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Year Lumber Prices per Products Industry

Volume 52 No. 1, January 4, 2002

Facing the New Year’s Hangovers

In putting my thoughts together for the start of a new year, I’m having trouble coping with two inescapable facts: first that the last two weeks went by so quickly, and second, that so little has changed between December 14 and now. Normally, in this fast-paced lumber business, there would be lots of events and developments within a two week period, but in this case, no. I’m not complaining though; the lack of activity means most of us probably took time off for a well deserved rest, and for two weeks, at least, we got a much needed respite from the struggles that plagued our industry for most of last year.

I don’t plan on rehashing last year with all its inherent dilemmas, since I’d like to ignore them just as much as the next person. But despite what happened or didn’t happen, there are a few hangovers on the list. Foremost, of course, is a lumber trade agreement and I’m sure nobody needs reminding how complex and difficult this imbroglio has become. In early December, there was speculation this problem would be resolved before Christmas, but only politicians and dunderheads believed that.

Some major Canadian lumber producers are currently contemplating a new strategy for putting the squeeze on American competitors: improving the quality of their output. This entails reducing Standard & Better output in favor of 2 &Better output. Such a change wouldn’t necessarily mean higher prices for framing lumber, but it would certainly mean higher quality framing lumber. Having to make better products might be just the ticket to complicateU.S. lumber producers’ lives.

Whether by accident or design, this is a strategy European producers have been using in theirU.S.marketing efforts. European lumber is generally considered a high quality product and consumers may ultimately be willing to pay an import premium to get it. Only the market will tell.

Despite what everyone seems to think, the lumber trade problem is actually very easy to resolve: if we allow the Americans to come up here and help themselves to whatever timber they want, allow them to move the logs across the border without any encumbrances such as payment or duties, and do nothing more than smile sweetly as our entire industry disappears into the U.S., then I’m sure we can have lumber trade peace. If not, I guess we’ll just have to put up with the crap they dish out and continue besting them any way we can.

The lumber trade dispute may be one of the biggest hangovers from last year, but it’s not the only one. As we are all too often reminded, there is currently too much lumber in the marketplace and too much production capacity in the industry. These are two more hangovers we will have to grapple with this year—especially on the B.C. coast.

In assessing this situation for B.C., the provincial government put Dr. Peter Pearse, a renowned forest economist and University

of B.C. professor, on the problem, and in late December, he issued his report. Due, I’m sure, to timing, Pearse hasn’t so far garnered much ink for his efforts, although that will likely change in the forthcoming weeks. Many industry people believe, however, that another three to five sawmills will have to permanently close to bring coastal mill capacity and timber supply into line.

If this is representative of the current coastal situation, it certainly puts the provincial government in a tight spot regarding Skeena Cellulose, the government subsidized forestry operation atPrince Rupert. The B.C. government owns 73 per cent ofSkeena, after bailing it out of bankruptcy in 1997. Should our Liberal government put up more money to keepSkeenain operation or let it sink into oblivion? Efforts to sell Skeena haven’t exactly garnered a plethora of buyers, but if the province puts up more money and keepsSkeenaoperating, it could be at the expense of other more potentially viable operations elsewhere. There’s going to be pain—it’s just a matter of where.

With so many hangovers to contend with, one couldn’t be chastised for feeling morose, but there’s at least one more major problem staring us in the face this year and that’s the north central mountain pine beetle infestation. This attack now covers an area several times the size ofVancouver Islandand accounts for a volume equivalent to a year’s cut for the entire province. The infestation is so large, nobody knows how to cope with it. I’m still standing by my prescription that the best treatment is to kiss the wood goodbye and burn it. Nobody needs wood of any sort now, let alone beetle-killed wood, and should we ever get around to harvesting it, the trees would be too dry and cracked to use anyway. We might as well swallow the medicine, burn ‘er up, and try not to be so stupid next time.

In summing it all up, there’s no doubt last year was a remarkable year, provided you don’t connect the word remarkable with benevolency. As we start this new year, there are challenging times ahead. The problems we faced before we took those holidays didn’t disappear with the outgoing year. They’re still there, just as big and just as nasty.

In the years to come, we will probably look back on this time as a period of major change. I consider the recession of the early 1980s a milestone period in this industry’s history, and 2001/2002 are shaping up to achieve a similar status. We don’t know how some of these problems will be resolved, but there is one outcome that can be predicted. This will be the time when the Canadian industry rebuilds itself yet again to become even more efficient and more competitive. I feel confident making this prediction because it’s the only way to survive and we will survive.

U.S. Starts Up

For the record, November housing starts in theU.S.jumped 8.2 per cent to a level of 1.645 million units, while building permits increased 5.3 per cent to a level of 1.564 million, based on seasonally adjusted annual calculations. Actual figures, however, show the opposite results, with November starts down 11.4 per cent and November building permits down 12.1 per cent. While seasonally adjusted results were unexpected, actual results are normal for this time of year. The higher than expected activity on the seasonally adjusted annual figures is being attributed to continuing low interest rates.

House Sales Surge

The National Association of Realtors (NAR) reports that sales ofU.S.existing homes in theU.S.rose 0.6 per cent in November, demonstrating that despite indications of a slow-down in the overall economy, the housing sector continues to move forward. The seasonally adjusted annualized selling rate for previously owned homes was reported at 5.21 million units in November, up from the October projection of 5.18 million units.

Chief Economist of the NAR David Lereah said it is obvious the country has overestimated the negative impact of the September 11 events on the housing sector. Confidence is up all across the country and sales are higher than expected. Home sales for the year are looking to surpass the 1999 record of 5.205 million units, Lereah said. Higher mortgage rates could dampen the activity, but Lereah remains optimistic.

Terminals Merge

Western Stevedoring, which operates the Lynnterm facility inVancouver, B.C., has struck a deal to take over the neighboring Seaboard International Terminal to create one of the largest forest products handling facilities inNorth America. The deal, which took effect at the beginning of January, gives Western Stevedoring seven berths and eight warehouses in an area that covers 61 hectares (150 acres), including 49 hectares (122 acres) of outside storage. The combined operation provides an efficient and cost effective facility for the movement of western Canadian forest products through break-bulk trade. In addition to the full range of forest products, the facility will handle steel, heavy lift, and special cargo shipments.

Bowater Merges

Bowater Inc., the second largest newsprint producer inNorth Americaand fifth largest in the world, has announced it is

merging its two Canadian operations. Alliance Forest Products Inc., acquired in 2001 for $1.2 billion, and Avenor Inc., acquired in 1998 for $3.5 billion will now be merged under the name Bowater Canadian Forest Products Inc. Bowater says the merger has been implemented to expedite economies and gain tax efficiencies.

The move comes at a time when the pulp and paper industry is facing poor market conditions and weak print advertising activities. Newsprint is currently selling for US$465 a tonne in Europe and US$475 to US$485 inNorth America. This time last year, newsprint was selling for approximately US$550 per tonne.

With 12 mills inCanada, theU.S., andKorea, Bowater has the capacity to produce three million tonnes of newsprint per year and 2.2 million tonnes of lightweight coated paper. The company also has 13 sawmills inNorth America.

WSPF Extended Holiday

In this first week of 2002, traders are optimistic. Although economic news was iffy throughout the fall, indicators are leading analysts to predict an improvement through 2002, beginning with a strong first quarter. From interest rates to the improving post-holiday consumer confidence, the downward spiral anticipated by pundits doesn’t appear to be materializing. If the positive move continues, recovery in theU.S.economy should be reflected in growth statistics by mid-year.

This week began on Wednesday and barely got started before it was over. With schools and many businesses holding off until Monday the 7th, traders and customers declined to return from their Christmas holidays. The result was another uneventful week.

After the two-week shutdown, mills were under little pressure to retract from their established price levels. Secondary suppliers were more malleable, however, since they had wood they needed to unload. Wholesalers offered second tier lumber to customers at attractive prices that were approximately $10 under mill levels.

This resulted in a slight decline in list prices from the previous week. KD R/L Std&Btr 2×4 reduced $2 to $228. In KD R/L #2&Btr, 2×4 held unchanged at the mill level of $250; 2×6 spun down $10 to $225; 2×8 chipped off $10 to $230; 2×10 minused $7 to $235; and 2×12 stood firm at $315.

Studs Coming Back

Stud producers are making the long, slow climb out of their long winter’s nap. Prices on KD SPF 2×4 92-58” PET studs took a $5 tuck to $225. Truck transportation continues to be tight from central B.C., although rail cars have returned to normal. Fortunately, the backlog of shipments waiting to be loaded is minimal.

MSR Shaking Cobwebs

Not much deep thinking went on in MSR over the holidays. Customers came back late this week, shaking the cobwebs from their heads. Prices continued to grind sideways for lack of anyone knocking down the numbers with serious counteroffers.

ESPF Running Low

Inventories are low in the field and in the mill yards in easternCanada. Although the volume of orders was small, the lack of pressure to sell allowed the mills to hold firm on their prices. With long curtailments amounting to a large volume outtake, producers held new orders to a maximum of two weeks.

Cedar Panic in Field

End users could find the shelves bare of cedar products at their local lumber yards. Year end inventory management strategies reduced stocks on hand to bare bones. With minimal stocks at the mills and long shutdowns just ending, order files on the more desirable items are expected to quickly ramp up. Urgency, however, will have little impact on how soon orders will arrive.

OSB & Plywood

With no snow to speak of in theTorontoarea, construction is going on without interruption. The panel business is thriving. OSB prices are moving up and plywood is still scarce. Inventories have become depleted and buyers have chosen this short three-day week to replenish stock Wholesalers are delighted, reporting that they can sell as fast as they can obtain new stock from their suppliers. Buyers inPennsylvanianeeding prompt wood have also been in the market. Producers report they have order files into the week of January 14. 7/16”Torontois now selling for C$225.

In B.C., even record mild temperatures cannot get the panel business moving. Most of the business is coming from southernCalifornia, where retailers are doing the buying. Mills report order files out to the week of January 14. In a thin market, 7/16”Vancouversold this week for C$205.

Cargo & Reload

There is snow to the north and snow to the south, but no snow in theU.S.northeastern lumber market. Sales were slow during the period from Christmas to New Year, but perked up this week. While everyone needs lumber, many buyers anticipate lower prices next week, when most mills are back in full production. Yards and retailers are buying carefully, but mixed truck orders are plentiful. Stocking wholesalers reported good sales volumes during the three working days. Green fir selling prices declined by $5 to $10 this week for most items, while supplier mills in theU.S.west raised their delivered prices.

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


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