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Timber Lumber Market Prices on Sale this Week

Volume 51 No. 17, April 27, 2001

Anteing Up the Stink Bid

When I first began working in the woods in the early 1960s, the old sealed tender timber sale auctions were still in effect. I’m sure somebody will remind me some of B.C.’s small business wood is still distributed this way today, but most timber now is allocated by allowable annual cut rather than by public tender. This is a constant source of annoyance to our eager beaver American friends, who would like nothing better than seeing this province auction off its timber to the highest bidder—them included. In my mind’s eye, I can see a car full of gloating American sawmillers, their pockets full of Yankee dollars, heading up to B.C. to out-bid us for our own timber. With the exchange rate we have now, you can bet our best timber would be heading south to Yankee saws.

At first I didn’t fully understand the significance of timber sale auctions, but I was eager to soak up knowledge about the industry— especially where timber acquisition was concerned. I found it intriguing that even though the company didn’t always bid on every timber sale that came up—because of location, or the type of timber in the sale, or simply because we didn’t need the wood at the time—there was always lively discussion about the events. I quickly learned that knowing what went on at these timber sale auctions was essential preparation for the next time we were at the table, and with that knowledge, I became an eager participant in the discussions.

Although our investigations were completely unstructured, analyzing a timber sale auction was usually a two phase process: a pre-event speculation, then a postmortem analysis. The first phase invariably began with a discussion of the physical aspects of the sale,

such as access, how much road had to be built, how much blasting was needed, and how much gravel had to be hauled. This was followed by a discussion of the logging conditions on the sale itself: the ground, whether it was steep and rocky or wet and flat, yarding deflection, and the possibility of obstacles such as rocky outcroppings that might interfere with logging. Next, we would discuss the species mix on the sale, assess the volume of Douglas fir and cedar, then estimate yield and quality of the wood. This analysis was based on who knew what about the area, and, strange as it may seem, we frequently knew quite a bit. There are no secrets in this business, you know.

Having worked through the physical attributes of the site and the characteristics of the timber, we were mid way through the analysis process, but there was still the most important aspect to assess—the politics. This was where we speculated on who the bidders might be, the amounts of the various bids, who was expected to win, and how much he would have to pay. This was the most interesting part of the discussion since it concerned not only cost estimations, but also the dynamics of the process and the relationship between them.

Once the event was over and we knew who had won and what every body had bid, we took on the postmortem analysis. These discussions usually started off with a detailed description of events from the staff member who attended the auction. He provided a blow by blow account, describing in explicit detail the tenor of the auction and even the expressions on various people’s faces as each sealed tender was opened. During this chronicle, we all chimed in spontaneously with appropriate guffaws, kudos, or criticisms, depending on which of us had speculated correctly or had missed the mark completely.

In conclusion, we invariably pondered the posterity of the successful bidder, opining either that he was going to lose money big time, or be unable to find a bank big enough to hold all the money he was going to make. The reaction often depended on whether or not we liked the guy who won. There were also expressions of exultation or sympathy for the losers, depending on how much we empathized with them or how successful they were in achieving their objective. Objectives were often subtle, since some participants were there to honestly pursue the timber, while others made a submission simply to drive up the price in what we called a “stink bid”.

I enjoyed these sessions and I learned a lot about the industry, but as the process began waning in favor of allowable annual cuts, I began realizing timber sales were a poor mechanism for distributing timber. For instance, having won a timber sale, the first problem a potential operator might encounter was access. The timber sale could be located inside another company’s operating area, and since companies owned all their roads at that time, the road owner could make life miserable for an interloper.

Then there was the business of price fixing. If two operators wanted the same timber, they would make an advance arrangement with a third bidder. By not competing against each other, they could keep the price down.

The combination of lumber market swings and inexperience (or just plain ignorance) could also be a pitfall in the timber bidding process. During high lumber market swings, loggers might be tempted to bid outrageous prices for the wood, then have to walk away because they couldn’t afford to log it when lumber prices dropped again. What looked like tolerable costs when prices were high could turn quickly into an economic disaster, leaving the operator broke and the timber sale unlogged, or worse, only partly logged. We have a perfect illustration of this situation from only a few years ago when this problem was rampant in theU.S.under the very conditions I describe.

Not only can an auction system be disastrous for industry, it can also be unworkable for government, especially one depending on a consistent revenue flow from its timber resource. Unpredictable returns from auction timber combined with the pitfalls I’ve described above can yield erratic revenue returns. For a province such asBritish Columbia, so dependent on forest industry revenues, this situation can impact on both the fiscal operation of the province and the political system—neither of which is amicable.

If you permit me one last negative effect of timber auctions: its impact on global competitiveness. When lumber produced from auction timber is consumed domestically, high prices can frequently be absorbed, but since the forest industry competes in an international forum now, it is no longer practicable. Selling on the international market is more than just putting out a good product, it’s putting it out at a competitive price. This has become blatantly obvious over this last year. The cost of the raw material has a direct impact on a company’s ability to compete—especially in the international markets.

There are obviously many more arguments both in favor of and against public timber auctions, but having already gone through this system in B.C., I can tell you it will take more than the insistence of a few greedy Americans saddled with an unworkable timber auction system of their own, to persuade me B.C. should return to public

timber auctions. They say misery loves company, which may explain why the Americans are trying to get us to change, but far as I’m concerned, they can rot.

Our Readers Respond

Your story in today’s Reporter about ending the “War in the Woods” in the Mid Coast region was a breath of fresh air towards hearing the truth about what’s going on there. I recently left the North Coast area due to massive job instability (Skeena Cellulose) after nine years and am sickened every time I heard greenies and spineless governments spout off about bears, fish and all the other lies they tell about that part of the province.

It infuriates me that these people can publicly tell such destructive lies about somewhere most of them have never even been {let alone] live in, from their comfortable big city arm chairs. Why hasn’t more been done to tell the truth and hold the eco terrorists accountable for their actions?

The fact is there are more god damn bears around there than there’s ever been, and Princess Royal Island has been a protected home for the [Kermode] long before any of this BS ever started. The only impact logging has had on bears is providing them more food than ever in recently logged blocks.

One truck driver told me once [that] he and his wife have been counting birds in the area for more than 20 years and the birds have steadily been increasing in both numbers and [species] since they began. And [it] is always the cut blocks where [they] flourish, where the new [vegetation] and food is.

And fish! Jesus Christ, why can someone say logging is hurting salmon when the drop in numbers always starts at the chuck before the damn fish even get in the rivers?

What a bunch of B.S., and too few people are contesting it.

I never heard anything about this “Great Bear Rainforest” or saw anyone protesting or any of that when I lived there and I think it’s because they know they’d be laughed out of town if they had to stare the truth in the face.

I’d like to [hear] more about what’s really going on and hope that message makes it around as much as the [lies] have. And if Green Peace or any other of these Eco-loser groups gets sued, I hope they get held accountable for the damage they’ve done.

Keven Huffman, Tolko Ind., Vernon, BC

via e-mail

Editor’s Response

Thanks for your e-mail. I can’t add anything to that.

WSPF Buoyant

Under-bought customers upheld a busy market throughout another buoyant week. With buyer uncertainty succumbing to the pressures of immediate needs, order files outpaced production.

Strong sales improved spirits on both sides of the table. Fears of punitive duties or anti-dumping penalties were forgotten as customers restocked.

Transportation was discussed as a possible problem that could develop in the next few weeks. Although some sources are concerned at the large volume of orders currently going out on railcars compared to the small number in past weeks, the major suppliers to this market were sure the railways will iron out the small wrinkle in car availability before it becomes a real problem.

Prices of KD R/L Std&Btr 2×4 raced up $20 to $280. In KD R/L #2&Btr, 2×6 heaped on $14 to $244; 2×8 followed close behind with a $15 increase to $240; 2×10 grew incrementally by $6 to $288; and 2×12 held at $345.

Studs Up & Out

Mills were pleased as they watched production move up and out of the plant. Although prices took another giant leap upward, customers were undeterred. The bargain of the week was KD 2×6 – 92-5/8” PET studs at $260, which were $60 under 2×4 studs selling at $320. Expect 2×6 studs to begin their spring seasonal run soon to meet and surpass 2×4.

ESPF Flying

Quebecproducers are willing to fly in the face of convention. They have raised prices substantially to compensate for anticipated penalties in the new softwood lumber agreement. WhenU.S.customers complain, traders simply tell them: “It’s your own fault.” In spite of their frustration, needs are forcing customers to buy anyway. Mills are selling slowly at the rate of their production and are not taking order files over one week. To inhibit larger order files, traders are told to quote floor price levels or go off the market.

Cedar Uncommitted

While day-to-day needs are being covered by small purchases in cedar, speculators remain uncommitted. The unknown quantity in this market segment, as in the others, is the softwood lumber agreement. What makes cedar unique are the new categories of cedar products being considered for inclusion in the trade restrictions. The uncertainty has created speculators who are withholding their big orders until they can see which products are likely to be affected.

In turn, this predicament has muffled the usual spring boom in cedar. Not only are big individual buyers holding off, but cedar dimension remanufacturers and other industrial customers are also sitting on the fence. Without these key players taking their portion from the world’s largest cedar producers in B.C., production scheduling will be affected.

Although many of the major producers have curtailed production, any downturn in orders is a concern. Rather than reduce prices in an effort to attract buyers, cedar sources have stated they will apply more significant production restrictions and shutdowns.

Fir Favorable

With favorable interest rates and spring weather improving building prospects by the day, traders say now is the time to buy. Builders in theU.S.have approximately three months worth of unsold new homes in a market where six months of unsold advance sales is the norm. Based on these figures, this summer promises to be a seller’s market. The key is not to scare off new home buyers with too few homes and resulting prices that are out of reach.

OSB & Plywood

The pace of OSB activity in centralCanadaincreased this week as spring buying got serious. Buyers, say traders, were under-bought. Warm, even hot weather convinced everyone that now was the time to buy. Demand for OSB was very strong from theU.S.where new home sales jumped a surprising 4.2 per cent during March. Labor issues are still unresolved inToronto, but sinceTorontohousing construction is essentially a plywood consumer, overall OSB consumption is not likely to be adversely affected. 7/16”Torontojumped a surprising $35, ending the week at C$265. Indications are that it will move even higher next week. Order files are through the week of May 14.

Prices for OSB from mills in westernCanadaalso surged higher this week, with most of the push coming fromU.S.buyers.

Demand was widespread and steady, withCalifornia,ArizonaandColoradoleading the way. Sales are also improving inAlbertaand B.C.

Mills are in the driver’s seat, say wholesalers, and are pushing prices as hard as they can. 7/16”Vancouversold quickly at C$255 this week, up $30. Producer asking prices varied. Some were lower than C$255, but they were being revised upward. Mills with higher asking levels took counters, as they waited for buyer demand to catch up with their new levels. Order files are out to end of the week of May 14.

Cargo & Reload

Spring has finally arrived in theU.S.northeast! Job sites are dry or close to it. Yards that thought they had enough lumber in stock to get through May have found that with growing customer demand, they will need to replenish by mid-May. Wholesalers say estimates had been based on weather impaired demand.

Some retailers are being defensive and still think prices will come off. Stocking wholesalers in theU.S.northeast do not agree. Most have bought ahead and are well prepared to meet customer requirements from existing lumber inventory. Wholesalers estimate that it could take up to a month before some customers catch up with buying for the coming construction season.

The pace of price increases in delivered prices to the northeast from mills in theU.S.west is a cause of some concern. Stocking wholesalers point out, however, that when replacement prices equal or exceed selling prices, they have no choice but to raise selling prices. Green fir selling prices moved $5 to $10 higher for all items this week, barely keeping pace with replacement.

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

 

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