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Canadian Lumber Prices Down Amongst Industry Producers

Volume 52 No. 7, February 15, 2002

A Dichotomy of Purposes

Last week, I received an assignment from another publication to do an interview with a small contract logger in Washington State. I phoned the fellow up and went through my list of questions. My list included why he was buying the particular piece of new equipment, how it was going to fit it into his system, and what it would do for his operation and his business.

I have done hundreds of these interviews and I always find that once the formal part of the interview is over, the person invariably relaxes and is often willing to talk about other aspects of the industry. The time his guard is down is often short, however, so I have to be quick with the questions.

I started off by asking him how the logging industry was doing in his area. He said with housing starts remaining strong through the winter season, most of the loggers were doing okay. In fact, by scaring up some private wood during the off-season, he was able to work right through last year. I assumed that accounted for his decision to buy the new equipment.

In a natural progression of the conversation, he explained that everyone was waiting to see what happens regarding the tariff on Canadian softwood lumber. I then asked him how he personally felt about the tariff, but he avoided expressing an opinion. Instead he went right to the nub of the problem, which for him at least, was the import of Canadian logs. It was obviously a touchy subject, as his voice became quite agitated.

Just in the last two years, he said, they’re sending whole logs down here, just load after load of ‘em. Evidently, since you Canadians up there can’t get the boards down, now you can get the logs down. I responded that most of the logs going south from B.C. are off private land and that it was difficult to control what companies did with their own timber. “That’s what they say,” was his response, “but I’m telling you, they’re hauling ‘em hundreds of miles.”

Calming down a bit, he continued: “There doesn’t seem to be anything we can do about it. It’s big business and they do what they want.” Trying to drive the point home, I reiterated the part about the logs coming from private property, but he wasn’t buying it. “Oh, they can send Crown logs down too,” he retorted. “All they have to do is have a mill say they don’t want ‘em and down they come.” I explained that to export Crown timber there had to be three refusals, but he paid little mind to the technical details. “If they can’t get an export permit through the usual channels, all they have to do is run them through a debarker and say that they are partly manufactured inCanada. We see lots of them coming down this way,” he summarized.

I tried to entice him to further comment by saying that this must pee off the loggers, but he immediately slipped into a conciliatory mode. “The way I look at it is that you guys got to make a living too, and you’re our neighbors. I do a lot of business up inCanadaincluding buying supplies and equipment there. Then he drifted off to the benefits of shopping inCanadadue to the dollar exchange rate.

My point in reiterating this conversation is that there is another aspect to this Canada-U.S. lumber trade dispute that never gets mentioned. Through all the negotiating, proposals, counterproposals, meetings, arguing back and forth, political spinning, and all this haranguing, never is anything mentioned about the impact the deal might have on American loggers.

As I perceive it, a majorU.S.objective this time is a significant increase in the exportable log volume available from

Canada. B.C. has offered up to 13 per cent of its log volume, but as we all know, the U.S. Coalition for Fair Lumber Imports is holding out for much more. Actually, judging by the way negotiations have gone so far, it’s hard not to conclude that the Coalition isn’t in favor of a deal of any kind. They certainly aren’t making things easy.

Should the American lumber lobby get its way and more Canadian logs start heading south, theU.S.logging sector is certain to feel the bite. Logs in theU.S.are often sold at auction and when lumber prices are high, bid prices can skyrocket. We’ve all heard stories of bidding wars where the timber was sold at such a high price, the successful bidder couldn’t afford to log it. There’s also the scenario that by the time the logger got his roads built and into the area to start logging, lumber prices had fallen and he was again left holding the proverbial bag.

Without such competitive bidding for timber, Canadian operations haven’t experienced these problems, but that may change in the future. Should we go to a competitive bidding system, there is every likelihood our loggers, particularly the small, independent ones, will be in exactly the same jeopardy as their American counterparts when it comes to acquiring timber and making a living.

Should the powerfulU.S.lumber lobby achieve its objectives and gain access to Canadian timber, in addition to the potential havoc it will visit on the Canadian forest industry, American independent loggers will also feel the cut. You can be sure they will be cursing every Canadian log that arrives there because it will be doing them out of a job and a way of life. This time, the softwood lumber dispute really is creating a dichotomy of purposes.

U.S. Says No

In a news release issued this week by the Coalition for Fair Lumber Imports, the U.S. lumber industry says the only way the softwood lumber dispute can be settled is if a large majority of provincial timber is put up for auction. This effectively slams the door onCanada’s most recent offer for a settlement. As part of the package, B.C., which produces about half the Canadian lumber exported to theU.S., offered to put up 13 per cent of its timber for auction, but the U.S. Coalition for Fair Lumber Imports says the amount is too small for B.C. operators to notice.

Alternatively, the U.S. lumber industry has offered Canada three options: get rid of policies that protect the lumber industry; impose an interim border tax or volume restrictions that eliminate U.S. concerns while a deal is hammered out; or face the full vigor of U.S. laws. TheU.S.lumber lobby has not changed its stance since the last softwood lumber agreement expired nearly a year ago, but now it has been put in writing.

In the meantime, Canadian Minister for International Trade Pierre Pettigrew and Prime Minister Jean Chretien are on a 10 day trade mission toRussia.

Doman Warns

Doman Industries Ltd., one of B.C.’s large coastal lumber producers, says it may be laying off up to 2,000 workers because it doesn’t have the money to post bonding on its lumber shipments to the U.S. Doman says since the U.S. imposed new duties last year, it has put up over $30 million in cash and its coffers are fast drying up. The company is unable to secure additional funding because it has a $1 billion debt load, which means it has been drawing on its working capital.

The U.S. International Trade Commission is expected to make a final determination on the duties in May of this year. The Canadian industry is posting bonds until this determination is made, but following the determination, Canadians will have to ante up. At this point it is estimatedCanadaowes in excess of $1.5 billion, which will be handed out to the offendedU.S.industry under the Byrd Amendment.

C-Housing Jumps

With both sales levels and prices for homes in Canada achieving record highs last year, starts for 2002 are coming out of the gate in a similar vein. Canada Mortgage and Housing Corporation (CMHC) reports that the seasonally adjusted annual rate of housing starts is up 17.3 per cent for January to 204,300 units. This is up from 174,100 units in December.

Multiple starts lead the way with an increase of 39.4 per cent to an annualized rate of 95,200 units, up from the December level of 68,300 units. Urban singles increased 4.0 per cent from 85,700 units in December to 89,100 units in January. The overall annual rate of housing starts for January is currently at the highest level since May 1990.

At 1,786 units, actual rental housing starts in January were the highest since November 1993.Ontario,Quebec, andAlbertawere the most active, while rental construction in B.C. andNova Scotiawas less active. CMHC attributes the overall positive results in Canadian housing activity to mild winter weather and tight resale and rental markets in many metropolitan areas.

New Operation

Jackpine Forest Products of Williams Lake, B.C., has opened a new 23,000 square foot remanufacturing facility there. The new plant can produce up to 235 million board feet of product a year and when in full operation, will employ 40 new workers. In conjunction with the opening ceremonies, President and CEO Gian Singh Sandhu announced his company has also been granted ISO certification for quality management and environmental management systems.

International Paper Sells

International Paper has announced it has signed a letter of intent to sell its OSB facilities to Nexfor Inc., one ofNorth America’s leading OSB producers. Two facilities are located in Jefferson andNacogdoches,Texas, and a third inCordele,Georgia. Approximately 456 employees are affected. The proposed sales do not affect the company’s remaining facilities in its Panels & Engineered Wood business.

Pulp Down

Prices are slipping downward on pulp. The benchmark has fallen nearly $5 to US$452.30 per ton. The range is between US$450 and US$460 per ton, with most sales at the lower end.

WSPF Lovable

Deals were hotter than a Valentine’s date as everybody jumped into this midwinter market. AlthoughCaliforniawas holding off for a break in the weather, much of the continent was enjoying unseasonably pleasant conditions. This made for thoughts of spring. Buyers from all market segments were represented in the surge. Prices took a wild swing upward as many producers sold out. Order files were as long as most mills were willing to go—about two to three weeks.

Prices of KD R/L Std&Btr 2×4 gained $23 to $268. In KD R/L #2&Btr, 2×4 spiked up $20 to $270; 2×6 caught a $26 wave to $266; 2×8 segued up $15 to $245; 2×10 made a $26 leap to $286; and 2×12 grabbed a fiver to end the week at $355.

Studs Smelling Like Roses

Stud producers opined that this week went as smoothly as a thornless red rose. Starting the previous Thursday, sales were very strong. Orders added up to a good three weeks of production. Premium producers were getting approximately $380Chicago(KD WSPF 2×4-92-5/8” PET studs). Middle of the road studs took a handful of confidence from the dimension side and increased prices $20 to $285.

KD Fir Focused

Valentine’s didn’t get much attention this week; everyone was focused on the lumber market. Overall, the feel was surprisingly good for this time of year. It was early for a spring buy, but nobody cared. Customers who held off too long, discovered they were short on inventory. Rather than continue waiting for a bargain buying opportunity, they jumped in. Inquiry was up sharply beginning the previous Friday, and sales volume rapidly increased with follow-through sustained into the end of this week. Trading was a sweetheart deal for mills that pumped up prices, as demand exceeded supply.

Cedar Desirable

It’s nice to be the belle of the ball, especially on Valentine’s Day. Cedar was the most popular product on the board this week. On-ground inventories depleted in previous weeks made customers aware they must commit if they are going to find the products they need when they need them. Producers are booked through the first quarter and are now looking for their second quarter business. Altogether, first quarter totals will be better than expected, comparing very favorably to 2001. Prices are solid on both sides of the border. Unfortunately for Canadian producers hampered by the CVD and anti-dumping penalties,U.S.makers are selling at substantially lower prices.

Cedar Roofing Tight

Supplies were tightening in #1 Perfections shingles, both treated and untreated; prices rose accordingly. Buyers everywhere, exceptCalifornia, participated with enthusiasm. East coast business was the most brisk.

OSB & Plywood

Last Friday, the day after we did our market survey, the OSB market began to heat up. Inspired by heavyCaliforniabuying, it got even hotter this week. Buyers in theGoldenStatesimultaneously noticed two things: first, that their inventories were dangerously low; and second, that OSB prices were not going to decline as anticipated. The result was a rare sellers market. IfCalifornianeeded OSB, buyers nearly everywhere else in theU.S.andCanadadecided they had better buy some too, even if their requirements were not as urgent. OSB producers fought to keep up with customer orders while at the same time revising asking prices. There was even one report fromOntariothat mills were pricing at time of shipment. A new price list every hour or so was not unusual.

In centralCanada, 7/16’Torontomoved up $16 from last week, ending the week at C$277. Mills reported order files well into the week of March 4. In westernCanada, OSB prices didn’t just move up, they jumped. 7/16”Vancouverno longer lags well below central Canadian levels. This week, 7/16”Vancouveris priced at C$280, up $50 from a week ago. Mills report order files nearly through the week of March 4, and they are not listening to counters.

Cargo & Reload

It was mixed week for the lumber market in the northeastern U.S. Stocking wholesalers report decent business but point out that their customers are not jumping on the buying bandwagon as everyone seems to be doing in California. While the weather is still mild, there is always a chance that winter will arrive late and they could be stuck with high priced unsold inventory. Yards are not busy and are continuing to buy for their immediate needs. They are not building inventory. Some were caught unaware and let their inventories shrink while they waited for lower prices, but this week did not generate substantial buying volume.

Selling prices for both green fir and hemlock were firm but little changed from a week ago. Green fir delivered prices from mills in theU.S.west were sharply higher this week, pushed by booming demand fromCalifornia. In most cases, green fir replacement prices are now above selling prices.

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

 

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