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?

Great!

According to news that’s filtering through to us in the great White North, these be challenging days as friends and relatives to the south wrestle with decisions in advance of November elections, said by some to be aimed at “making America great again.”  Say what?  Again?  Let us echo a Toronto ad agency’s campaign that helps cut through the negativity in play.

Having just returned this morning from the classy LBM Advantage Forest Products Conference, I was also reminded just how invigorating it is to connect with people face to face. It’s been said that the best social network is a table and two chairs, or, in the case of the Dakeryn table inside the packed White River Ballroom at the beautiful JW Marriott Indianapolis, a table and six chairs! Despite election angst, dealers appear to be cautiously optimistic about business for the balance of the year. While bullish on 2017, the extreme hand-to-mouth buying patterns in evidence suggest an emphasis on risk management through December. Coming from B.C., where we are inundated with SLA headlines, it’s interesting to note there so far seems to be little weight given to possible cross-border softwood lumber trade constraints in relation to market impact.

Upon arriving home late last night, my wife relayed this story after picking up our five-year-old from Kindergarten yesterday:
Evie: “Mommy, I made a new friend from my class today”
“Oh? How did that happen?”
“He came up to me and said ‘Evie, give me all your Bunny Crackers.'”

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Indy Sunrise (18 Oct 2016)

Making Trade Great Again?

Amid revved-up rhetoric of U.S. election season comes more news from the U.S. Lumber Coalition that hints of negotiation strategies for any SLA down the road. A press release from the coalition yesterday suggests a hybrid of quota and export taxes, arguing that any deal with Canada must:

  • maintain Canadian exports at or below an agreed U.S. market share
  • establish border measures that are effective in all market situations.

A July 17th industry update from CIBC Institutional Equity Research projected that “the next SLA will resemble the structure Canada proposed to the United States on June 21, 2016, with Option A (B.C./Alberta) duties ranging up to 25% (vs. the 2006 SLA’s maximum of 15%), and lower U.S. market share constraints for Canadian mills.”

Further to CIBC’s May 16th update projecting preliminary duties as early as Feb/Mar 2017, CIBC explains lumber equities trading today around three-year lows “the market pricing in a long multi-year trade battle with very limited pass-through of the cost of duties to consumers.”

Here in B.C., it’s reported the volume of softwood lumber shipped to the U.S.through May 31st ballooned +36% YTD. Some might be wondering what role any consideration for reducing production might have in B.C. mills’ stance /position going forward toward resolution of softwood trade with the U.S. The CIBC report does state that “a period of duties in 2017 could accelerate permanent beetle-related capacity curtailments slated in B.C. over the next three years.” RBC Capital Markets analyst Paul Quinn has also predicted that any preliminary duties imposed in 2017 would result in a number of mill shutdowns right across Canada.

softwood

To Everything a Season

To everything there is a season. A time to laugh a time to cry. Seasons of elections are not a time to negotiate trade agreements. So, it might be the time to cry as we read more reports of fading hopes for a Softwood Lumber Agreement (SLA 5) to be reached.

In their May 16th Industry Update, CIBC World Markets projects, “At some point (maybe late June/July), negotiations will simply cease due to the upcoming U.S. elections. Such a freeze is unlikely to be lifted until a new U.S. president takes office and even then, potentially only after a new U.S. trade representative is confirmed by Congress (maybe March/April 2017). With the window for reaching a deal closing, we expect the U.S. industry will petition for a trade case in five months when the standstill on litigation ends on October 12, 2016, after which Canadian producers could then get hit with 25%-30% preliminary duties as early as February/March 2017.”

In today’s Vancouver Sun, Vaughn Palmer reports Americans prefer a quota on Canadian softwood imports to the U.S., while Canadians prefer an export tax tied to lumber prices and exchange rates.

FEA analyst Henry Spelter has addressed exchange rates here: “This world we are living in – this nightmarish world where you have to focus on every nuance and accent on the part of central bankers and how they are going to control the exchange rate – is having a huge impact on business profitability. It obviously has disadvantaged the U.S. producers of lumber and greatly advantaged Canadian producers of lumber. This development is totally independent from everything else.”

So this season too shall pass; although unlikely before October.

“No matter who is the next president, the incoming administration will have to show it will be tougher on enforcement. And it will be completely disorganized and unfocused for months into 2017. The U.S. Lumber Coalition will have an unimpeded run down the field until the countervailing duties rates and AD margins are announced, and maybe thereafter. The pressure to negotiate and compromise is entirely on Canada. The Coalition benefits from any delays.” – Peter Clark, iPolitics.ca (15 May 2016)

Wall of Wood

“Leave us Canucks out of it!” a lumber trader was heard to say. The donnybrook that was last evening’s Republican Debate is “none of our business” another one offered. But then again, a wall, you say? Hmm. A wall of wood? Now you’re talkin’. No problem. We can add a shift. And, with the help of our new prime minister, ‘Justin Time’ delivery. Some of it’s within a stone’s throw of the 49th as we speak. Get it done before Super Tuesday, maybe. We got special fencing, pattern stock, boards, timbers, short lengths, long lengths, finger-joined lumber. Spruce-Pine-Fir? What’s that you say? “Canada’s not our biggest problem”. “And if we build it they might not come,” countered Disney’s travel agent. Aw shucks, a lost opportunity? One lumber trader wondered. It’s not the first time we’ve contemplated impact of a wall of wood at the U.S. Canadian border.

NAWLA Vancouver – Speakers Confirmed

With the timeliness of SLA negotiations pending, we’re pleased to announce an all-star line-up of speakers is confirmed for this year’s nawlaNorth American Wholesale Lumber Association Regional Meeting at The Vancouver Club, April 21st:

  • Susan Yurkovich, President and CEO, Council of Forest Industries
  • Paul Quinn, Paper & Forest Products Analyst, RBC Capital Markets
  • Cees de Jager, Chief Marketing Officer, Softwood Lumber Board

NAWLA Executive Director Marc Saracco will open the region’s lumber marketing event of the year in the Grand Ballroom at 3:45pm. Cocktail Social to follow at 5:30 pm. Tickets are limited, available exclusively at the event website here.

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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?

Answers 1-5

Answers 6-10

 

Q&A

A pair of Harderblog questions for 2015 were answered this week:

Will Canadian household debt levels eclipse 170% of disposable income?
The answer came from Statistics Canada this week with the announcement that household debt compared with disposable income rose to 163.7 per cent in Q3, up from 162.7 per cent in the second quarter. In his Vancouver Sun column this week, Craig Wong reaffirmed earlier reports that household debt and Canadian housing market imbalances have been key concerns for economists and policy-makers. Interesting to note that while Canadian consumer debt levels in relation to disposable income have been increasing at what many economists consider to be a dangerous and alarming rate,  U.S. patterns of household debt to GDP ratios at end of second quarter of 2015 were reported to be at 79.76 per cent.

Will the long-talked about ‘normalization’ of interest rates materialize in 2015?
It’s a tale of two economies. In the U.S., where household debt is falling and consumer confidence is rising, the Fed raised rates this week above their near-zero threshold for the first time since 2008. In Canada, we were told last week the BOC would consider pushing interest rates as much as a half percentage point into negative territory in the event of a crisis.

MORTGAGE-DEBT (1)

HT: The Greater Fool Blog

Close But No Cigar

The answer to our beginning of year question on whether or not the thawing of trade relations between Cuba and the U.S. could mean demand for Cuban cigars outstripping demand for legalized marijuana is clear.  It’s not close. Demand for legalized pot wins hands down.

This year has seen plenty of engagement around the topic of legalized marijuana on either side of the 49th Parallel. Cuban stogies perhaps not so much. Even if the embargo is lifted, best sales case scenario is that the Cuban cigar makers would expect to capture 25-30% of the U.S. cigar business. They predict selling between 70 million and 90 million cigars annually. Now when it comes to marijuana demand in relation to legalized activity in states closest to our borders, it’s noted that Washington State’s reported collection of $70 million of taxes on $257 million in sales in the first year of legalized marijuana sales through July exceeded expectations.

The legalized recreational sale of weed in Oregon beginning in October heralds a new era of bullish pot demand forecasts in the Pacific Northwest. Budding entrepreneurs report that demand in Oregon will far outstrip the supply. “There won’t be enough weed in Oregon for everyone who wants to buy it so they will still need to come to Washington.” We’re also told that for another year, concentrated marijuana for vaporizers and “edibles” can only be found legally in Washington.

Truth be known, we recognize that the world is focused on issues far more significant than Cuban cigars or marijuana sales. Still, to satisfy discerning readers’ demand for answers to those beginning-of-the year Harderblog questions, watch for more answers in follow-up posts soon.  For now, enhanced  lumber market activity is keeping our minds sharp; focused on wood, not weed.

Memorable Hikes

Within our spheres of interest, any reference to hikes has usually involved talk of interest rates, not a walk in the woods. Although rumours of interest rate hikes have been with us for some time, realities of such are mostly distant memory. A real hike in the woods, not so much. Especially for me, last week.

In a favorite book Get Your Shift Together, Steve Rizzo contends that happiness is a state of mind that can be fostered, brought about, with conscious decision in whatever circumstance we find ourselves. That may be true, but a hike in the magnificent, natural surroundings of New York’s Mohonk Preserve with a valued customer last Wednesday certainly brought focus to my camera and vistas of well-being. It’s not surprising that a lumber trader would coincidentally stumble on Scottish-American naturalist and author, John Muir’s quote that “the clearest way into the universe is through a forest wilderness.”