Weekend Wildfires

Fires in B.C.’s vast beetle-killed stands of pine are burning hotter and faster than typical forest fires, reports The Vancouver Sun here. Daniel Perrakis, a research scientist with the B.C. Ministry of Forests, tells us that the unpredictable behaviour of these beetle-kill fires creates added uncertainty for fire fighters. The older the dead timber, the greater the risk of falling trees. Water and fire retardants are also less effective.

On the heels of Mayor Gerry Thiessen’s update regarding fire control measures, it’s interesting to learn in the report that test fires were conducted just south of his Vanderhoof community. Those tests reportedly found that fire spreads over two and a half times faster in beetle-killed stands than in healthy trees, and burns with higher intensity. Bark on these “crackling-dry” grey trees easily pulls away from the trunk, sending more embers into the air which jump fire breaks, lakes, and rivers. We’re told that scientists expect these intensified fire problems caused by the beetle epidemic to last 15 to 20 years.

Fortunately the Douglas Lake Ranch, where Dakeryn Industries just spent a weekend Company retreat, was not threatened with fires or evacuation orders. The area is part of B.C.’s interior land mass comprised of half a million acres of protected and managed land base, where we found plenty of room to stretch our legs, breathe fresh air, and test the rainbow-rich waters of Stoney Lake.

As Big as the Beetle?

According to RBC Capital Markets, a Supreme Court of Canada (SCC) ruling on aboriginal land title in B.C. may end up having as severe an impact on fibre supply as the mountain pine beetle (MPB). In this morning’s Province here, analyst Paul Quinn warns the impact of the SCC ruling could eventually equal the estimated 710 million cubic metres of commercially valuable pine wiped out by the MPB epidemic. Quinn advises that while 94% of land in B.C. is currently classified as provincial Crown land, aboriginal title will eventually likely make up the majority. He believes the larger forest companies are most at risk, “since they have long-established tenure rights and, therefore, have required fewer First Nation partnerships to secure timber supply.”

That warning would seem to stand in stark contrast to this opinion piece in The Financial Post, which declares that “resource companies are winners too” in the SCC ruling. According to Lawrence Solomon of the Urban Renaissance Institute, resource companies will “soon be able to powwow with clear owners of the land, rather than endlessly hold ‘meaningful consultations’ with the myriad stakeholders demanding says in developments.”

“The lesson for environmentalists should also be clear. Natives do not share their vision of Canada’s north as a vast theme park, set aside as a picturesque habitat for moose, bear, caribou and Indians for the benefit of white men on eco-tours. Natives desire development on their own terms and will use their land as they see fit. Courtesy of the Supreme Court decision, that development will now come sooner than later.”
– Lawrence Solomon, Urban Renaissance Institute

Forestry vs. Hockey Management

On a day when the NHL’s Canucks introduced their new manager to the media, one lumber trader’s meeting with Jim Snetsinger, who is leading the provincial Area Based Forest Tenure Consultation process, created considerably less buzz in downtown Vancouver this morning. Even so, my session with the former chief forester of B.C. (and attending representatives from the Ministry of Forests, Lands and Natural Resource operations: Doug Stewart, Director of Forest Tenures Branch, and Allan Johnsrude, District Manager, Chilliwack) was enlightening.

As a blogger keenly interested in forest stewardship, I wanted to learn as much as possible about the proposed conversion of some volume-based forest licenses to new or expanded area-based tree farm licences. The government engagement site tells us that “volume-based tenures typically allow multiple tenure holders to harvest in the same timber supply area. Area-based tenures, with some exceptions, limit timber rights to one tenure holder operating in a designated area.”

Snetsinger indicated that the stakeholder meetings to date have offered a diversity of opinions. Interestingly, he noted that in-person meetings have been generally more positive toward the proposed conversion, in contrast with many of the negative comments posted at the engagement website. I wondered how those contrasting views might play out when Snetsinger’s report and recommendations are presented to the Minister of Forests at the end of June. Snetsinger didn’t share the view, as some have reported, that the Special Committee on Timber Supply’s recommendations surrounding forest tenure issues were being misrepresented. In his view, the committee’s recommendations were “carefully worded to ensure that everyone agreed”. He suggested the conversion would mitigate timber supply as a result of the Mountain Pine Beetle.

In the face of reportedly negative response to the proposed conversion (Canfor CEO Don Kane has called it a “deal breaker”) it’s been suggested that preserving, protecting, and enhancing public perception of B.C.’s sustainably managed forests should be a priority. In response to a suggestion that it would appear Snetsinger’s group would be recommending proposed conversion to area-based tenures, B.C.’s former chief forester stated that drawing such conclusion at this time was “premature”.

About the same time as I was digesting views from my meeting with the forestry management gentlemen, Vancouver Canucks’ new general manager Jim Benning was sharing his opinion that any conclusions forecasting a Stanley Cup for next year were “premature”. We’ll stay tuned.

Bucks to Battle Beetles

In Prince George, it’s reported the University of Northern British Columbia (UNBC) is one of five universities across Canada that will receive special funding enabling critical MPB research to continue for another five years. The Prince George Citizen tells us here that the research group is known collectively as TRIA-Net. UNBC professor Dr. Dezene Huber, a Canada Research Chair in Forest Entomology and Chemical Ecology says, “So far, the TRIA project has been able to sequence the genomes of the beetle, the tree, and the fungus that allows the insect to break down the tree’s defences. We have discovered many new aspects about the physiology of the organisms in the system. With TRIA-Net, we intend to look at how differences in a host tree’s defences affect pine beetle larvae survival over the deep cold of winter.”

The MPB epidemic continues to threaten boreal forests across North America. In west-central Alberta, beetles arrived for the first time ever in June 2006. We’re told strong winds occurred at the same time beetles emerged from their pine hosts, and carried them 400 kilometers from central BC into the region (Source). In Colorado, the beetle infestation has now spread across 3.4 million acres. And earlier this year, scientists warned us that over the next two decades, billions of mountain pine beetles from B.C. are expected to devastate forests in Ontario, Quebec, and the Maritime provinces.

~Sawdust~

  • No mention of shrinking fibre supply in all the news of late concerning big market potential for Canadian softwood lumber in India. As reported here, Canada’s natural resources minister Joe Oliver was on a six-day trade mission to India this week. While he notes India import demand might be considered a decade behind China, he suggests “when it happens we’re looking at an additional market in the billions.” Analyst Paul Quinn, RBC Capital Markets predicts a “slower growth story than we’ve seen with China” but adds “it’s going to be yet another place to put lumber which continues to tighten the market.” Canfor CEO Don Kayne says India holds “tremendous future potential,” adding the federal investment will “expand our reach in this rapidly growing economy.”
  • In the United States, Reuters explains the 9.8% drop in December housing starts announced this morning: “It was the largest percentage decline since April, but housing starts were coming off a multi-year high reached in November and the decline was smaller than economists had expected. In addition, cold weather appeared to be a factor.” A significant 33.5% tumble in the Midwest is explained by unseasonably cold weather.

Relative Strength

The Relative Strength Index (RSI) is defined at Investopedia as “a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.” Ranging from 0 to 100, an asset is deemed to be overbought once the RSI approaches the 70 level, and oversold if it approaches 30. In Lumber prices limber up for bull run, The Financial Times told us yesterday that the 14-day RSI for lumber is about 66, suggesting “the latest rally is not particularly overstretched.”

Likely of greater interest to lumber traders in the same report: “Over the past ten years, November has been the most bullish month, with lumber gaining an average of 7.9 per cent – though that does include the 31.7 per cent pop off the 2009 lows.”

This year, could this 7.9% average price gain be offset by a 5% reduction in the export tax (to zero) next month? Some might consider that wishful thinking. Heightened caution in the marketplace in recent weeks, in anticipation of a correction next month, may have fueled the fire. With November just days away, we’re told traders now “fret that low inventories will be further denuded by the closure of some Canadian mills.”

“No Warning”

The news reportedly came as a shock to the town of Houston, whose population is just over 3,000. “There was no warning at all,” said Houston Mayor Bill Holmberg. “Everybody’s aware of the pine beetle and reduction in timber that was going to come because of that. But I don’t think anyone expected it quite this fast, even though we knew sooner or later mills were going to have to close because there just isn’t the volume of wood.” The full story from Global News BC is just one of a flurry of reports popping up online this evening concerning the sudden announcement that two sawmills among ‘the majors’ – West Fraser in Houston and Canfor in Quesnel – will close. The impact of the closures in these rural communities will be felt most of all by 434 employees and their families. “Rural economies are rapidly changing” we’re told.

Game Changer?
Short term timber supply constraints in the Interior are clearly intensifying. Salvage logging of MPB wood is in decline. In the years following the 2008 U.S. subprime mortgage crisis, large volumes of surplus production sold offshore provided underlying support for domestic prices. It seems evident this September and October however, that stronger demand for lumber across North America, bolstered by a resurgent U.S. housing market, is the leading factor behind unseasonably high prices.

Dak NAWLA Traders Market '13

Lookin’ good! NAWLA Traders Market, Las Vegas 10-24

cs vegas

“Sainas in Vegas” 10-25

COFI Convention Report Part 3: Timber Supply

The session on Timber Supply featured three panelists who examined “how the value and security of B.C.’s changing fibre supply basket can be maximized for the benefit of industry, communities, and the province in a post-Mountain Pine Beetle world and in the context of global fibre supply trends.” Moderator Jim Girvan of MDT Ltd. introduced the three speakers:

Mark Feldinger, Sr. VP Forestry/Environment & Energy – Canfor
Mark’s presentation focused on maximizing value of the Interior fibre supply. With the MPB epidemic, U.S. housing market crash, and global recession, he suggested we are now emerging from quite possibly the five most difficult years in industry history. Where MPB -killed wood is concerned, he confirmed that we are now entering the end of the “salvage phase”. This shift means the challenge now is to maximize value from varied mixed stands/species with both dead and green components. Mark also drew attention to global supply chain challenges “from forest to customer” and the skilled labor shortage.

Gerry Thiessen, Mayor – District of Vanderhoof
My notes tell me that Gerry likened the province’s outdated forest inventory to “a 20 year old vehicle that gets you to and from work but that’s about it”. His greatest concern in his community is the threat posed by forest fires. “The fires are coming – what will the response be?” Short of those notes, I put my pen down early in his passionate presentation because I simply wanted to listen. Gerry’s talk offered the single biggest takeaway for me from this convention in terms of broadening one’s understanding and thinking. He emphasized that the ongoing challenges in a small northern town like Vanderhoof are concerned especially with building community, attracting and keeping skilled labour, while enhancing the well-being of families who choose to live there. It’s evident that seemingly small decisions made by government in Victoria can have big impacts elsewhere in the province. Government initiatives are often not necessarily congruent with the needs of smaller towns in the north.

Dave Petersen , Chief Forester and ADM – Province of B.C.
Who better to turn to for an accurate and up to minute picture of timber supply than the Chief Forester? Dave hit us with ‘the numbers’ right out of the gate:

  • B.C. Forest = 17.372 billion cubic metres
  • 4.5 billion cubic metres is bio mass
  • 4.6 billion cubic metres saw log supply in the timber harvesting land base
  • 8 billion cubic metres is outside timber harvesting land base (“marginally economic”)
  • 53% of pine in B.C. has been attacked by the Mountain Pine Beetle
  • 723 million cubic metres killed on the timber land base
  • 400 million cubic metres killed in parks
  • rate of attack has been falling steadily since 2004 (peak year)
  • end of the MPB infestation estimated in the year 2020
  • by 2020, 58% of pine in the province will have been killed (impact less than earlier feared).

Dave also touched on carbon sequestration before confirming the greatest risk where future timber supply is concerned is climate change. He suggested that “adapting to that change in climate” is the most pressing priority in resource management. I had a chance to speak with Dave one-on-one at the “Networking Reception” Thursday evening. I was appreciative of how much time he made for me. Perhaps an obvious answer to others, I asked why only 5% more pine in total will be attacked by the end of the MPB infestation in 2020. He explained that the “easy” stands of pine, in the Quesnel region for example, rapidly reached the point of total saturation from the MPB. Stands still vulnerable to attack are more mixed and scattered, separated by valleys etc. He said that he first encountered the MPB in the 1980’s – twice – in each instance they were wiped out in 30 below temperatures. He also touched upon the evolving story of the beetle in Cypress Hills, Alberta. Finally, in repeating a question CBC Radio asked me last fall, I asked him if it was just “bad luck” now that global demand appeared to be recovering at a time when we are now past the peak of salvageable beetle killed timber. He agreed it was unlucky that B.C. timber supply is constrained at a time demand is returning in the U.S. but noted that in my role as a lumber trader perhaps that might be viewed as good luck, reflected in rising prices.

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This concludes my three-part report on the 2013 COFI Convention. The opportunity to attend this informative convention reaffirmed that at Dakeryn Industries we recognize the importance of staying connected to industry developments critical to interpreting market dynamics.

Updated 4-24-13: all speaker presentations are available for download via COFI here.