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American Lumber Mills Increase Buying with Industry Prices

Volume 52 No. 8, February 22, 2002

Letting the Dogs Bark

There probably isn’t anyone in the forest industry not intimately acquainted with the gory details of the softwood lumber negotiations, which have been ongoing betweenCanadaand theU.S.for nearly a year. Every time I pick up a newspaper, turn on the radio, or expect to relax by watching something stupid on the box, I’m besieged by the latest details in the softwood lumber negotiations. The journalistic community is like a bunch of dogs all barking to no avail, but making a hell of a noise in the process.

Although there are lots of technical reasons why the trade problem hasn’t been resolved over the last year, the nitty gritty seems to be that our friends in the secretive American lumber lobby simply don’t want the issue settled unless they get their own way. We term the exercise of meeting to discuss a problem negotiation, but as this process is supposed to propel the issue forward towards a settlement, this situation has been anything but. No matter how you slice it, most Canadian conversion plants can whip the economic pants off those of our American competitors any day of the week and naturally they don’t like that. If you want proof, just look on the store shelves. Canadians routinely send their products into theU.S.—superior products at that, I might add— and put them on the store shelves for less money than products made right in the local area. Were the tables reversed, I wouldn’t like that either, so I can’t honestly fault them for their adverse reaction, but reality is the reality.

Naturally the American lumber lobby doesn’t want to face up this hard economic fact, so to combat the situation, it claims we are subsidizing our lumber production and therefore competing unfairly. That’s a lot of hooey, as has been proven by at least two past international trade tribunals that found inCanada’s favor. I’m sure when these same American agitators go to bed at night they know the truth of the situation, but that doesn’t change the political struggle.

Unfortunately,Canadacan’t prevail if the Americans don’t want to settle. Being our only major customer, theU.S.has us by the short and curlies, which doesn’t exactly put us in the power position. If we don’t like how the Americans are behaving, we don’t have to sell to them, right? No—wrong! We do have to sell to them. That’s where all the wood frame houses are being built. Had we another major market where wood frame houses were the mainstay abode, we could tell the Americans to go blow it out their snout, but that nirvana doesn’t presently exist. What’s left for us is simply to work out how much we have to pay to sell them our wood.

I always have trouble at this point, swallowing the fact that this American lumber lobby is so easily able to hold the American home buyer hostage. How can it be that such a relatively small representative group, whose membership is a hush, hush secret, can inflict a financial burden on the American people and everyone lets them get away with it? Only inAmerica, I guess.

Having met with little but exasperation at the negotiating table, current thinking inCanadais to fall at the feet of President Bush and beg for divine intervention. Many Canadians believe this is the only way the lumber dispute will be settled. I’m sure we can’t expect anything like fair and equitable treatment no matter what tactic we pursue, but at this stage, any settlement costing less than the one imposed last year as an interim measure is looking pretty good.

Unfortunately for us there has been some very hefty American baggage attached to the issue along the way, and while it might be possible to arrive at a more even-handed arrangement,Canadacould end up losing its forest industry in the bargain. The

Americans want our logs—especially those juicy high value logs on the B.C. coast—and they are pretty determined to get them. Especially now when so many of our mills are closed and aren’t using their timber allocations to the fullest extent.

President Bush hasn’t exactly shown a lot of concern for the lumber trade problem, despite having been set upon by ourOttawatalking head of hair, Pierre Pettigrew. Lumber trade is a pretty minor issue for Bush, compared to some of the situations staring him in the face right now. He’s been running around the world kicking bee hives here and bee hives there, and the result is mad bees all over the place.

Deal with a lumber trade dispute? Phooey!

Should Bush decide to intervene in the lumber trade wars, not only is there little incentive to resolve the dispute, since it will surely impair some of his own, but he may not have as much sway in the matter as some think. For instance, by a marvelous process, theU.S.congress has been horns-woggled into backing the American lumber lobby, and it has powerful weapons at its disposal with which to stand its ground.

For example, the Administration, Bush or otherwise, is powerless to negotiate while a congressional investigation is underway. For negotiations to take place, theU.S.lumber industry would have to agree to terminate the investigation and waive its rights to redress, and you know how much chance there is of that happening. Besides, should the moon actually turn into blue cheese and this occur, you can bet the issue would be challenged in the courts by some other kooky group such as the environmentalists, and the whole thing would start all over again.

Congress naturally will take the side of its own industry and defend it to the death against a perceived interloper such as the Canadian forest industry. Seems all any American has to do to get this kind of support is file a complaint against some perceived wrong and you’ve got congress in the palm of your hand.

So while the media rants continuously on each unfolding wrinkle of this dispute, and while Canadians readily get into the act by commenting on this swing or that change in the negotiating process, my guess is that it’s all part of arriving at a solution. Should such a solution ultimately evade us, the only recourse may be a trip to the World Trade Organization, although resolution there also depends on the willingness of both sides to agree. In truth, the only way to come to an agreement may be to play the political game to the max, so we may as well let the dogs bark.

Starts Up Again

TheU.S.commerce department reports that January housing starts rose 6.3 per cent to an annualized rate of 1.678 million units. Also on the increase were January permits, which rose 3.1 per cent to 1.706 million. Actual starts are reported at 108,300, an increase of 4.4 per cent over December and up 1.8 per cent from a year ago, while actual permits totaled 113,900, an increase of 3.7 per cent over December, but down 0.8 per cent from a year ago.

Single family starts recorded an annualized increase of 3.5 per cent to a rate of 1.345 million units, while multi family starts increased 8.3 per cent to a seasonally adjusted rate of 287,000 units.

The southern region of theU.S.was the most active, reporting an January increase of 14.4 per cent, while the northern region rose 8.7 per cent. January starts in both the midwest and the west fell, with the midwest reporting a decline of 0.3 per cent while the west dropped 3.6 per cent.

Experts attribute the continuing favorable results in housing activity to unseasonably warm weather and low mortgage rates.

Japan Still Down

Japanreports it imported 3.965 million cubic meters of logs fromNorth Americain 2001, down 15.1 per cent from 2000. This is the lowest level in 36 years and the first time since 1965 that log imports inJapanhave dipped below 4 million cubic meters. The most recent peak was in 1989, when the country imported 11.827 million cubic meters of logs. The volume imported in 2001 was down 66.5 per cent from this peak.

Many Douglas fir and hemlock mills inJapanremain closed, as Japanese builders are buying lower cost European laminated veneer lumber in place of solid wood products. Demand for North American logs inJapanis expected to decrease further in 2002.

China Buying

Chinahas started buying more logs. Including hardwood volume,Chinapurchased a total of 15 million cubic meters of logs between January and November 2001— up 21.8 per cent over 2000. The additional volume included 7.358 million cubic meters of logs fromRussia, a jump of 44 per cent.

Chinaalso increased the volume of radiata pine it is buying fromNew Zealand. In November 2001,Chinapurchased 132,000 cubic meters ofNew Zealandradiata pine, a six fold increase over the volume it imported a year ago. This is the first time imports of radiata pine have exceeded 100,000 cubic meters in a single month.

New B.C. Budget

The forest industry has generally reacted positively to the new B.C. budget delivered by the Liberal government this week. Included in the budget are provisions to: establish a designated working forest where utilizing timber is the primary operation, base stumpage rates on the market price for timber, revise the present

Forest Practices Code, and reform the timber tenure system. One change the industry wanted and didn’t get was an increase in the provincial allowable annual cut, although Premier Gordon Campbell didn’t rule it out. The government wants to ensure an increase in the cut is sustainable and based on sound science.

Troublesome items in the budget include: the increase in sales tax from 7 per cent to 7 ½ per cent, downsizing within the B.C. Ministry of Forests, and downloading of costs such as road maintenance and forest fire fighting. Optimism over the budget changes is still somewhat reserved, however, since details on how the changes will be implemented have yet to be revealed.

Pulp Down Again

The benchmark price for pulp fell US$2.60 per ton this week, to US$449.70.

WSPF Digesting

Two very active weeks were followed by a peaceful one. Buyers digested and adjusted their inventory records to reflect large purchases made in the previous 10 days. Having sold well and built large order files, mills didn’t need to budge from their list prices. Odd sales in small quantities sold mainly to loyal local customers. Wholesalers considered counteroffers of up to $5 below mill levels. Order files extended into the week of March 11 at some mills.

Prices on KD R/L Std&Btr 2×4 bumped up $4 to $272. In KD R/L #2&Btr, 2×4 inched up $3 to $275; 2×6 found $4 to $270; 2×8 added a fiver to $250; 2×10 gained $4 to $290; and 2×12 plumped up $5 to $360.

Studs Take Breather

After the turbulence of the previous week, stud traders took a breather. Following the flurry of heavy sales, the first order of business was to process all the orders and find transportation for deliveries. Unfortunately, railcars on the CN and BCOL were hard to source; 73’ and 71’ flat cars were hardest of all to get. A backlog of shipments can be expected to add extra delivery time to three week order files.

KD Fir Filling Holes

Customers came in for a meager round of buying as a follow-up to the frenzy of the previous week. Buyers filled holes that showed up after sifting through the snowstorm of paper work on the orders that would be arriving in the next few weeks. Traders found the week very quiet and no one was in a rush to do much of anything. Phones were quiet. Shipments and pumping out production were the focus at the mills. Order files were into the first week of March at most operations.

Shingle Materials Scarce

Producers of cedar shakes and shingles depend on mixed species cuts to provide them with raw materials. Logging operations across B.C. virtually stopped last fall after the anti-dumping and countervailing duty rulings. Over the winter, cedar log supplies have diminished to the point where many mills have almost no log decks; some mills measure their material supplies in days and most have under two weeks of logs on hand. A heavy snow pack in the areas where blocks are produced has also nearly eliminated raw materials for shakes. Under these conditions, many cedar roofing producers have curtailed production or shut down. A restriction in supply can only mean one thing— higher prices. Customers from all areas of the continent were eager buyers of the remaining supplies. As mills attempt to supply their customers, prices fluctuate all over the map.

OSB & Plywood

Last week’s seller’s market in OSB didn’t last very long.Californiabuyers backed off, dramatically slowing western Canadian market activity. There was business fromArizona,Nevadaand other states in the U.S. Pacific northwest, but without the massive push fromCalifornia, prices held flat and unchanged from a week ago. Panel specialists expect demand to return in a week or so after buyers have had time to digest last week’s buying spree. Mills report order files that range through and beyond the week of March 11. They are in no mood to reduce asking levels. This week 7/16”Vancouverwas unchanged at C$280.

In centralCanada, the only complaint is slow delivery of plywood from western Canadian suppliers. Plywood mills say they are at full capacity and are doing their best to meet customer demand. Slocan has a more serious problem at their plywood mill, as one of their two presses needs to be replaced and the new one is three or four weeks away in St. Louis, MO. While they are waiting, plywood production is down by 50 per cent.

The OSB business, which is less reliant onCalifornia, remains good. Wholesalers report a strong start to the week with some slowing of activity on Thursday. Everyone in the region is enjoying the mild winter, which has allowed construction to continue without the usual interruptions from snow and cold. Encouraged by order files stretching into the third week of March, OSB mills raised the price of 7/16”Torontoto C$284, up $7.

Cargo & Reload

Stocking wholesalers in theU.S.northeast reported this week that activity started better than it finished. Careful, disciplined buying continues among their customers. There is no hurry to buy. Mild winter weather has not enticed retailers to build inventory. Many expect lower prices before serious spring buying begins and are prepared to wait. Mostly mixed truck and highly specified sales were not disappointing for February.

Source:U.S.Census Bureau

In addition to the Presidents Day holiday, this week also included a midwinter break for some schools in the northeast. More than a few of those involved in wholesale and retail lumber distribution chose to take some time off. Selling prices for green fir narrows were slightly softer this week, while wides firmed. One wholesaler reported 2×10 was getting scarce. Tightening supplies allowed some green hemlock prices to move higher.

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


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