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Industry Growth Lumber Prices

Volume 50 No. 25 – June 23, 2000

The Mud-pack Dam

When I was a kid, I liked to play in the ditch. That was back in the good old days when ditch water wasn’t radioactive and there wasn’t a toxic flood of human offal awaiting the next big storm. My favorite time was when we had a good heavy rain and the ditch was full. Mother would dress me in my play clothes, fold my pants the right way to push into my knee high rubber boots, button up my coat, put a hat on my head, and send me out to play. There was always the usual admonition: Don’t get into trouble and stay out of the ditch. She knew me too well.

Outside, my first task was to get her off my case. I’d watch the window to see if she was looking from behind the curtain. If she was, I’d go into my deceit strategy. I’d sidle around the yard feigning interest in this activity or that toy. Failing that, I’d get on my tricycle and ride up and down the driveway, making car noises through pursed lips. All the time I’d be watching the window to see if she had written me off. Once she went back to her work, I’d drop everything and head for—you guessed it—the ditch.

I had two favorite ditch activities: First was seeing how deep the water was in the various pools. I’d wade in so just the surface tension was holding back the water from spilling into my boots. Of course the slightest movement meant wet feet, but there was the joy, wasn’t it?

My other activity was building what I called mud-pack dams. I’d find a rivulet and try to dam it up. That entailed scooping handfuls of mud from the ditch bottom and slapping them into the path of the running water. Many’s the time I reached down only to discover the water was deeper than expected and my jacket got wet. Other times my sleeves slid down my wet arms into the water as I dug up the mud. Either way, I invariably ended up with a wet front and a wet foot or two—both ofwhich I was too busy to notice.

In building my mud-pack dam I’d start from each side and channel the water through an increasingly narrow passage. Finally I’d plunk the last handful into the stream and watch as the water built up behind my dam. Because the mud was so wet, chunks and lumps broke off the downstream face, while on the water side, major mud slides took place. The dam didn’t stand a snowball’s chance in hell, and I knew it. Finally, in what was to me a real gusher, the water built up enough pressure to break through my dam and continued on its relentless trek. I’d laugh with great glee, and start rebuilding at once.

It was this image that came to mind when I picked up the local Vancouver Sun newspaper this week and read the story by Gordon Hamilton titled: All old-growth logging will be opposed, coalition warns. “It’s all in the open now,” I said to myself. “No more pretenses. Environmentalists want all old growth logging in the province stopped and they aren’t hiding their agenda anymore.”

The event defining this transition is a Coastal Rainforest Coalition (CRC) letter written to West Fraser Timber. As you recall, West Fraser is pulling off the B.C. coast to concentrate in the interior. The letter warns the company it will be a target unless it negotiates a deal with environmentalists. (See Madison’s Volume 50 No. 22, June 2, 2000: Footsie Under the Table.) According to the newspaper article, the CRC letter says it opposes all old growth logging, not just coastal old growth logging, and once it wraps up the old growth issue on the coast, it intends to turn its attention to the B.C. interior, where West Fraser is operating. Seems the interior is to become the next environmental battleground.

The question that comes immediately to mind is how will environmental groups define old growth? Do they mean just old growth spruce, or old growth anything? What if they decide to include lodgepole pine? Take a mature monoculture lodgepole pine stand—probably a hundred or so years old. Could this be defined as old growth? If their definition becomes this broad, the whole B.C. interior could be under siege.

This environmental takeover of the B.C. forest industry is analogous to my youthful ditch forays. Industry is the lad trying to stem the torrent of environmental confines; the environmental movement is the deluge that sweeps away his efforts. In an attempt to thwart environmentalists’ actions, industry has been attempting to deflect the torrent rather than stop it, by acceding to a host of environmental demands such as certification. This strategy is ineffective. Since day one, environmentalists have intended to stop old growth logging in the province and they are getting ever closer to that realization.

If anyone had any doubts before, this move by environmentalists into the B.C. interior should confirm the seriousness of the industry’s problem. The greenies have vanquished the coast now it’s time to subjugate the interior and to that end, they are marshaling to deliver the final death blow. It’s not inconceivable the industry could eventually be out of business in this province, with only minimal second growth logging taking place. Judging by the industry’s defense strategy so far, the future doesn’t look good.

IWA Preparing

There’s a lot of speculation now over the possibility of a B.C. IWA strike. Some pundits felt that possibility was accelerated this week, when the IWA announced a 72 hour strike notice for the coastal industry. Northern and southern interior regions seem also to be preparing for a strike. At this point, no one knows what will happen, but let me give you the Ward Johnson version.

With the lumber market in the tank and companies wishing to curtail production, an IWA strike is just what the doctor ordered. A strike would not only give B.C. producers a legitimate reason to stop work, but also relieve them of the requirement to pay wages. American producers would also be ecstatic because ofthe positive effect such a strike would have on both inventory and competition.

Were I heading up the IWA, I wouldn’t go out on strike. Instead I’d stretch out negotiations while I waited for lumber inventories to go down and lumber prices to go up. My members could remain on the job collecting their wages and with a bit of luck, the demand price cycle would improve before strike action had to be taken. With demand and prices gaining momentum again, the companies would want to get back to full production and would then be more amenable to a better settlement for my members.

To put it another way—it would be damn stupid of the IWA to go out on strike at this point and I think they know it.

Alberta Record

Shipments of lumber, panelboard, and pulp and paper from Alberta, increased 12 per cent in 1999 to more than $3.7 billion up from $3.3 billion the previous year, the Alberta Forest Products Association (AFPA) reports. The AFPA attributes much of this gain to strong demand and strong prices in 1999. Lumber shipments increased 15.5 per cent to 3.1 billion board feet, ringing up a dollar value of $1.6 billion in 1999, while panelboard, with a dollar value of $765.4 million (an increase of 34 per cent), was 13 per cent ahead of1998, at 2.1 billion square feet.

Downer for the Alberta forest industry was pulp and paper, which, at 1.9 million metric tons, was down 14 per cent over 1998. With a return of $1.4 billion, the product value was also down 14 per cent, but with the departure of one major pulp producer from the AFPA in March, 1999, production and overall value were largely unchanged when this departure was factored in.

Special Report Published

While Americans expected the 1996 Canada U.S. Softwood Lumber Agreement would sustain lumber prices by restricting imports of low cost Canadian lumber, their strategy has been unsuccessful, according to a study by IWA Canada’s Doug Smyth. In a four part Special Report published by Madison’s, Smyth says Americans simply replaced Canadian lumber imports with U.S. logs redirected into lumber production from the Japanese market, and with low cost logs imported from Alberta and from private holdings in B.C.

Smyth says the B.C. industry couldn’t afford to buy this private timber itself and market the lumber to the U.S. because of added duties to B.C. producers such as the super tariff of US$148 per thousand board feet. He says that in addition to costing B.C.

jobs, these log exports have torpedoed the lumber market and kept lumber prices down at a time when U.S. housing starts are high. Main B.C. exporter of private timber is TimberWest Forest; main buyer of imported Canadian logs has been Simpson Timber Co. Price for Canadian logs has favored U.S. buyers, because of the exchange rate.

The complete report titled, The Impact ofU.S. and Japanese Consumption and North American Timber Supplies on Softwood Lumber Prices, 1996 to 2001, by Doug Smyth, Research Director, I.W.A. Canada, is being mailed free to Madison’s subscribers.

MarketWrap-up

WSPF Swings Lower

There was no relief for producers in the land ofwestern spruce. An unrelenting tide of dimension lumber continued spilling off the end of the line at the sawmills. Although substantial curtailments and shutdowns have been any_^| nounced by major western spruce producers, wholesalers and others in the know are skeptical about the net effect these actions will have on total availability. According to second tier traders, sawmill cutbacks are only one side of the equation. Sawmills characteristically outpace their planers. If the saws stop but the planers continue processing backed-up wood, does that mean there is less output? Hardly! Savvy customers are waiting for the final tallies to see whether availability is actually affected by the so-called curtailments.

Interior mills could benefit from the sort of labor disruption coastal producers are facing. The saber rattling, however, which has taken the form of a strike vote among labor ranks at the B.C. coastal sawmills which produce mainly cedar, has had zero effect on the perceived urgency of spruce customers.

It’s the interior mills that need a strike, but that isn’t in the cards this year. Order files are small, about one week, and prices are deteriorating in this sideways, nobody-cares, market. KD R/L Std&Btr, 2×4 lost another $10 down to $255. In KD R/L #2&Btr, 2×6 snapped the same $10 off to come in at $255; 2×8 moved up a $5 increment to $275. Wides, less available with order files into the beginning of July, commanded more respect. KD R/L #2&Btr 2×10 popped up $15 to $300, and 2×12 helped itself to $10 up to $320.

Studs Sickly

Traders said the stud market was feeling poorly this week. Initiating activity produced little in the way of sales. Minimal volumes were the rule in this stagnant and stinky sales climate. Wholesalers, who make their living from turning a profit on activity, were particularly unhappy with nothing to sell and instructions from management not to buy anything. Customers were unwilling to take a chance because everyone knows prices must come down. Overall, everyone was in a notably bad mood. Order files on commodity studs were under one week.

MSR Not Much

Life was relatively boring in machine stress rated lumber products. Following #2&Btr dimension, MSR had no measurable blips to read on the screen. Volumes declined from the previous week, which was no great shakes. Order files were about one week, but were artificially inflated into the middle of July by intervening holidays and maintenance down time.

Cedar Scurrying

The word in cedar this week is ‘inventory’. Shipping departments were scurrying to move everything out from mill yards to distribution centers and reloads in advance of an expected strike. Customers began peeling themselves off the fence to take strategically defensive positions. Justin- time customers rethought buying practices as they contemplated the possibility that mills might be closed just when they need mixed loads of premium cedar products.

Fir Bleeding

The blood was running hot and fast in fir as prices hit bottom, squeezed through the floor boards, then kept going down. With a 400 million board foot outtake from fir production in the next 45 days, customers should be more interested. It seems, however, they are going to wait until they see empty mill yards and have to get in line for their refills.

OSB Plywood

No one wants to buy, say OSB traders in eastern Canada. Mill asking prices are too high, and are expected to come down again next week. One producer isn’t even quoting prices, while two others expect counters but are willing to deal. Order files have all but disappeared. No one believes order files are even out to the beginning of the week of July 3. Traders say there has been some tire kicking from the U.S. side, but little in the way of real business. 7/16” Toronto can be found for C$280, down $30 from a week ago. This level is not expected to hold. Out west the market is slow, with activity unimproved from a week ago. There is ample secondary product, say traders, but there is no volume buying even at the lower prices. One producer said inquiries were better this week, although sales could not be generated without taking counters. 7/16” Vancouver was priced at C$270 this week—down $30. Order files are out to the week of July 3.

Cargo & Reload

It was a difficult week for lumber business in the U.S. northeast. One wholesaler said the market was hard to find; another said they were going for slightly higher prices because of the strike threat by the IWA in B.C. Some wishful thinking from a large stocking wholesaler: “A strike would be welcome; what would B.C. mills have to do to provoke a strike?” Selling prices for green fir continue to slowly erode, with only 2×10 holding unchanged. Fir mills in the U.S. west are searching for prices that will attract some business, offering plenty of lumber at lower prices. There were some takers in the northeast, but carload sales were not plentiful. The outtake from big box retailers is beginning to decline, said a west coast wholesaler. The reason? Premium Lumber, usually sold to Home Depot and Lowes, is now being offered to buyers at regular wholesalers.

NFPA News

The Northern Forest Products Association of Prince George, B.C. reports that provincial government agencies conduct inspections on 40,000 forest harvesting sites in B.C. each year; on 94 per cent of them, inspectors find forest company staff and contractors have met or exceeded Forest Practices Code standards.

Announcements

This year’s recipient of the prestigious

Robert F. DeGrace Award is Yves

Levesque, director of the lumber manufacturing technology department at the eastern division laboratory of Forintek Corp. The award was given to Levesque for work in developing computerized tools to optimize the use of small dimension lumber. The award is presented annually by the Canadian Wood Council (CWC) in recognition of individual technical achievement in advancing wood as an engineering and construction material. The recipient is chosen by a panel of industry representatives under the direction of the Canadian Wood Council. CWC is a national association of the wood products industry, representing about 1,200 wood products companies throughout Canada.

The Western Red Cedar Lumber Association (WRCLA) will be holding its fall Cedar School training program in Vancouver, B.C., October 1 to October 5. The WRCLA requests that those planning to attend register as soon as possible. (604)684-0266 Web Site: www.wrcla.org e-mail: wrcla@wrcla.org

Refer to Madison’s Lumber Reporter for the latest news in the lumber industry.

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