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Market Lumber Mill Prices for Plant Industry

Volume 50 No. 44 – November3, 2000

Adding the Last Straw

must admit to considerable nostalgia last week when I learned TimberWest http://www.timberwest.com/home.aspx  is closing the old Youbou sawmill on southern Vancouver Island, at the end of January, 2001. To my knowledge, this is the oldest operating plant in the province, going back to 1927. The mill is closing because the Japanese market is in remission and is going through considerable change, and because the large timber the plant was originally designed to cut is being supplanted by small second growth wood. There have also been considerable reductions to the allowable annual cut for this operation over the years.

During my career as an industry writer, I paid two visits to this plant and produced two articles on it. The last was in 1995, when Youbou was undergoing a major upgrade. The big change then was a move away from supplying its own electrical power from a steam boiler to hooking up to the B.C. Hydro power grid. There were other changes as well, mainly directed at producing for the Japanese market and improving efficiency. During its last few years of operation this plant went from sawing some of the biggest timbers on the coast to sawing baby squares—a considerable change, you must admit.

A tour through the Youbou mill was a trip down memory lane. The mill was originally built to produce large timbers, and sizes up to 16″x24″ x 44′ long were not uncommon. Timbers 12″x12″ were everyday fare. Output from the mill was fed onto a green chain that was a quarter mile long. The plant also had one of the longest lumber storage craneways in the world—2,800 feet long. That was removed in the mid 1980s and replaced by conventional lumber storage facilities. When I was there in 1995, the mill was still running a steam powered 44′ Haferbuilt shotgun carriage for the main headrig, a Prescott 9′ single cut bandmill. The bandmill was new when it was installed in 1927.

The breakdown line was a strange combination of new and old, and in addition to the shotgun carriage and Prescott bandmill, it also included a Timberland slabbing head for best opening face and Kita Laserscan setworks to adjust the log and set up the knees and slabbing head before the log went through the 9′ bandsaw. There were also steam operated log turners and log pushers, and the lumber was dried by high pressure steam kilns fed from the mill’s boiler.

All the steam operated equipment, except for the kilns, was converted to electric or hydraulic power during the 1995 upgrade. Even the shotgun carriage was undergoing conversion to a Softac solid state DC drive system. The kilns remained steam operated, but were converted from high pressure steam to low pressure steam. One thing that impressed me considerably, were the old belt drives. Long belts went everywhere throughout the plant to equipment I couldn’t identify. Many still ran off wooden drive spindles.

When this plant closes next year, 230 workers will be out of a job and there will be considerable impact on the community. Naturally the IWA is upset over the closure but there is little to be done. Saying the company is putting profits before people, the union believes TimberWest will export at least some of the logs the mill was processing. About a third of the logs came from the company’s Tree Farm Licence 46, which is public timber, while the remaining two thirds came from the 334,000 hectares of private land the company owns. The union suspects TimberWest will put this private wood up for export, since, without a quota, it can’t sell lumber into the U.S., but it can sell raw logs. According to the union, exporting logs is exportingjobs, and besides, those logs provide the Americans with cheap wood so that they can compete with us for lumber sales.

Aside from the local impacts, closing the Youbou plant is not without justification, says a government commissioned report by consultant Peter Drake. Drake’s study shows that Youbou ranks fourth among eight coastal mills for operating earnings, but it points out that a considerable investment (C$10-C$12 million) and a change in both ownership and priorities would be required to make Youbou successful again. The study concludes that, considering the mill is over 70 years old and market outlook and conditions are currently so abysmal for coastal B.C. sawmills, closing Youbou is a sound decision.

I’m sure shutting down the Youbou operation was not an easy decision for TimberWest, not only because of the mill’s long history, but also because of the impact the closure will have on workers and the community. Unfortunately, I believe this won’t be the only mill closure on the B.C. coast, as this market slump drags on. You don’t have to be an industry analyst to see that coastal operating costs are high, taxation is high, stumpage is high, most coastal mills have little U.S. quota, and the Japanese market, still in a slump, is demanding kiln dried products. Perhaps the most discouraging aspect of all, however, is that even if an operation can sell product, lumber prices are currently so low, most are barely meeting fixed costs, let alone making a profit.

Over the last couple of decades, coastal B.C. forestry operations have withstood attacks from environmentalists, a landslide of government regulations, high stumpage, high taxation, assaults from the retail sector, and even international certification, but the one state it can’t contend with is losing money. In the end, that may be the ultimate straw on the camel’s back.

Our Readers Respond

Always look forward to reading your editorials. The fundamental truth in your latest editorial is the statement “…we have mainly ourselves to blame.”

There are defining moments in life and —in my view—in 1996, with a fresh-faced Glen Clark n the Premier’s office, the industry missed a defining moment to take a stand against the Clark administration. The now defunct Jobs and Timber Accord. I was a bureaucrat in the provincial government at the time the Accord was being cooked up and I had a show-down with Tom Gunton on this piece of policy [that] was being crafted—I vehemently argued that from the outset it was a badly flawed piece of policy—of course Gunton prevailed and indirectly, my protestations cost me my job (No tears, I’m in good company).

When Clark announced the Accord in Prince George, the usual cabal of the “forest industry’s fart-catchers for the NDP” were all in attendance with one notable exception— Ike Barber. At first I was stunned by his appearance—but it made sense when you recall that it was Andrew Petter as Forest Minister, with some encouragement, [who] nixed Canfor’s attempted take-over of Slocan only ~18 months earlier.

Agreed no Accord was signed—but the implications of the Accord were insidious—it was a weak attempt to build labour commitments into individual tenure agreements.

In my judgment—the Accord represented a “line in the sand” and while Tom Stephens, for his short stint, was prepared to take on his landlord, the only guy to date to score a round was the late Ed Kordyban, Sr. The subtler message in the Carrier decision being the government does not have the legal authority to unilaterally change the rules of a contractual agreement (Crown tenure agreements).

Daivd Emerson’s job is to convince capital markets that his business is an attractive outlet for investment capital—your past couple of articles suggest he may need to bust big labour to be more competitive. My sense is before any real change occurs the industry will go through a “major” crisis—the coast industry is looking into the abyss and Prince George is starting to look like ground zero for the interior. Difficult days ahead.

Looking forward to your next installment.

Nick Crisp, RPF, MBA, Sterling Wood Group, Victoria, BC

Tembec Takes Downtime

One of the world’s largest market pulp producers, Tembec Inc., with production in excess of 2.1 million tonnes annually, has announced it will take downtime to prevent inventory build-up. The company says a weak Euro, some over-exuberance, and flattening demand is causing a ripple effect in the market and it wants to avoid build-up of its pulp and product inventories. The company expects curtailments in the order of 2 per cent to 3 per cent, equivalent to 40,000 tonnes to 60,000 tonnes, but it says demand for 2001 is expected to continue strong.

Primex Buys

Primex Forest Products Ltd., of Delta, B.C. has agreed to purchase 49 per cent of Saltair Timber Products Ltd., of Chemainus, B.C. on Vancouver Island. Saltair is a large lumber kiln drying and processing facility. Primex has also made an agreement with Field Sawmills, of Courtenay, B.C., to provide kiln drying and lumber processing services.

Mackenzie for Sale

Norske Skog Canada, formerly Fletcher Challenge Canada, has announced it plans to sell its Mackenzie, B.C. pulp mill located north of Prince George. Parent company, Norway based Norske Skogindustrier ASA, took over Fletcher Challenge Canada earlier this year. It is one of the world’s largest producers of publication papers and has a global paper capacity of 5.8 million tonnes. Norske Skog Canada is now the largest producer of lightweight printing papers in western North America and the world’s second largest newsprint producer. The Mackenzie pulp mill has an annual production capacity of 230,000 tonnes, but Norske Skog says it doesn’t fit with its core uncoated groundwood paper business.

WSPF Twisting

The NAWLA convention in Dallas, Texas took the remaining wind out of the sails in this market. Players migrated south in wholesale lots, leaving only skeleton crews to handle the minimal inquiry. Conditions in western spruce sales steadily deteriorated throughout the week. On the surface, producers were unaffected by the abysmal lack of interest from all levels of the buying chain.

Mills continue to work day by day, and the oversupply piles higher and higher. Eventually they may be compelled to rent space on the moon to store their unsold stock. We know they can’t send it to Death Valley-there’s a border and a duty to ship it there. Traders felt like they were twisting in the  wind, making deals in the mid-$190’s (KD  R/L Std&Btr 2×4 f.o.b. mill). A few sales  were recorded at even lower levels depending  on the mills’ desperation, the required  tally, and the delivery time. Order files  were laughably short and most mills were  not bothering to mention them. The  question was more likely to be “when do  you want it” than “how long can you wait”.  Prices melted down across the price  chart except for 2×8, which showed surprising  strength. In KD R/L Std&Btr 2×4, a big  $7 was chipped off to make $193 the remarkably  cheap new number. In KD R/L  #2&Btr narrows, 2×6 slumped $5 to $210. A  restriction in the supply of 2×8, caused by  mills splitting it to make 2×4, produced a  jump in the price to $210. Wide dimension  fared less well than narrows. KD R/L #2&Btr  2×10 vaporized $10 to $260, while 2×12  chunked off $16 to $340.

Studs Limping

Wednesday was the sum total of the  market in studs this week. Nothing got  much notice the other four days. Best  sellers of a rather dull lot were KD 2×4 and  2×6 92-5/8” PET studs, with 2×3 and 1×4  industrials adding their totals to the good.  With most of the forest industry action  figures off camera this week, rumors flew  about who was buying whom. As one trader  put it, when you have nothing else to do—  gossip. Order files were approximately one  week plus, into the week of November 13.

MSR Stalemated

Mills played the waiting game, waiting  for customers to return to their desks and  phones, with order books at the ready.  Isolated cases found themselves holding  the bag and trying to unload quantities of  overstocks at bargain prices. Although MSR  generally does not follow the trends in  WSPF dimension, this was one of those  rare weeks when it did. One trader remarked:  “MSR is perched on the edge,  wondering when to jump into the toilet  with dimension.”

ESPF Biz as Usual

Nothing exciting happened this week  in the east. Canadian federal election campaigns  seemed of little interest, even to the  passionately political Quebecois. In a week  when so little was going on, it was astounding  that sales slightly exceeded production.  Order files were small on all but KD R/L  #2&Btr 2×6, which has a phenomenal four  weeks of scheduled production ahead.  One major producer that is also a  significant pulp maker, will soon begin  chipping its overproduced rough economy  lumber. This is being done to ensure a  plentiful supply of chips throughout a  planned three week December shutdown.  The lumber that will go to the chipper is  eight feet or shorter, in 2×3, 2×4 and 2×6  widths.

Cedar Hanging

Highly mixed and specified orders were  the trend in cedar this week. Traders fought  the downward pressure on prices with  sweeter tallies. A good October was acknowledged  in retrospect, after a look at  the month end totals. Strong order files  into and through November on some items  are an encouraging sign for business through  the winter. Environmental issues and certification  processes promise to be uppermost  in cedar manufacturers’ minds  through this winter.

OSB & Plywood

In Ontario, we were told, “The weather  is lovely, the yards are busy and wood is  being sold.” When we asked about OSB  business this week, we expected similar  upbeat comments. We were wrong. “The  market is a whole lot  of nothing. Prices are  terrible.” Traders say OSB mills are pricing  too high and will not listen to counters.  Order files are barely into the week of  November 13 and struggling. Secondary  suppliers have enough OSB in stock to  meet the increasingly selective demand  and are gleefully taking orders. They are  asking and getting C$225 for 7/16” Toronto.  Prompt wood in larger volumes will cost  C$235.  In western Canada the OSB market  remains slow, with little buying from the  large B.C. lower mainland market. Mills  report that California remains quiet, probably  because many buyers are in Dallas at  the NAWLA conference. Mill asking prices  for 7/16” Vancouver remain unchanged at  C$234, however, producers concede that to  do any business, they would have to take  counters of $9 to $10. Order files have  stalled, and are still not through the week  of November 6.

Cargo & Reload

In the northeastern U.S., the week  was a pleasant surprise for traders left  behind while associates attended the  NAWLA conference. With continuing fine  weather, market activity was even better  than a week ago. Buyers at yards and retail  outlets misread the market, say traders.  Lower prices did not happen. Although  scarcities are widely reported, buyers  remain picky, with some still convinced  there is an oversupply. Stocking wholesalers  report that if you’ve got it in stock you can  sell it. Almost all sizes of green fir 2×6 are  difficult to find. Ten footers are the hardest  to find, followed by 12ft, 18ft, 20ft and 22ft.  lengths. Traders report 2×10 is also scarce,  and 2×8 is likely to become the same.  Selling prices for green fir held firm for all  items except overly abundant 2×4. Green  hemlock prices are also unchanged,  although there is increasing competition for business.

Announcements

Former owner and president of Random Lengths Publications, Les Anderson, died October 8, 2000 in Eugene, Oregon. Anderson started his career with the company in 1956 and by 1964, became sole owner and publisher. He continued in that position until his retirement in 1986. Anderson was well known for his community service, and his fund raising activities for the performing arts. Retiring in Aspen, Colorado, Anderson continued his involvement in Random Lengths until 1997. He is survived by his wife Terry, sons Erik and Jon, and daughters Leslie and Elizabeth. He was 78.

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

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