Year-end Answers

As we approach year-end, you’ll recall 19 questions for 2019 we posed one year ago at Harderblog:

1. Will the railways be better prepared for winter weather conditions?
If lumber prices are any gauge, yes. In 2018, extreme cold temperatures in Q1 severely reduced rail capacity, driving lumber prices to all-time highs in Q2, 2018. In Q1 2019, comparatively muted lumber prices suggest overall network capacity improved.

2. Will the extreme price volatility in lumber markets this year persist in 2019?
No. In 2018, the Random Lengths Framing Lumber Composite Price peaked at $583 (June 5) before shedding a whopping $245 over four expensive months riddled with false starts, before finally bottoming at $338 Oct 30. In sharp contrast, this year the gap between the composite high ($378 in Feb) and low ($320 in June) was narrow. The composite currently sits at $373. Random Lengths recently described lumber markets through much of 2019 as “challenging and fickle” (Dec 20).

3. Will Justin Trudeau still be Canada’s prime minister after Canada’s federal election scheduled on or before October 21, 2019?
Yes, barely. Canada’s Liberal party under Justin Trudeau’s leadership won 157 seats to form a minority government and lost the majority they had won in the 2015 election. Trudeau’s Liberals formed a government while receiving less than 35 per cent of the national popular vote, the lowest percentage of the national popular vote of a governing party in Canadian history. The Conservative Party remains the official opposition with 121 seats. The Bloc Quebecois won 32 seats. The New Democratic Party won 24 seats.

4. Will Donald Trump still be America’s president by the same date?
Yes.

5. Will Beto O’Rourke or Joe Biden emerge as the leading Democratic presidential nominee for 2020 by the end of 2019?
Beto bid the race bye bye November 1 while polls still consider Biden the nervous front runner.

6. Will the 12 months of 2019 provide conclusive evidence that trade wars are “easy to win”?
Au contraire! Ongoing reporting reaffirms damaging, costly, induced complexities in play. While baby steps on resolving trade issues are reported, what’s been described by year end as a cold war on trade with China is evidence that “trade wars are not easy to win”.

7. Will noise about the border wall on the U.S. southern border have lessened by the end of 2019?
Yes, at least based on news reports beamed north of the 49th. Or, perhaps it’s simply being drowned out by ongoing competitive, attention-seeking noises spurred on by politics.

8. Will progress be reported in solutions for solving the opioid epidemic?
A US Center for Disease Control (CDC) spokesperson said provisional data and other reports signify that “progress is being made” in the opioid epidemic. According to the agency, the turnaround is said to be due to multisector efforts at the federal, state, and local level. USA Today reports progress here in the form of awareness. In BC, it’s reported here that through the first eight months of 2019, there was a 33% decrease in illicit drug toxicity deaths over the same eight-month period in 2018 (690 vs 1,037). Fentanyl was detected in more than 85% of overdose deaths in BC in 2018 and 2019. 

9. The American Psychiatric Association says anxiety levels jumped 7 per cent from 2017 to 2018. Will 2019 see a reduction in anxiety levels among the American general population?
No. For the second year in a row, about two in three Americans say they are extremely or somewhat anxious about keeping themselves and their family safe, paying bills, and their health, according to a new national poll here by the American Psychiatric Association (APA).

10. Will 2019 see a reduction in anxiety levels among continent-wide lumber distributors?
A survey of at least one lumber distributor’s office personnel revealed that lumber traders’ cheerful, positive disposition has been subjected to anxiety levels at least comparable to the stresses of a year ago.

11. Will Canadian softwood lumber exports to China (dropping each year since 2014) continue to decline?
Yes. In discussions last week with Russ Taylor, Managing Director, FEA Canada, he reported while exports to China were up 5.7% in the first nine months of 2019 YOY, shipments slowed down significantly in Q2 and Q3 due to high inventories. Taylor projects Q4 shipments in 2019 to be off roughly 50% YOY, resulting in a 5-10% decline overall this year. “For 2020, I see further declines in Canadian softwood lumber exports to China. Not only are there reduced volumes of low grades from BC, the huge surge in European log exports from the massive salvage program (wind-damaged and beetle-killed) to China (about 6.5 million m3 expected in 2019 vs 1.5 million m3 in 2018) is expected to saturate the construction lumber market by lumber produced at domestic Chinese mills. Not only will this depress construction (low grade) lumber prices, the huge volumes of damaged European logs will also keep imported log prices at low levels. Already the BC Coast logging industry is shut down for cost and market reasons – the market reasons are the surge in European log shipments to China that have pushed higher priced (and costed) hemlock logs out of the China market.”

12. Will an old-growth protection strategy be established in B.C.?
Maybe next year. According to a BC government report Oct 23, “As part of government’s new approach to managing old growth in British Columbia, a two-person, independent panel is engaging British Columbians to get input and hear perspectives on managing the province’s old growth forests for ecological, economic, and cultural values.” In July, the government protected 54 old growth trees by placing a meagre buffer zone around each of them. The action, considered to be more symbolic than symbiotic here, was described by BC Forests Minister Doug Donaldson as “the first step in a broader old-growth plan.” The public, organizations, and professionals are encouraged to share their thoughts by January 31st here.  

13. Will the accelerating rate of climate change evidenced in 2018 be exacerbated by global climate patterns experienced in 2019?
This week the Canadian Press dubbed climate change the news story of the year. The tell-tale signs and impacts of climate change – such as sea level rise, ice loss, and extreme weather – increased during 2015-2019, which is set to be the warmest five-year period on record, according to the World Meteorological Organization (WMO) here. Greenhouse gas concentrations in the atmosphere have also increased to record levels, locking in the warming trend for generations to come. Alluding to the challenge of meeting emission targets in a report this week here, Catherine Abreu, executive director of Climate Change Action Network Canada states “If we continue to ignore the root cause of climate change – extraction and combustion of fossil fuels – we’re going to keep missing the mark.”

14. Will the U.S. repeat as the FIFA Women’s World Cup Champions?
Yes. The U.S. defeated the Netherlands 2-0 in the most-watched FIFA Women’s World Cup match ever (82 million viewers). Over the 52 matches played in nine host cities across France, the average live match audience was over 17 million viewers, more than double the 8.39 million average of Canada in 2015.

15. Will the record number of homeless people identified in the City of Vancouver’s 2018 Homeless Count be broken again in 2019?
Sadly, yes. Volunteers counted 2,223 homeless people in the city this year, the highest number since the annual count began in 2005.

16. Will 2019 have seen an economic recession?
A recession is defined by a fall in trade and industrial activity in two successive quarters as measured by GDP. So while a UN flagship report in September signaled a slowing economy being fed largely by binge deficit spending, no ‘recession’ was declared in 2019. The UN’s trade and development body, Unctad, said 2019 will endure the weakest expansion in a decade and there was a risk of the slowdown turning into outright contraction in 2020. Source

17. Will Brexit status be significant in determining whether Britain is “better off” at the end of 2019 than at the end of 2018?
The majority Conservative electoral win earlier this month was significant to the degree that it allowed PM Boris Johnson to put in motion UK withdrawal Agreement from the EU set for January 31, when the post-Brexit transition period will begin. For 11 months, the UK will still follow all the EU’s rules and regulations; it will remain in the single market and the customs union, and the free movement of people will continue. The challenge for the government will be to get all its new rules and policies in place by the end of 2020. The answer as to whether or not Britain is “better off” remains unclear.

18. Will European lumber deliveries to the U.S. decline in 2019?
“Interesting dynamics here,” said Russ Taylor last week, with Q4 data TBD. “Through September 2019, European imports are 4.3% below the pace of 2018 and slowed down significantly in Q3 vs Q2 this year – probably as a result of weak US prices. However, with the China market getting over supplied and US lumber prices rising in Q4, I expect European imports to increase. If they matched Q4 levels in 2018, that would put them even with 2019. However, with a glut of moderate quality logs and rising US prices, I expect that Q4 European shipments will be up significantly over Q3 levels, and even higher than Q4 levels from 2018, resulting in a small increase for 2019. In our just-released Global Sawmill Cost Benchmarking Report, the cost structure of the German and Czech mills has dropped by US$100/MFBM due to lower log costs (and more at some mills), allowing for easy access to the US market at very profitable levels. So I expect Central European exports to soar in 2020, especially if lumber prices improve (FEA forecasts a 10% increase over 2019).”

19. In view of lower lumber prices, will we see movement in the Canada-U.S. softwood lumber dispute?
No significant movement reported. When reached for comment, Susan Yurkovich, President and CEO of the BC Council of Forest Industries, confirmed “Sadly no. Litigation will continue.”

View from The Observatory, atop Grouse Mountain (early evening 27 Dec 2019)

2017 COFI Convention – 26 Takeaways

1. Convention buzzwords: shift (in fibre supply), declining (timber quality), instability (of supply), balance, diversification, value, engage, relationships, confidence, communication, connecting, collaboration

2. Most important trend shaping the global environment: dramatic expansion of the global middle class.
Jock Finlayson, Business Council of B.C., bemoaned Canada’s “slow-moving jurisdiction in a fast-moving world.”
The American economy continues to advance. Over the medium term, “B.C. needs to address a number of important structural weaknesses that threaten our prosperity”.

The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people are so full of doubt.
– Burtrand Russell

3. Historical devaluation of the Ruble triggered significant investment in state of the art sawmilling equipment in Russia. Currency-based advantage led to surge in softwood exports to China. Notion that Russia has an aging, limited infrastructure, is wrong. There are no logistical cost issues in Russia.
– Russ Taylor, President, Wood Markets

4. Russia has Forest Stewardship Certification (FSC). “Don’t ask me how.” – Russ Taylor

5. The panel assembled for the International Markets Review was a rare convention disappointment. U.S. homebuilding constraints are well-known. U.S. housing starts forecasts have become tedious. As for China, when Eric Wong, Canada Wood Beijing Office, warned that B.C. is losing softwood market share, no alarm bells sounded at the Vancouver Convention Centre. Growth in demand offshore is “continual” according to Wong, attributed in part to logging bans in China’s “natural forests” (25 million cube/year harvest reduction). Record softwood imports in 2016 in China >32 million cubes. In a post-beetle world, at least one trader was left wondering if B.C. (“the global resource for softwood,” according to architect Michael Green) should just go off the market.

6. India will be the 5th largest consumer market by 2025. 60% of the population in India is <35.
– Peter Bradfield, Forestry Innovation Investment

7. “The concept of innovation is.. what are you going to do with all of this growing information? Big Data connects people, like us, to the brilliance in the room”. Challenges facing the Big Data Revolution: Volume, Velocity, Variety, Veracity.
– Rory Armes, Founder & CEO, Cumul8

8. “Innovative technologies will help attract tech-savy video gamer kids who aren’t considering a resource-based industry.”
Mark Gerberman, AR/VR Strategic Partnerships & Business Development, Finger Food Studios

9. How can we keep better track of our natural resources using emerging technologies? We need better data and better analysis tools.
In the future, drone technology and remote sensing will identify the log and the mill, and determine the optimal products and customers – before that tree is felled. “We’re working to offer the industry a turn-key drone.”
– Mike Wilcox, Co-founder/COO, Spire Aerobotics

10. “It’s Urban Wood Building instead of Tall Wood Building.”
– Michael Green, Principal, MGA 

11. “Instability of (wood) supply makes people step back.” – Michael Green

12. “Changing the public perception about what’s possible.. reshaping public perception.. is the challenge. But it’s really happening. These ideas are not abstract. Thirty storeys? When we do that or will we do that remains to be seen, but it’s possible.” – Michael Green

13. “The construction industry is broken.”
– Michael Green

14. “Here in B.C., we may be making the right products but we need to be part of the right system. The idea is universal. We want to be leaders in becoming part of this ‘system’ thinking.” – Michael Green

15. TOE = Timber Online Education. Open access to leading experts.. “from forest to frame”. Free global education in wood design, construction, policy, markets, ownership, and environmental impact.

16. “We didn’t blockade because we wanted to stop the forestry, we wanted to be a part of it.”
– Chief Derek Orr, McLeod Lake Indian Band

17. “The Tsilhqot’in decision was a game changer. When I first meet with a chief, it better not be to ask to build a road. We’re there to undertake their unique vision for their community. What is your vision? Under-promise and over-deliver. If you don’t honour one of those commitments then your relationship goes backwards.”
– Karen Brandt, VP, Corporate Affairs & Sustainability, Interfor

18. “Engage and engage early. Meaningfully engaging with First Nations is how you build relationships. If you’re too busy to sit down with us, then we’re too busy to give you support.”
– Willie Sellars, Councillor, Williams Lake Indian Band

19. “I like to think Prince George is the Bio Energy capital.”
– Lyn Hall, Mayor, City of Prince George, who confirmed the COFI Convention returns to PG next year.

20. “The urban and rural connection, not the urban and rural divide.”
– Greg Moore, Mayor, City of Port Coquitlam
21. “Reinvesting in our business to innovate and modernize the technology in our mills isn’t about making more lumber. We’re not going to make more lumber. We’re going to make more value. Industry and government need to get together to get more value out of a scarce fibre resource.”
– Ted Seraphim, President & CEO, West Fraser

22. “How to run at two shifts efficiently instead of three shifts is the challenge. Three shifts are not possible.” – Nick Arkle, Co-CEO, Gorman

23. “(The softwood lumber dispute) could lovingly be called a hardy perennial. But it is a mutating form of bacteria that has all but become antibiotic-resistant.”
– David Emerson, B.C.’s Trade Envoy to the United States

24. “The consumer will pay the price.” – Duncan Davies, President & CEO, Interfor

25. “The softwood file is top of mind for the entire government. We have a strong case but that’s cold comfort for the people feeling the pain of the imposition of duties. A good, strong, fair, mutually-beneficial deal is preferable to long litigation. On both sides of the border, trade is central to maintaining standard of living. Trade creates jobs.”
– Kirsten Hillman, Assistant Deputy Minister, Trade Policy & Negotiation, Global Affairs Canada

26. Q: Is a market share-based quota inevitable?
A: “Nothing is inevitable.” – Kirsten Hillman

Q&A – 2016 Edition

Of the Top Ten Questions for 2016 posed at Harderblog one year ago, the first five have been satisfactorily answered for us:

1. Will the Trump presidential campaign have staying power beyond March?
See November election results.

2. Will the US make history by electing a woman as president for the first time?
No.

3. Will BC softwood log exports to Mainland China eclipse BC softwood lumber exports?
For the answer to this question, we turned to Russ Taylor, President, WOOD MARKETS. “Interesting question, but lumber export volumes to China have always been much higher than logs. The gap is narrowing, but lumber export volumes are still much higher.” Russ confirms BC softwood exports to China through October as follows: Logs = 3.0 million m3 vs 2.43 million m3 in 2015 (+23%); Lumber = 5.0 million m3 vs 5.49 million m3 in 2015 (-9%). Of course, log exports even south of the border continue to be a contentious issue.

exports

4. Will a new Softwood Lumber Agreement be reached between Canada and the United States before the standstill period ends October 13?
No. By early October, we were told talks had entered the days of magical thinking. And while the US Lumber Coalition’s submission of their petition to the US Department of Commerce was predictable, the November 25 timing caught markets by surprise. At least one forest analyst suggested “it put a whole new spin on Black Friday.”

5. Is this the year virtual reality goes mainstream?
As the cost of development falls, we’re told virtual reality is in fact beginning to move into the mainstream. However, it’s reported that most console headsets are still “device-exclusive”. And flaws in these controllers actually tempered demand in 2016, leading Tech Digest to ask will virtual reality finally become mainstream in 2017?

Economy Grade

When referencing “Economy” in relation to lumber, we’re talking falldown or lower grade. That’s not to say there can’t be value in economy grade. A whole industry of utilizing lower grades finds economic viability around remanufacturing lower grades of wood. At the same time, bottom-line, results-driven users of lumber are recognizing benefits of enhanced value in quality in planning construction inventory needs. It’s understandable that suppliers concerned with building brand recognition around quality, both in terms of service and product, tend not to build that awareness around ‘economy’.

In the airlines industry, ‘economy’ defines a supposed base line of minimum, acceptable service. Or so we thought. But not so much anymore. In an effort to redefine coach by re-grading passengers, it’s reported here a number of airlines are introducing a section with even fewer perks than economy class. The “deprivations” United passengers will be experiencing with implementation of “basic economy” suggest levels of service that will not allow for any overhead bin space – and declaration for boarding last. Presumably everybody still lands at the same time.

This trend is interesting considering the inferior quality of products and service being promoted seems to be ‘flying’ in the face of other aspects of commercial/industrial/consumer trends. In this age of heightened branding awareness, the airline approach seems to be contradictory to what their branding goals purport to represent. In the lumber business, “adding value” has built-in connotation for upgrade of quality in product and service, not a dumbing down of those variables. In fact, in the event of a new hybrid tax and quota softwood lumber agreement, some suggest that ‘economy’ could be the first to go.. on a slow boat to China.

img_3282

From NLGA, Standard Grading Rules for Canadian Lumber

Beijing Branding

Vancouver Forest is a unique 900-unit residential development – in Beijing! We’re told here the site was designed to replicate a mini west-side Vancouver neighborhood complete with west-side Vancouver-style housing, landscaping, trees – and bidding wars, presumably. A Google search reveals the plan was hatched in 2002. By 2006, construction had stalled however, when the Chinese government determined single detached homes were not in the collective interest of the country’s more than one billion people. By 2009, construction had resumed, and it’s reported that 900 homes of approximately 4300 square feet each have been completed. According to Business Vancouver, “North American single-family home subdivisions started emerging in China early this century following successful projects such as Orange County, which created a faux Los Angeles an hour’s drive from Beijing.”

So I read with interest a report today in The New York Times. According to the report, this trend of tacking on foreign names to developments around China could be coming to an end. We’re told concern over the foreign names was raised when a recent survey revealed that since 1986, “60,000 township names and 400,000 village names have fallen from use as a result of development and urbanization” in China. The minister of civil affairs has said names that “damage sovereignty and national dignity” or “violate the socialist core values and conventional morality” would be targeted. Meanwhile, developers argue the “international flavor helps sell houses”.

Loonie Tunes

There are many ‘beginning-of-the-year’ tunes or phrases aimed at setting before us the opportunities offered up in a clean New Year sheet. “Getting started is half the task.”  “Enjoy the journey.” Even so, this January is a riddle. A year ago, January offered up record snow falls that shut down lumber markets. This year the early weather patterns, while confusing as usual, have largely been hospitable for winter construction activity in most regions of the continent.
(Addendum – 1/25: Notwithstanding the giant snowstorm over the weekend which blanketed much of the Northeast…the weather through January was generally hospitable for winter construction in most of the continent)

All fine and good until we acknowledge that our lumber markets are now, more than ever, global. A sudden awareness that China’s declared objectives of switching from a manufacturing economy to a consumer/services economy is impacting negatively on BC’s largest producers’ projections for unabated growth of softwood lumber exports to China. Add in the record lows for oil and it all makes for ‘loonie’ tune forecasts in lumber markets, whatever jurisdiction the focus.

B.C. softwood lumber exports to Mainland China (Source: B.C. Stats)

-18.1% in June 2015 YOY

-19.5% in July

-42.3% in August

-55.5% in September

-48.6% in October

-25.3% in November

 

 

Ten Questions for 2016

Here are ten questions that Harderblog will be watching in 2016, in search of answers:

    1. Will the Trump presidential campaign have staying power beyond March?
    2. Will the U.S. make history by electing a woman as president for the first time?
    3. Will B.C. softwood log exports to Mainland China eclipse B.C. softwood lumber exports?
    4. Will a new Softwood Lumber Agreement be reached between Canada and the United States before the standstill period ends Oct 13, 2016?
    5. Is this the year Virtual Reality goes mainstream?
    6. Is oil in the $20’s an inevitable reality?
    7. How low can the loonie go?
    8. Where will Conifex stock be priced in 12 months?
    9. Is this the year 3-D printers stationed in Fraser Lake begin mass production of 2×10-14’s and 16’s?
    10. Will the Chicago Mercantile Exchange implement circuit-breakers to tame volatility in the lumber futures market?

~Funkify~

I recently finished recording sax tracks and a solo for the second song in a series of original compositions by Dave Friend. Hope you enjoy Metrotown posted below: