without infrastructure, there is no trade.”

Jock Finlayson, Business Council of B.C., talked about the uncertain, shifting economic landscape in this province. He referenced the impact of uncertainty on investor confidence and how Canada is lagging in healthy capital formation. He sees little upside in residential construction in Canada, while pointing to “fundamental organic demand for housing growth” in the U.S. 30-39 age group. He suggested recent fiscal stimulus in the U.S. is unnecessary and poorly timed. Presently 300,000-400,000 manufacturing jobs in the U.S. are unfilled.

-According to Paul Jannke, Forest Economic Advisors (FEA), the U.S. labour force is the single biggest constraining factor in U.S. sawmill production.

-It was refreshing to hear from B.C.’s new Minister of Forests, Doug Donaldson, but otherwise nothing noteworthy recorded.

-An excellent presentation by Kevin Pankratz, Senior VP, Sales & Marketing, Canfor addressed export markets and the global outlook. Interesting to learn that the R&R market is bigger than new home construction. Expansive growth in hybrid construction, off-site construction, and building automation in all markets reported. “Governments everywhere will increase focus on green building initiatives to meet emission targets.”

-Most edgy presentation (“Fibre Supply – It Is What We Make It”) goes to Diane Nicholls, now two years into her job as B.C.’s Chief Forester. In the aftermath of the Mountain Pine Beetle, she seemingly referees the constant fight for access to quality fibre, further complicated by the Spruce Beetle presently eating into the midterm timber supply.

-The Forestry Jobs for Today and Tomorrow panel might have been one of the highlights. Best moderator of the convention goes to Sandy Ferguson, VP Corporate Development, Conifex. It was interesting to hear industry (Canfor/Interfor/Tolko/West Fraser) is working to rejuvenate parts of the BCIT Wood Products Manufacturing Program I graduated from, which has been dormant since 2003. From Kara Biles, Manager Learning & Talent, Canfor: “Aggressively advocate for diversity and inclusion in your company; diversity is a competitive differentiator shifting market share toward more diverse companies.” Derek Orr, Business Development Manager, Carrier provided update on planning underway for a Ranger Program aimed at development/training of Aboriginal youth. Lots of sponsor traction for the program including Carrier, Dunkley, Conifex, West Fraser, and Canfor.

Premier John Horgan seemed pleasantly surprised with the warm welcome before delivering his keynote speech Friday morning: “Thank you for clapping.” He deftly navigated the politically-charged minefield.

~~~

At first glance, the 2018 COFI Convention struck me as perhaps being lighter on content in comparison with past years. However, on second glance, it was rich in both content and opportunity, with plenty to digest. As one among four delegates from Dakeryn Industries, I again return from this convention with new and enlightening ideas. For us all, it was a worthwhile time to ‘sharpen our saws’.

Premier John Horgan with COFI President & CEO Susan Yurkovich (6 Apr 2018)

Green Chain

The Times They Are A Changin’ was Bob Dylan’s earlier notice of a need to adapt to survive. But who would have seen marijuana as the acceptable change agent for sawmill workers displaced by mill closures in Lumby, B.C.?

We’re told here over the past 15 years, five sawmills have closed in Lumby. But a brand new 25,000-square-foot hydroponic grow-op is about to ease the pain from those resulting job losses. The $10 million plant will soon be rolling out 25,000 kilograms annually of kiln-dried B.C. Bud – on a vacant 40-acre site once home to Weyerhauser.

It’s reported the mayor of Lumby has high expectations for successful transition of the town’s economy from wood to weed. The mayor confirms the village of Lumby “is finally getting a taste of the economic diversification it has needed for so long,” suggesting the Lumby grow-op could be replicated in other small B.C. communities looking for a lift.

It’s understood that lumber traders are less confident about adapting a role as traders in marketing Lumby’s lumber switched diversified production.

All of a sudden we’re talking about (marijuana) at regional district and council tables like it’s old news. There has been a huge cultural shift. We tried for a correctional facility a few years ago. I basically had to cross picket lines to get into my office over the (prison) project, and in comparison.. this has had virtually no formal complaints registered against it. There are some real opportunities for some of these operations to find reasonably-priced land at reasonable taxes and to be able to come in and make something happen.
-Lumby Mayor Kevin Acton

Youth MentORR

The name ORR conjures stories of scoring, bigtime! In the annals of Stanley Cup folklore, he made a difference. Our association with the name Orr is tied to Derek Orr, former McLeod Lake Indian Band Chief, now valued employee of Carrier Lumber, Prince George. He is scoring bigtime and making a difference in the lives of Aboriginal youth.

Delegates to COFI Conventions in recent years will recall that standout panelist Chief Orr shared insights into successful natural resource development synergies in 2017 (“Best Practices in Partnering with First Nations”) and 2015 (“First Nations – The Changing Landscape”). It was with interest that I read more of his story in today’s Prince George Citizen. We’re told when Carrier Lumber hired Orr as business development manager, “It was mutually agreed upon that this would include the development and training of young people in the region with an emphasis on Aboriginal youth.” It’s reported a creatively designed mentorship program could be ready for launch by summer. Orr is making a difference by being the difference.


If we can rejuvenate the interest in school, for those at-risk kids, then we can look forward to having a whole lot more of them pursuing a healthy life and contributing to their communities – the Aboriginal community and the community at large. They not only won’t fall through those really negative cracks, but they will become leaders and peer mentors later on.

What is the value of a healthy life? I was one of those kids who probably shouldn’t have got another opportunity, a second chance, or really a 100th chance. But because I finally ‘got it’ and I had a lot of help and I came to believe in it, believe in myself, I got to pull out of that dark place I was in and be able to say now that I’ve had a blessed life. And I didn’t even get my turnaround until I was 27. We’re trying to intervene on kids 10 years earlier than that.
– Derek Orr

Related: Everyone a Changemaker

With Derek Orr following his presentation at the NAWLA Vancouver Regional Meeting (26 April 2018)

Sticker Shock

After hitting a 20-year high in 2017 ($440 October 10), the Random Lengths Framing Lumber Composite Price has snowplowed even higher this winter, reaching $458 Friday. SPF 2×4 #2&Btr is $502, a record high. “Shaking their heads – some in near disbelief..” — that’s how Random Lengths describes ever-wary lumber traders in their Weekly Report on North American Forest Products Markets (19 Jan 2018).

Last week a good U.S. customer, in response to a partial quote, asked: “Where are they hiding all the wood?” I posed the question to Russ Taylor, Managing Director, Forest Economic Advisors Canada. Russ notes Canadian shipments are already limited by tightening timber harvests in the B.C. Interior and Quebec. And with Canadian softwood lumber exports further constrained by cross-border duties, FEA-Canada projects Canadian shipments to the U.S. to shrink even more, up to 7% through 2019. Russ confirmed the additional North American lumber production required to satisfy U.S. demand will need to come from U.S. mills. Russ considers projections for U.S. mill shipments to grow 15%, from 34.0 billion FBM in 2017 to over 39 billion FBM in 2019, “an aggressive target.”

When Russ then reiterated FEA-Canada’s most recent five-year outlook quoted below with permission, I was reminded of the comments John Innes, Dean of the Faculty of Forestry, UBC made back in 2012: “What people seem to forget – and I don’t really understand this – is that there was extra capacity created to process this lumber when the beetle reached its peak. Surely people then realized that this was a temporary thing; that it wasn’t going to last.” See: Firm Offers?

U.S. demand will be leaning more heavily on expansions in U.S. production and European lumber imports in the 2018-19 period. Production increases in the U.S. will be subject to many factors, including lumber prices, log supply and costs, financing, supply chain dynamics (including loggers and sawmill workers) etc. This means we could see varying supply responses in different regions of the U.S., and at different times.

As we have been forecasting for the last few years (and again this year), there does not seem to be nearly enough available softwood lumber capacity in North America to meet U.S. demand by the end of the decade. While the slower pace of housing starts has somewhat delayed any potential ‘supply gap’ in the last few years, the burden of import duties on Canadian lumber shipments to the U.S. has now exacerbated this situation (starting in 2017). We predict that incremental supplies of logs and lumber will be required each year, and that high lumber prices will result and attract more supply; in 2020 and beyond, there is strong potential for even higher lumber prices.

 

Breaking: SLB-funded initiatives generated 1.02 billion board feet of incremental softwood lumber demand in 2017.

AAC Reduced in PG

The announcement of a 33 per cent reduction in the annual allowable cut (AAC) in the Prince George Timber Supply Area is no surprise. Back in 2011, the AAC in Prince George was temporarily elevated for salvage-logging operations. Five years later, at the 2016 COFI Convention, Tim Sheldan, Deputy Minister, B.C. Ministry of Forests confirmed that “most of the economically harvestable beetle-killed timber has been harvested.”

According to the news release, the measurable real impact on economic activity is expected to be less significant in consideration of average timber harvests in recent years. The effective cut reduction is 8 per cent. Even so, industry observers and lumber traders could rightly be wondering about longer term implications for markets, domestic and foreign, at the same time as trade issues remain unsettled.

There’s no doubt we’re coming closer and closer to the point where the cuts will be reduced. There will be less timber.
– Dave Peterson, B.C. Chief Forester (21 Nov. 2014)
See: Beetle Boundaries

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An Accident of Circumstance

Some participants on both sides of the softwood lumber dispute are seemingly struggling to understand basic tenets of supply and demand. A global market is in play in the long run to influence supply and pricing. However, as this Bloomberg report demonstrates, imposition of duties on Canadian softwood lumber is mostly hurting U.S. consumers these days.

This unexpected boon for Canadian lumber producers is essentially an accident of circumstance. The attacks on Canadian lumber exports combined with serious wildfire issues in both Canada and the U.S. have served to reduce lumber supply. Meanwhile, the recent hurricanes that impacted the U.S. have led to a spike in construction – causing lumber demand to soar.

The result of these simultaneous supply/demand pressures has been a sharp surge in lumber prices. According to The Globe & Mail, Canadian softwood lumber producers have seen gains in their share prices of more than 40%. In contrast, U.S. lumber producers are averaging gains of only 10%.

The end result of the latest harassment on Canadian companies is that these companies have become more profitable, while U.S. consumers are paying significantly inflated prices for lumber – even as natural disasters have created an imperative need for new U.S. construction.

– Stockhouse Newswire 09-20-2017

Talk About the Weather

On the heels of the worst wildfire season in memory, a continent braces for reportedly the most dangerous hurricane ever. There’ll be time later to cast all this talk of weather in relation to climate change. For now, the impact on human lives is of foremost concern. Even so, lumber traders try to make sense of the variables that shape lumber markets thrown into unpredictability by virtue of trade talk uncertainties and subject to more volatility by forces of nature.

The reporting of Random Lengths since July (see excerpts from Random Lengths Lumber Market Reports below) suggests that traders sensed greater downside market risks heading into September. Pricing trends in evidence this week suggest the opposite to be true. We’ll share buyer caution in interpreting the changes that shape lumber markets this fall. Hazarding pricing forecasts seems especially risky for the remainder of this year. A recent posting we noted on a Vancouver church sign this week might have been aimed as a caution at bloggers and lumber reporter forecasters: “If pride comes before a fall, we should see humility by winter.”

July 21
“Some traders pointed to the gap in the application of the preliminary CVD on Canadian imports that starts August 26, hoping that prices would ease with no CVD in place.”

July 25
“While some quicker loads developed, mills widely quoted shipments for the weeks of August 14 and 21. Buyers were leery of booking into or beyond those weeks. They cited the coming pause in the countervailing duty, a steep discount in September futures, and quicker shipments from secondaries.”

July 28
“But the coming pause in collection of countervailing duties starting in late August, and the possibility of a lumber trade deal between the U.S. and Canada, left traders sensing downside price risk in the weeks ahead. Many turned to secondaries to fill holes in inventories.”

Aug 1
“With the preliminary CVD only in effect through August 25, buyers of Canadian S-P-F showed an increased fear of downside risk. The futures market’s huge discount to cash gave buyers another reason for caution.”

Aug 4
“Buyers maintained the view that purchases at current levels in advance of the onset of the gap in the countervailing duty carried risk. Producers, meanwhile, were largely content to limit sales to the U.S. until the gap starts, if not stack production until then.”

Aug 8
“Buyers anticipated downside in Canadian lumber amid the gap coming in the CVD. Reports circulated that shipments could be CVD-free as early as August 14.”

Aug 11
“Trading slowed as buyers’ sense of the market turned more bearish. Numerous factors weighing on the market generated uncertainty, which in turn led to a cautious approach. Topping the list was the coming pause in the countervailing duty, and anticipation that Canadian mills could lower prices with the nearly 20% CVD suspended.”

Aug 15
“A bearish tone grew more prevalent in softwood lumber and structural panel markets. Near record prices in many markets kept buyers only purchasing enough to fill in inventory, amid increasing fears of downside risk. Traders awaited next week’s countervailing duty gap period.”

Aug 18
“Dealers, distributors, and office wholesalers were reluctant to purchase more than immediate needs. They cited current price levels, the suspension of the preliminary CVD, and a slowdown in consumption as key reasons to hold back.”

Aug 22
“Buyers grew more concerned about downside risk and delayed purchases as long as possible. The pause in the countervailing duty on Canadian shipments to the U.S. takes hold at the end of the week, causing further fear.”

Aug 25
“Buyers anticipated opportunities to buy Western and Eastern S-P-F at lower levels with the August 25 arrival of the CVD-free period. Producers, however, proved to be far less vulnerable than buyers anticipated.”

Aug 29
“Monday’s announcement by the Commerce Department of a two month delay in the final determination of the countervailing and anti-dumping duty cases drove many buyers to the sidelines, waiting to determine a market direction.”

Sept 1
“Activity in S-P-F markets picked up Wednesday and Thursday once buyers digested news on the CVD case and returned to the market.”

Sept 8
“Many buyers.. scrambled for coverage, having held off for weeks in anticipation of a pullback once the pause in the countervailing duty on Canadian shipments to the U.S. commenced. Many were wary of booking loads past September at current prices.”

Log flume – Lower Seymour Conservation Reserve (North Vancouver, BC)

Summer Haze

While smoke from B.C. wildfires hangs heavily over Interior and Coastal landscapes, so too a certain smoke obscures lumber market horizons searching for uncertain outcomes of softwood lumber negotiations.

When prices climb, lumber as a commodity finds extra supply available: mills re-open, add shifts, build more mills, areas that were too remote to haul timber from become more economical etc. But we interrupt this program with an unprecedented wildfire season. Fire danger has disrupted logging operations, stalled production at a number of mills, and fractured the transportation chain. As the contractor handling our recent home renovation liked to point out, “These costs are real.” Perhaps most alarming, reports this week tell us industry analysts are concerned the fires will compound B.C.’s dwindling timber supply. “Part of the tragedy we are dealing with is that fires are also burning through trees spared by the pine beetle outbreak, including young planted stands that were being counted on as timber supply over the next several decades,” said Phil Burton, professor of forest ecology and management at UBC here.

Traders meanwhile point to the upcoming expiration of the preliminary countervailing duty on Canadian softwood lumber shipments to the United States week of August 28th. Following the recent spike in lumber prices, many dealers appear to be anticipating a steep market correction when the 20% CVD is lifted. Will the bottom fall out? If only things were that simple. We’re told negotiations for a possible new SLA involving a cap on market share are progressing. While there is perceived motivation and hope for striking a deal before NAFTA negotiations are set to begin, some have now questioned that timeline, warning the U.S. Lumber Coalition’s “de-facto veto” on any proposed agreement might prolong the dispute, suggesting a quick resolution may not be congruent with their interests.
BREAKING: U.S. industry rejects Canada’s latest softwood-lumber proposal

Burrard Inlet today, and downtown Vancouver

Close?

While industry spokespersons are being tight lipped about progress in softwood lumber negotiations, rumours abound.

Last Friday, word circulated that Canadian Minister of Foreign Affairs Christina Freeland and United States Secretary of Commerce Wilbur Ross “shook hands” on a ten year Softwood Lumber Agreement restricting market share. This rumour seemed to be congruent with perceived political motivation to achieve a managed trade agreement ahead of potential NAFTA negotiations. By Monday however, a declared state of emergency due to mega-fires in B.C. superseded quota chatter. Then CIBC Capital Markets cautioned that any proposed settlement could be vetoed by the U.S. Lumber Coalition. The rumour fizzled Monday afternoon when in a Madison’s Lumber Reporter follow-up, we were told a source close to the U.S. Lumber Coalition had cleverly confirmed that Minister Freeland and Secretary Ross “surely shook hands” on Friday but “did not shake hands on a deal”. In an update just this afternoon, CIBC Capital Markets noted the framework of the rumoured “handshake deal” was almost identical to a proposal the two sides were reportedly close to agreement on two weeks ago before it was rejected by the Coalition.  CIBC estimates the probability of an agreement between the two countries by the end of August at “greater than 50%”.

~

As recently as last Thursday, the only talk about forest fires in this province was about how few were burning (“three or four”). Suddenly 140 fires started Friday, followed by nearly 100 more Saturday, and a few dozen more Sunday. It’s interesting to learn here how a below-average fire season in 2016 and an unseasonably wet spring in 2017 may have made the forest more susceptible to fire, fueling the unprecedented spread over the weekend. Mills watch with anxiety as the wildfire season, just begun, is impacting Interior communities and forest operations. The Vancouver Sun reports West Fraser, Tolko, and OSB manufacturer Norbord are among the companies that have suspended operations around 100 Mile House and Williams Lake, with 1,000 employees from West Fraser alone off work due to the closures.