Wooden It Be Loverly

“Wooden it be loverly”, words from My Fair Lady ring true to a lumber trader’s ear.. even though Professor Henry Higgins may say it’s meant to say “wouldn’t”.
Today, another ‘would‘-related story is music to our ears (see: Guitar maker champions use of local woods).

It’s the Vancouver International Guitar Festival, upcoming in early August. The Vancouver Sun reports that some of the world’s top luthiers will be on hand “to present guitars crafted entirely from local BC woods such as Sitka spruce, red cedar, curly maple – perhaps even reclaimed or salvaged woods.”

The “local wood challenge” holds particular interest here in BC, which reportedly supplies 80 per cent of the tone wood to the global guitar market. While Englemann and Sitka spruce are two of the province’s most sought-after species, Dave Nadin of Bow River woods in Chilliwack notes a growing interest in other domestic woods.

It’s reported that while earlier guitar shows highlighted flashier guitars made of rosewood and mahogany, demand for locally-sourced wood is on the rise with an eye to sustainability and protection of natural resources. We’re told it’s the way of the future. Meanwhile, as long as Willie’n the boys make music, would or wouldn’t not guitar afficionados trust the chords to ring true, no matter what lumber’s in play.

~~~

Images from a family hike in the woods last week at beautiful Golden Ears Provincial Park:

This slideshow requires JavaScript.

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

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.

11 Questions for 2018

Here are 11 questions that Harderblog will be watching in 2018, in search of answers:

1. Will rhetoric of military strike pass the ‘tipping point’ into war with North Korea?
2. Will the Bitcoin excitement be fading, or prove to be a bubble?
3. Will the extreme weather patterns evidenced in 2017 be as pronounced in 2018?
4. Will Trump take steps to call a halt to the special prosecutor’s investigation into Russia’s interference in the 2016 U.S. presidential election?
5. Has integrity lost some of its lustre as a perceived prerequisite for leadership success?
6. As higher lumber prices effectively offset impact of duties, will Canadian major producers’ newly-hedged investments in U.S. production assuage any further concerns companies such as West Fraser and Canfor might have about the ongoing Softwood Lumber dispute?
7. Will Germany repeat as FIFA World Cup champions?
8. Will the powers that be acknowledge that the remanufacturing (value-added) segment of the Canadian forest sector is being unfairly penalized in the application of the AD/CVD?
9. Will softwood lumber be incorporated into NAFTA?
10. In view of the fractured supply chain, will lumber buyers abandon the “just-in-time” model in favour of securing coverage that satisfies longer-term projected needs?
11. Will broccoli, the least-trusted vegetable of 2017 among lumber traders and the general population, retain that notoriety in 2018, at the same time as the world watches broccoli’s favorability surge to number one in Scotland?

Year-end Answers

As we approach year-end, you’ll recall 17 questions for 2017 we posed one year ago at Harderblog:

1. (See Question #1 from 2016)
Yes.

2. Will Trump really build a wall and have Mexico pay for it?
No. It’s reported the promised border wall amounts to eight prototypes sitting in a desert outside San Diego. Mexico hasn’t contributed a peso and no funding has been appropriated by Congress to advance the project beyond the testing phase.

3. Will the softwood lumber dispute have found a satisfactory resolution?
At the 2017 COFI Convention in Vancouver, David Emerson, B.C.’s Trade Envoy to the United States, described the ongoing softwood lumber dispute as “a mutating form of bacteria that has all but become antibiotic-resistant.” In the face of a dwindling resource and increasing demand for softwood worldwide, effective today the combined CVD/AD duty paid by most Canadian importers to the U.S. Customs and Border Protection Agency will be 20.23%, calculated on the selling price.

4. Will anticipated countervailing duties on Canadian softwood lumber shipments to the U.S. be applied retroactively?
No. While the USDOC concluded in April that “critical circumstances” existed (justifying the charging of duties retroactively 90 days), by early December the USITC had announced a negative finding concerning critical circumstances.

5. Will Trump really pull the U.S. out of the Paris Climate Change Agreement?
Yes.

6. In the face of “Fake News” and misinformation that poses distraction to sound decision formulation on many fronts, will lumber dealers lean more heavily than ever on trusted wholesale relationships to interpret market changes?
A poll of traders in Dakeryn’s office says “yes” to this question.

7. Will Trump really pull the U.S. out of the Iran Nuclear Deal?
No.

8. Will there be 100 million consumers shopping in augmented reality (AR) by the end of 2017?
Maybe not yet. However we’re told here “shoppers are beginning to give AR more attention, particularly when viewing function-driven, feature rich, high-consideration purchases such as furniture. Voice technology, augmented reality, and artificial intelligence are transforming the retail industry to make buying products quicker, easier and more enjoyable.”

9. Will a measure of sanity return to the Vancouver housing market?
No, although, as a major news story, rental-housing woes in Vancouver eclipsed angst over the climbing cost of homeownership. In 2017, it’s reported the average rent for a one-bedroom apartment listing in this city surpassed $2,000 per month.

10. Will the record number of homeless people identified in the City of Vancouver’s 2016 Homeless Count be broken again in 2017?
Yes. The record-breaking 2,138 homeless people counted in Vancouver this year is 291 more than the previous record of 1,847 homeless people counted in 2016. At 448, Aboriginal peoples are once again over-represented in the number of homeless people living in Vancouver.

11. Will tensions with China escalate over trade and Taiwan?
Trade issues loomed large on many fronts in 2017. The U.S. opting out of the Trans Pacific Partnership headlined trade-related news in Asia.

12. In light of increased hacking of connected products, will questions surrounding cybersecurity have become a make-or-break issue by the end of 2017?
Yes. In fact 2017 has been described as “the year of cybersecurity wake-up calls”. Recent examples show disturbing trends.

13. Is there any indication that by the end of 2017 a future of driverless transport trucks could promise enhanced just-in-time lumber deliveries?
See Corrections.

14. Will anybody care if the Vancouver Canucks fail to make the Stanley Cup Playoffs?
Vancouver Canucks attendance figures are said to be the lowest since 2001.

15. Will BC Premier Christy Clark’s Liberal Party secure a fifth term in May?
No.

16. Will the global crises surrounding issues of displaced peoples/refugees have eased anywhere?
See: Why nothing will stop people from migrating.

17. Will general predictions forecasting a “bumpy ride” for 2017 come to fruition?
See: Are you day trading?

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

Final AD/CVD Rates

Hard to rationalize. Where does the characterization of ‘dumping’ come in as a rationale in the prevailing supply-demand scenario?
Here is today’s report from Inside U.S. Trade’s World Trade Online (2 Nov 2017):

With the U.S. and Canada unable to reach a long-term settlement, the Commerce Department on Thursday announced affirmative final determinations in antidumping and countervailing duty investigations of softwood lumber imports from Canada.

The announcement prompted Canada to threaten litigation through the North American Free Trade Agreement or the World Trade Organization.

“While significant efforts were made by the United States and Canada, and the respective softwood lumber industries, to reach a long-term settlement to this on-going trade dispute, the parties were unable to agree upon terms that were mutually acceptable,” Commerce said in a statement. “As a result, the investigations were continued and Commerce reached its final determinations.”

Commerce said it determined that exporters from Canada have sold softwood lumber in the U.S. at 3.20 percent to 8.89 percent less than fair value. It also said Canada was providing unfair subsidies to its softwood lumber producers at rates from 3.34 percent to 18.19 percent.

The department will instruct Customs and Border Protection to collect cash deposits from lumber importers based on those final rates.

A fact sheet issued by the department noted that it found “critical circumstances” in the AD investigation for certain Canadian exporters but not others. “Consequently, Commerce will instruct CBP to impose provisional measures retroactively on entries of softwood lumber from Canada, effective 90 days prior to publication of the preliminary determination in the Federal Register, for the affected producers and exporters,” the fact sheet states.

It also notes that certain softwood lumber products “certified by the Atlantic Lumber Board (ALB) as being first produced in the Provinces of Newfoundland and Labrador, Nova Scotia, or Prince Edward Island (the Atlantic Provinces) from logs harvested in these three provinces should be excluded from the scope of the AD and CVD investigations.”

Commerce Secretary Wilbur Ross said that while he was “disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair and reciprocal trade with Canada.” He said the U.S. decision was “based on a full and unbiased review of the facts in an open and transparent process that defends American workers and businesses from unfair trade practices.”

Ross had been negotiating with Canada in the hopes of reaching a suspension agreement and pushed the final determination deadline from late August to November.

“I remain hopeful that we can reach a negotiated solution that satisfies the concerns of all parties,” Ross said on Aug. 29, announcing the extension through Nov. 14, which he said “could provide the time needed to address the complex issues at hand and to reach an equitable and durable suspension agreement.”

But Ross in June received criticism from the U.S. lumber industry when he tried to negotiate with the Canadians because, sources said then, the positions he outlined ran counter to the longstanding U.S. demand for a quota-only approach and would therefore undermine the U.S. negotiating position.

One source told Inside U.S. Trade in June that Ross “would like to get it off the table one way or the other,” before NAFTA renegotiation talks began in August. But, the source said, “Ross doesn’t know how complicated this is.”

Industry and government sources claimed Ross’s department was lacking the expertise needed in dealing with the file and doubted that Ross would be able to reach an agreement before the final determinations were set to be made.

Softwood lumber from Canada were estimated to be worth $5.66 billion in 2016, Commerce said.

The U.S. Lumber Coalition, which kicked off the case in November 2016, lauded the Commerce determinations. “We are pleased the U.S. government is enforcing our trade laws so that the U.S. lumber industry can compete on a level playing field,” the group’s co-chair, Jason Brochu, said in a statement. “The massive subsidies the Canadian government provides to their lumber industries have caused real harm to U.S. producers and their workers. With a fair-trade environment, the U.S. industry, and the 350,000 hardworking men and women who support it, have the ability to grow production to meet much more of our country’s softwood lumber demand.”

Canada, meanwhile, blasted the move in a statement issued by Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr.

“The Government of Canada will continue to vigorously defend our industry against protectionist trade measures,” they said, calling the duties “unfair, unwarranted and deeply troubling.”

“We will forcefully defend Canada’s softwood lumber industry, including through litigation, and we expect to prevail as we have in the past,” they added. “We are reviewing our options, including legal action through the North American Free Trade Agreement and the World Trade Organization, and we will not delay in taking action.”

Carr and Freeland also said they would “continue to engage our American counterparts to encourage them to come to a durable negotiated agreement on softwood lumber.”

If the U.S. International Trade Commission makes affirmative final injury determinations in the softwood lumber case, Commerce said, the department will issue AD and CVD orders. A negative final injury determination will terminate the investigation with no duties assessed.

The ITC is set to make its final determinations by Dec. 18

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”.

Lumber Market Pricing

“What’s going to stop this market?!” is among the questions that lumber traders are pondering these days. Could softwood negotiations be the determining factor? What if the U.S. Department of Commerce throws out the case? More weather-related factors? This time, snow? Salvage logging? Traders taking a position, a stand, …or, a knee?

Back in 1994, when Michael Carliner was Staff VP for Economics at the National Association of Home Builders (NAHB), he wrote What’s Driving Lumber Prices?. In the article, it’s noted that changes in inventory levels create expectations on future levels of activity. It’s accepted that expectations about future supply and demand are key determinants in short-term behaviour of market participants. We’re told that rising prices, such as have been experienced, may of themselves create expectation of further price increases, causing speculative behaviour.

Carliner points out that historically, prices of lumber have not increased gradually with increased demand and constrained supply. Instead, data suggests an erratic pattern of booms and busts that are largely attributable to changes in expectations about future supply. Historically when supplies were not so uncertain, changes in housing statistics and other demand factors were reportedly less pronounced in their impact on short-term market pricing. We’re told that price spikes occurred when market participants were subject to uncertainties in policy, litigation impacting trade, plus the many additional factors that historically impact timing between a tree being felled and being delivered as lumber to market.

What’s different now?

The run-up in lumber prices over the past few months contains some short-term speculative elements, but the underlying trend is toward higher average prices.
– Michael Carliner, Housing Economist (January, 1994)

On this National Tree Day, any image of a tree is music to our ears! Hat Tip: Al Harder (Source: boredpanda.com)