Corrections

Markets have a way of redefining terms of the trade. Hot markets lend tolerance to ‘prompt shipment’. Market corrections, not so much. These days, ‘just in time delivery’ comes with caveats such as ‘subject to availability of trucks’. Market conditions present unique challenges to guarding supplier/customer relationships. Some have suggested that markets, like politics, frame questions of definition around who holds the power. In some instances, that is known to shape performance strategies in relation to commitment around short run versus long run considerations. It’s suggested that the transactional approach is not the most desirable for building enduring relationships among customers or voting constituents. A favourite response from one supplier known to be under pressure on late shipments: “In the end we’ll all get to heaven”. We’re in it for the long run, but we appreciate that even our most valued, understanding customers’ patience is stretched when lumber ready for delivery is awaiting wheels.

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Saint John, NB (20 Nov 2017)

 

Can’t See the Forest for the Trees (Guest Post)

I have to admit, I am not smart enough to totally understand all the concepts within the softwood lumber dispute. It is beyond me how a small group of people (U.S. Lumber Coalition) can continually try to hold a whole country hostage in spite of the fact that International Courts have proven them wrong time and time again.

It is also beyond me how the U.S. Department of Commerce can not only continue to support what seems to be a money grab but also seem to be able to differentiate the amount of alleged damage each company has contributed to the U.S. Lumber Coalition through mysterious, arbitrary numbers and selective testimony.

Be all that as it may, everyone both inside and outside of the industry understands that the only real damage being done is to the little guy. It is not a shock that this continued dispute only drives up the price of lumber to both U.S. and Canadian consumers and all the while the rich guys on both sides of the border get richer.

What my simple mind does find shocking is that with all the smart people involved in this process, nobody is talking about the “unintended” consequence of the anti-dumping and countervailing duties (AD/CVD) as it is applied.

In March of this year, I had a long conversation with Wendy Frankel, Director, U.S. Customs & Border Protection Liaison Unit, International Trade Administration (ITA), U.S. Department of Commerce (DOC). I took great pains to explain to her that by applying the AD/CVD on the selling (border) price, the DOC is actually subsidizing the U.S. Secondary Remanufacturers as opposed to creating a level playing field. Applying the AD/CVD to the first mill price would be far more appropriate as that is where the alleged damage exists and it would not affect the competitiveness of the secondary market. Ms Frankel was clear that subsidizing the U.S. remanners was not the intent and I will try to take her at her word.

The math is simple:
A Canadian independent remanner buys 2×8-20’ SPF on the open market from a mill in B.C. at $639/M delivered Vancouver. This remanner turns that wood into 2×8-20’ Fascia Combtex Prime and sells it to a U.S. customer for $1000/M. At the rates announced November 2nd in the final determination, the Canadian company will pay approximately $208/M in duties (calculation simplified for presentation) thus “grossing” $153/M before processing costs. A U.S. remanner buying the same lumber and selling to the same customer at the same price would pay $133/M in duties thus “grossing” $228/M before processing.

It seems undeniable to me that this significant difference is a clear subsidy.. a subsidy that would not exist if the duties were applied to the first mill price.

Since my conversation with Ms Frankel in March, I have approached fellow remanners (too expensive to fight), industry associations, and Government officials and nobody will take the time to have the conversation with me (although one individual did offer to meet me in the parking lot for suggesting he was not doing his job).

After all of that, I am left with a few questions:

1. Is this dispute legitimately about levelling the playing field – or just a recurring disguise for greed?
2. If somebody like me who admittedly is not the sharpest knife in the drawer can see this so clearly, why can’t the smart people?
3. Do the negotiators actually see the consequence – but both sides are holding ‘first mill’ as a negotiating point in spite of the fact that it was the basis of taxes in the previous agreement?
4. Do politicians just accept that there will be collateral damage in disputes like this and are willing to potentially sacrifice the small independent remanufacturers?
5. Am I missing something?

I guess only time will tell.

Roy Falletta, VP Finance & Administration
Dakeryn Group of Companies

Hijacking Lumber

It happened this week. A semi-trailer transporting product en route from Alberta to Dakeryn’s wood specialties manufacturing plant in Abbotsford, B.C. was hijacked. According to reports, the suspect faces a number of charges, including kidnapping and use of a firearm in the commission of an offence.

He came to my window (waving a handgun).. I had no doubt that he wouldn’t have had a problem shooting me to get out of there.. I was thinking as long as I was doing what he wanted and driving, he was no great threat to me – but it was a long three-hour drive to Kamloops.

Those are the words of one cool trucker, Robert Price. No doubt there will be a full investigation into the suspect’s motive. In the light of ongoing tragedies involving firearms, it seems insensitive to characterize the incident as anything other than another very serious situation. We couldn’t help wondering though, what would drive somebody to undertake such extreme measures aimed at securing Dakeryn’s lumber? And if the kidnapper had arrived at eventual destination, would our fine finished products have also become a subject of ransom? That question was reportedly in our truck driver’s mind too, when he wondered aloud: “How does this end?” Fortunately, the RCMP intervened at a truck stop 175 miles from our specialties plant and, from early reporting, their gunshots were aimed at the truck’s front tires.

Bigfoot Blame

Clearcut logging in BC’s Bigfoot country is the latest explanation ascribed to trackers’ inability to pin down sasquatch in the woods. According to reports in today’s Vancouver Sun, a sasquatch tracker out of Golden, BC aims to take the provincial government to court to prove beyond a shadow of a doubt (or a guy in a gorilla suit) that the legendary creature roams the BC wilderness.

In a civil lawsuit filed in BC Supreme Court on Monday, it’s reported the BC Ministry of Environment and BC Fish and Wildlife Branch is charged with “dereliction of duty pertaining to the interests of an indigenous wildlife species.” The plaintiff suggests that logging played a role in disappearance of the hairy beast’s natural habitat. Some wonder if impending Halloween tricksters might scare the creature into view. Just sayin’.

Meanwhile, for traders returning from back-to-back Forest Products Conferences in the Northeast this week, sometime seemingly invisible realities shaping lumber markets may be coming into view. When the busy LBM Advantage show concluded Tuesday in Baltimore, vendors boarded rail cars for Philly to attend a jampacked LMC Expo Wednesday and Thursday. Key takeaways from the Dakeryn tabletop visits? The market’s hot and the supply chain is fractured. No Halloween costumes can disguise it. Moreover, rumours are swirling the duty timeline is aggressively moving up. Traders wonder if countervailing duties on cross-border shipments will now be in effect as soon as mid-November. In midst of the unprecedented wildfire season in BC, could free-of-char (FOC) lumber be tax-exempt? While perception among some US lumber retailers suggests that duties are beneficial to their bottom line, at least one major dealer struggling for supply described the ongoing softwood lumber dispute as “bizarre”.

Softwood Solution?

We’re not so sure that buyers of Canadian softwood would concur with a rationale contending that increased prices could form part of the solution to the ongoing cross-border trade dispute. Differences in costing our timber resources on either side of the border feed into complexities in resolving the issue. Even so, it’s interesting to hear the many interested viewpoints on the subject, including the following letter to the editor at Kelowna News (HT: Tree Frog News):

I am sure this sounds overly simplistic, but if the U.S. wants our softwood lumber to cost more, I believe we should accommodate them. Raise the stumpage rates and use the extra cash for forest renewal and fire mitigation projects. Canadian mills should raise the price to be comparable with U.S. prices. At least that way the extra money stays in Canada. The U.S. will want to keep the countervailing duties and penalties as they have in the past.
– Gord Marshall – May 3, 2017 / 2:14pm | Story: 196125

In related news, Conan O’Brien asked random Americans what issue mattered most to them during the 2016 election. Surprisingly, their answers were all the same.
Click here.  (HT: Geoff Berwick, Atlantic Forest)

 

Who’s going to pay?

A jam-packed North American Wholesale Lumber Association Regional Meeting in Vancouver last evening heard a panel of experts discuss implications of countervailing duties on softwood lumber announced Monday by the U.S. Department of Commerce. The latest round of the long-running dispute comes amid ramped-up political rhetoric on both sides of the border.

In candid presentations and Q&A session at the NAWLA Regional Meeting, Susan Yurkovich, President and Chief Executive Officer, Council of Forest Industries; Duncan Davies, President and Chief Executive Officer, Interfor Corporation; Jason Fisher, Associate Deputy Minister, Forest Sector at BC Ministry of Forests, Lands and Natural Resource Operations, captured attention of more than 250 industry participants. While Executive Director of NAWLA, Marc Saracco, acknowledged the significant role of lumber distributors on both sides of the border in facilitating efficient continental marketing of forest products, the real question of who pays looms heavily over the ongoing dispute.

Interfor’s CEO, Davies, reminded us that they, like Canada’s other major producers now heavily invested in U.S.-owned production facilities, are not part of the U.S. Lumber Coalition that is once again creating havoc, unprecedented price patterns of volatility and strength in lumber markets. Reports in today’s Vancouver Sun (“Canfor eyes acquisitions amid fallout from new U.S. duties”) confirm Canfor’s optimistic outlook with “well-positioned balance sheet in recent quarters,” with Canfor CEO Don Kayne adding that they see organic growth opportunities worth up to $300 million by 2018.” Sounds great. Meanwhile, it’s the small and medium-sized businesses who don’t own sawmills in the U.S. – the vast majority of Canada’s softwood operators including re-manners – who will be forced to pay the duties retroactively on any shipments made to the U.S. since Feb. 1.

In the face of the United States’ inability to satisfy American demand for softwood lumber with domestic production, the objective of restricting Canadian market share, with underlying aims of enhancing privately-held timber in the hands of select U.S. entities, points to inevitable, further increase in costs for the U.S. homebuilding industry. Ultimately, of course, the consumer pays. Someone tweeting about the issue might simply add:  Sad. Bad.

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Thanks to Tree Frog News for the following images from last evening at The Vancouver Club, posted with permission. Tree Frog’s full report available at this link: NAWLA 2017 Overview.

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Q&A – Final Five for 2016

Answers to the five remaining questions from the Harderblog Top Ten Questions for 2016:

6. Is oil in the $20’s an inevitable reality?
No. In early January, crude prices had plunged to $34 in the face of oversupply, a level not seen since the early 2000s. But that would turn out to be the low for the year. Most recently, a curtailment deal between OPEC and rival producers was expected to further tighten supply in midst of growing demand.

7. How low can the loonie go?
The low of the year was January 20, when one Canadian Dollar was worth 0.6854 US Dollar.

8. Where will Conifex stock be priced in 12 months?
See TSE:CFF. Conifex Timber Inc. has risen over 30% since December 31, 2015.

9. Is this the year 3-D printers stationed in Fraser Lake begin mass production of 2×10-14’s and 16’s?
While there is little evidence of 3-D printers mass producing 2×10-14’s & 16’s at Fraser Lake this year, there is evidence that technological developments in production of new wood products are making a profound impact on many fronts. The opportunity to spend an afternoon touring the 18-storey mass timber hybrid structure pictured below at UBC was one of the highlights of the year. See High on Wood.

10. Will the Chicago Mercantile Exchange implement circuit-breakers to tame volatility in the lumber futures market?
According to reports that regularly publish updates on lumber futures activity, it’s generally acknowledged that what happens in the lumber market is a microcosm for the entire commodities asset class. However the factors behind volatile changes are felt much more acutely in lumber, than, say, crude oil, because the market/volume is so small. This week we posed Question #10 to Stinson Dean, Broker & Risk Manager at Tall Tree Lumber Company, who confirms volume/open interest is especially low in lumber right now. “Below 4,000 open contracts is very low. Lumber used to have 10,000 in open interest back in 2012-13. When there are limited participants, there are limited sell orders and buy orders. When bullish news is announced, there aren’t enough sellers in the market to absorb an influx of buyers and we get locked limit-up. Buyers are forced to go higher and higher to find sellers.” He adds, “Random Lengths noted that 2014 was one of the least volatile years on record. That’s been followed by two very volatile years. The difference between 2014 and the two most recent years is non-commercial speculator participation. 2014 was a trendless year, 2015 was a bear trend, and 2016 was a bull trend. Funds, in particular, love trends. ‘The trend is your friend’. So, when that group recognizes a trend, they start to pile on. And that starts a chain reaction.” According to Stinson, the funds are out of the market right now; it’s anticipated they will step back in long in the new year.

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