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British Columbia Provincial Election; US New Home Sales US Pulp Industry Tax Credit; New Biomass Fuel Research FundingNorth American Wood Products and Pulp ; AbitibiBowater Bankruptcy ; West Fraser Suing Canfor; US Housing Starts; 1Q US Fibre Costs; Mountain Pine Beetle - Research and Funding Progress; Canadian Softwood Lumber "Surcharge" ; Canadian Housing Starts; Pulp, Paper and Newsprint ;Canada’s $68 Softwood Lumber Million Duty Payment ; Worthington Properties Head Office Fire ; Mill Closures and Curtailments; Canadian Wood Chip Prices; Japan 2008 Lumber Statistics;
May 03, 2009
BC goes to the polls on May 12, 2009. Madison’s will feature interviews with current Minister of Forests and Range Pat Bell (Lib - Prince George North) and current Forests Critic Bob Simpson (NDP - Cariboo North).
This week Pat Bell talks about his accomplishments since taking over the Forest Ministry almost one year ago, and his plans for the future of the BC forest industry.
Incumbent Forest Minister Pat Bell
Almost a year after taking over as British Columbia’s Minister of Forests and Range, Pat Bell (Lib - Prince George North) speaks confidently about the work his Ministry has achieved to date, and looks forward to an exciting future for BC’s forest industry. Madison’s caught up with Bell on the campaign trail, just pulling into Prince George after having spent the morning in Quesnel with Liberal candidate Bruce Ernst and Premier Gordon Campbell. The trio toured an innovative Spruce-Pine nursery and West Fraser’s brand-new, $20 million, planing facility.
Madison’s first question was if there were going to be any big, new announcements for BC’s troubled forestry sector during this election. Pat Bell stressed a continued focus on four key factors that he sees as priorities: fibre utilization, the growing Chinese market for wood, silviculture, and non-residential building.
Research and development into commercial uses for biomass will encourage timber harvesters to “use every part of the tree when it hits the ground”, said Bell. A fault of BC’s old stumpage system is being rectified by a pilot project to value timber stands by land area rather than by cubic meters. According to Pat Bell, the “days of slash piles are gone.” When he took office at the Forest Ministry, there were no active grinders in the woods. By November 2008 a grinder had been operating in the Prince George area for several months, and today Bell is “aware of 13 grinders” active on a full-time basis in Interior forests. Bell estimates one million cubic meters in logging residues have been chipped, all of which were sold out immediately. Madison’s knows that figure is greater, as portable mill and grinder sales on Vancouver Island enjoyed a large spike in 2008.
There are currently two main customers for biomass residue:
• Pellet mills, including industrial pellets (those containing bark) which have a higher BTU value and are in great demand in Scandinavia. The pellets are processed locally then exported, with the added bonus that the product displaces coal use therefore earns carbon credits. Wood pellets have been proven to be a growth industry, with expectations of potential future demand on a massive scale.
• The second main group of customers for biomass residue are pulp mills and energy plants, that already use hog fuel to supplement energy needs, and greenhouses that use it as a heat source. Recognizing the almost unlimited potential of biomass as a fuel source in various forms, the BC government has pledged $21.5 million to the University of Northern BC for development of gasification technology, and $1.5 million for research into cellulostic ethanol.
Pat Bell pointed out that adding biofuels to the equation of forestry economics “changes the whole market dynamic.” Given current demand for biomass residue, a four hour cycle time from bush to plant is profitable. That viable distance will increase as the value of slash rises.
Finding new customers for wood products in China is also seen as a potentially limitless source of future growth for BC’s wood products. While good headway has already been made both by politicians and individual industry members, Pat Bell sees a need for a “concerted effort, on an organized basis rather than ad hoc.” Building on progress made in 2008, when BC Premier Gordon Campbell travelled to China several times, as did Pat Bell along with a group of lumber industry executives and the Canada Wood Program, Bell is “drafting programs for this year and into 2010” that would bring a “constant presence in China, with the focus on selling wood.” Currently the main use for wood in Chinese building is for concrete forms, which generally requires only utility and economy grades. Bell intends to launch initiatives that would encourage Chinese use of wood truss systems, then move into the use of wood for infil walls and partition walls. After that would come efforts to encourage the building of wooden single family homes. An important realization made by the BC forest products sector during recent trips to China was that it is not a “wood culture. They need to be more efficient with it,” said Bell. He continued that education of Chinese builders in the use of wood and further implementation of existing partnership programs could increase Chinese demand for Canadian wood by 50 per cent.
Uncertainty and doubt about the fate of the forestry sector would make it very easy to “turn ship” right now, said Bell, but this is the time to continue efforts already underway. In that regard, some timber harvesting licenses were issued recently by the BC government in a pilot project to study a “new methodology for charging for wood.” Rather than paying per cubic meter, licensees would buy timber, at auction, per hectare. Licences were advertised in autumn 2008 by BC Timber Sales to facilitate harvesting of mountain pine beetle-attacked trees, pulp stands or other timber. Since then, eight licences with a total volume of 214,010 cubic metres of timber have been sold. Another six, with a total volume of 154,433 cubic metres of timber are being developed.
Selling timber stands on a “lump sum basis introduces ‘sunk costs’,” Pat Bell explained, which then encourages companies to “utilize everything.” Those involved in the pilot project had generally very positive responses, learned from each other, and have so far voiced “a lot of support” for the new process. While he may still keep the stumpage system as well, Bell intends to establish a new model that would make it economical for companies to use everything they cut.
The lump sum valuation would render beetle kill a non-issue. With no grading or scaling, there would be no under- or over-incentive in managing the harvest. While the Ministry of Forests is actively encouraging forest companies to first harvest beetle kill in danger of blow down, the reality today is that “most companies are harvesting whatever is closest to their operation,” said Bell. He plans to continue with a policy of “constraining the harvest” with a look to the future, so that as much of the standing dead timber can be processed as possible. Government figures show that BC could see a “70 per cent reduction in harvest over the next 10 years,” making adjustments to current logging practices integral in sustaining the forestry industry until new trees can grow.
Sales of newly built US single-family homes dropped 0.6 per cent in March, but the stock of homes for sale at the end of the month still plummeted at a record pace. The inventory of new homes shrank in March, to 311,000, from 328,000 in February. That left the supply of homes available for sale at 10.7 months’ worth, compared to February’s 11.2 months.
Lower prices and historically low borrowing costs have increased affordability. The average 30-year mortgage rate was 5 per cent in March, down from 5 per cent in February and 6 per cent in March 2008, Freddie Mac data show. The housing industry also hopes demand is stirred by the $8,000 tax credit for first-time home buyers included in the Obama administration’s economic stimulus package. But hard credit and a bad job market are working against sellers. The unemployment rate in March rose to 8.5 per cent from 8 per cent.
International Trade Minister Stockwell Day has spoken with and written to US Trade Representative Ron Kirk about America’s black liquor tax credit. The credit — an unintended consequence of a 2007 law — could add up to billions of dollars this year for an industry that has suffered big losses from the economic crisis.
US Tax Rebate
Congress expanded the tax credit for developing alternative fuels in 2007, offering firms 50 cents a gallon to blend renewable fuels like ethanol with traditional fossil fuels like diesel. The Senate Finance Committee was scheduled to hold a hearing on energy tax credits Thursday, and the issue is sure to come up. A bill from Senator Max Baucus, chair of the Senate Finance Committee could come as early as this week. “His objective to make sure that the credit is used in a way that is consistent with the spirit and intent of the law,” said Dan Virkstis, a spokesman for the Montana Democrat.
However, the American Forest & Paper Association said if the Senate revokes the forest products industry’s eligibility for the fuel mixture tax credit, it could have “serious consequences for our companies and our nearly one million employees at a time of unprecedented economic challenges.” Should American pulp companies take full advantage of the bill, the US government could stand to lose $6 billion in corporate tax revenue this year.
News reports late in the week stated that most politicians involved were leaning towards simply changing the wording of the legislation so that pulp companies would not have to add diesel to the black liquor in order to qualify for the tax credit.
Two Concordia University researchers have been awarded $22 million to study ways to transform agricultural and forestry waste into reusable fuels. Dr. Adrian Tsang will receive $17.4 million from Genome Canada and Genome Quebec. He has studied the genetic make-up of fungi in hopes of discovering more efficient and ecologically friendly ways to harvest the debris left over when forests and crops are harvested and convert them into bio-ethanol.
This represents the largest single budget of the ABC competition and the most significant investment in a project toward environmental sustainability in Genome Canada’s history.
Biomass Ethanol
Vincent Martin of the Centre for Structural and Functional Genomics, who holds the Canada Research Chair in Microbial Genomics and Engineering, will receive $4.6 million for his team’s share in a joint project with researchers at the University of Calgary. Martin uses genetic engineering of the simple bakers yeast to synthesized natural products normally made by plants.
Tsang says fungi provide “an ideal natural laboratory” in which to study how decomposing leaves, shrubs and tree limbs break down to create sugars.
“Those sugars are the basic blocks required to build the advanced biofuels and biochemicals that can turn agricultural and urban waste into products and energy,” the biologist said in his description of the project. “Once we have developed new enzymes, they will become the cornerstones for the development of large-scale industrial biorefineries.”
Concordia’s Centre for Structural and Functional Genomics is actively involved in research to identify, analyze and develop potential enzymes to be used as catalysts in breaking down industrial and agricultural waste into clean-burning biofuels and other plant-based products for use in a wide range of industrial applications.
Since its creation, Genome Canada has invested in long-term partnerships with numerous provincial and private-sector institutions at home and abroad, thereby ensuring for Canadian researchers in genomics and proteomics a place among the world leaders in this field.
April 26, 2009
Rigid stances by both the US and Canadian governments regarding different interpretations of the LCIA ruling of a $68 million payment by Option B provinces to the US will cause another round of arbitration. A bizarre application of a new green energy law in the US has pulp mills there mixing diesel with their wood chip byproduct to qualify for a hefty tax rebate.
As described in the April 03, 2009 issue of Madison’s Reporter, the United States has gone ahead and imposed an additional 10 per cent penalty, or surcharge, on lumber imports by Canada’s Option B provinces (Ontario, Quebec, Manitoba and Saskatchewan). Not satisfied with Canada’s announcement on April 02 that a lump-sum payment of $47 million “cures the breach” of lumber overshipments for the first half of 2007, the US has issued revised customs documents for Canadian softwood lumber imports. With the Canadian government expressing “disappointment” that the US acted so quickly to impose an import tax, the matter will almost surely go to arbitration.
Recent Developments
At issue is not the fact of overshipments, or that some reparations are in order, but rather the method of payment. It is the position of the US that a lump-sum payment by the Canadian government, to be repaid by the relevant companies later, is not a sufficient penalty for breaking the terms of the 2006 Softwood Lumber Agreement. The US policy is for the purposes of limiting Canadian lumber imports; any action by Canadian producers counter to that aim will result in even more drastic curtailment of exports into the US. In short, it’s not about the money, per se.
On this particular issue Canadian producers have only themselves to blame. They were warned in early 2007 that shipment levels were consistently above the quota. Only in June of 2007 did Canada reduce lumber exports from Option B provinces to correct levels. It does not take a huge leap of logic to come to the conclusion that, in this instance, Canadian producers were trying to get away with something. Not so much cheating, but likely testing the Agreement and the resolve of the US side to stick to the terms.
The fact is that the Agreement is binding, whether the Canadian lumber industry is in agreement or not. There is no legal loophole to play games or get cute. Lumber producers in British Columbia learned that years ago, when they were drilling holes in 2x4s and calling them a remanufactured product. It took the Coalition about two weeks to figure out what was going on and make efforts to put a stop to it.
It is not clear whether Canada’s claim that the additional 10 per cent surcharge will put “undue hardship” on producers in the affected provinces will hold any sway in future arbitration. Viewed objectively, it is a hardship the companies created themselves by not adhering to the Agreement in the first place.
At this moment, brokers working the Canada/US border are scurrying to decipher the directives of the new customs documents. So hastily were they edited that the US Department of Congress seems to have overlooked two major points: 1) the price of softwood lumber imported used to calculate the duty is supposed to be the First Mill price, not the Entered Value (which often includes secondary remanufacturing and freight costs) that can be up to three times higher than the fob mill price on the initial wood, and 2) all references to the US$500 per mfbm cap on softwood products have been dropped. In one example, the actual “First Mill” value of lumber was $19,200 ($1200 per mfbm on 16,000 fbm), that was then remanned and “sold” into the US at $1500 per mfbm. According to the new customs documents, the “Entered Value” would be $24,000 and the Surcharge would be $2400 - literally three times allowed by the cap.
If this error is not corrected, it will appear that - this time - it is the US that is trying to get away with something: namely getting the $68 million paid off more quickly.
Given the force and speed with which the US acted in keeping Canada to the terms of the Agreement after the breaches by the Option B provinces, and also given the Coalition’s continued claim that the $0.25 stumpage on beetle kill in British Columbia is effectively a subsidy, one can only wonder what kind of action will be coming against British Columbia’s softwood exporters.
It is difficult to consider this issue of Canadian government intervention on behalf of the forest industry without bringing up the new US energy tax rebate. A seemingly irrelevant piece of legislation called the HIghway Act is being employed by American pulp producers to access some very lucrative tax credits. Intended as an encouragement for the use of green energy, the irony of this development is that US pulp producers are adding a small amount of diesel into the byproduct from pulping wood chips they were already using, in order to become eligible. This application of the Highway Act goes beyond its actual wording (some industry insiders believe the loophole was intentional), and is proving to be a huge source of revenue.
International Paper has already received over US$71 million for one month’s claim, while Verso got almost US$30 million at just one mill in 4Q 2008. A delightful twist to this irony, for Canadian producers at least, is that Domtar and AbitibiBowater are also eligible to claim. Domtar alone could stand to earn up to US$225 per year by its combined US operations.
The question is whether other pulp producing regions globally will take exception to this tax rebate, which could be seen as a subsidy by some, and launch a dispute at the WTO. As the most likely candidate, Europe is not likely to do well in the international courts due to some hefty energy credits of its own to domestic pulp mills.
Some observers warn that a tax rebate of this kind will only stimulate US pulp mills to ramp up production, releasing yet more volume of kraft pulp globally. The currently weak pulp market would likely soften further, causing closures of both pulp mills and sawmills in Canada. Without the essential byproduct credit for their chips from pulp mills, some sawmills will have to curtail for fear of further their damaging bottom lines.
In terms of gains, customers stand to be the biggest winners. Currently that would be China, which is buying up greater quantities of pulp with each passing quarter.
Repeated extensions by creditors since the beginning of 2009 have failed. AbitibiBowater was not able to renegotiate terms of its massive debt, and declared bankruptcy protection in the US on Thursday and in Canada on Friday. Company statements indicate that mill operations “on a day-to-day” basis will continue.
Some observers maintain that it was the ill-fated merger of a debt-laden but asset-rich Bowater with an overburdened Abitibi-Consolidated that eventually caused this bankruptcy. However the absolute free-fall of newsprint demand and prices of late was not anticipated by even the most pessemistic analyst.
Informed expectations are that, if there are to be mill closures, they will likely happen in Canada as US pulp operations are eligable for tax credits under the new Highway Act in the US. However, of all assets, two AbitibiBowater mills are very likely to be sold, recently upgraded and quite valuable operations, both in the US.
A curious development stemming from West Fraser’s storage of 918 units of MDF at Canfor’s burned down Prince George plywood mill from a 2008 fire has West Fraser suing. The claim maintains that Canfor is liable “due to Canfor’s negligence in the maintenance and operation of the facility, particularly the dryers and because IWL lacked a proper system to prevent the spread of the fire.”
Two questions spring immediately to mind; why are rival companies storing product for each other, and why didn’t West Fraser have its own insurance for that product?
Precise figures are not available, however loose estimates are that there can be anywhere from 25 to 100 MDF sheets per unit, and with 1/2” MDF sheets selling for $32 the total value of the loss could be approximately $1.5 million.
American housing starts in March were 11 per cent below the revised February estimate, and 48 per cent below the March 2008 rate. Single-family housing starts in March were unchanged from the revised February figure.
Building permits in March were 9 per cent below the revised February rate and 45 per cent below the March 2008 estimate.
US Home Building
The US Commerce Department said housing starts fell to the second lowest on records dating back to 1959. House starts in the West region, which has been hit hard by the housing slump, fell 26 per cent to a record low rate.
The fall in groundbreaking activity follow recent data that had shown some signs that the 16 month old recession was moderating somewhat. Housing is at the centre of the downturn, which is on track next month to become the longest since the Great Depression.
Collapsing house prices, coupled with rising unemployment, are forcing consumers to scale back on discretionary spending.
The setback in housing starts came after several more upbeat reports showing tentative rebounds in sales and builder sentiment. The National Association of Home Builders reported Wednesday that its gauge of builder sentiment posted its biggest one-month jump in five years in April.
While still near historically low levels, the trade association said the index rose five points to 14, its highest reading since October. The trade group includes industry heavyweights such as Centex Corp. and Lennar Corp., as well as hundreds of smaller builders nationwide.
The Federal Reserve, in a regular survey of business conditions, said on Wednesday the labor market remained soft with lay-offs and hiring freezes widespread. But five of its 12 regional banks saw the pace of decline in the economy slowing.
The Fed also said there were signs the housing market was stabilizing, with an increase in the number of prospective buyers improving confidence.
House hunters are being lured by very low mortgage rates following hefty efforts by the Fed to drive down home loan costs. It has cut key interest rates to almost zero and pumped over $1 trillion into credit markets, including massive buying of mortgage-backed securities, to encourage spending and investment.
Wood fibre costs have diminished in all regions of the US this year as the decline in fibre demand by the pulp industry has been greater than the reduction of residual chips supply from the sawmilling sector. In the past six months, pulpwood costs have fallen about 10 per cent in the US South and 20 per cent in the US Northwest, according to the North American Wood Fiber Review.
Market pulp production in North America was 29 per cent lower in December 2008 than in the same month in 2007. The operating rate was a record-low 69 per cent in December, which can be compared to 87 per cent in Europe and 85 per cent worldwide.
April 19, 2009
While the pine beetle infestation in British Columbia can only be left to run its natural course of killing off Lodgepole Pine forests, Alberta continues to fight hard to prevent a spread across Canada’s boreal forest.
A series of climate sensors providing data for a beetle mortality computer model have proven very successful in the past two years in helping determine the allocation of resources once the spring thaw comes. Using data from Natural Resources Canada, the province of Alberta is able to send staff to areas where the pine beetle winter survival rate is higher, in order to continue its population control efforts.
Almost exactly one year ago, just after a change of ownership with the Reporter, Madison's wrote a piece on the Mountain Pine Beetle, following an announcement out of the British Columbia Ministry of Forests and Range that the pine beetle population in BC was dropping. Similar announcements last week by Natural Resources Canada prompted several news reports by the mainstream press, one of which stated that "About 90 per cent of the pests have died in northern Alberta, and 95 per cent were killed in southern Alberta, according to a computer model developed by the Canadian Forest Service," in the National Post.
"While those sound good, they're not good enough," said Duncan MacDonnell, spokesman for Alberta Sustainable Resource Development on Friday. "We need 97.5 per cent to stop the spread of infestations," continued the article.
Funding and Research Progress
Greatly buoyed by these numbers, Madison's contacted the research scientist who runs the computer model. Barry Cook has been working on pine beetle data for NRC long enough to be able to say that, "The last three winters in southern Alberta have been very mild. 2009 was like 1950's-era cold weather for the Banff region." As Cook explained, there is a lot of misinformation out there about what kind of cold temperatures, for how long, and at what time of year are required to kill the beetle. Madison's most recent piece on the pine beetle (refer to your October 23, 2008 issue) quotes Brian Aukema, also with NRC at the University of Northern British Columbia, that "cold weather can only affect the beetle if it comes when the pest least expects it".
Scientists have taken to referring to it as the "shoulder seasons", early autumn and late spring when the beetles' natural defense against the cold is not active. Even a relatively mild temperature for a brief time can decimate the beetle population during the shoulder seasons. In addition, Cook explains that, "unlike other temperate insects, the pine beetle has no obligatory diapause therefore is always ready to wake up. It can break out due to warm weather" even in the depth of winter. (ed - diapause is a sort of hibernation period for insects) The Banff area experienced a sudden drop in temperature in mid-December 2008, from about 5 C to -45 C, over the course of just a few days. As evidenced by the graph on this page, that single temperature drop served to reduce the beetle population by about 80 per cent. Other temperature fluctuations that followed over the following few weeks are not expected to have had much effect as the vast majority of beetles in southern Alberta have likely perished. Northern Alberta did not experience quite the same sudden drop in temperature, therefore it is probable that approximately 15 per cent of the beetle population there has survived the winter.
Barry Cook laboured on this point in order to be sure he was quite clear; this is a computer model which gives real time predictions of the effect of climate on the beetle population. NRC has stations throughout Alberta and also in BC, enabling them to use this data to better allocate their beetle control programs once the thaw comes. Rather then spreading staff equally around a province in May, the agency is able to concentrate the
All of this pine beetle talk reminded Madison's about the $200 million announced by the federal government in January 2007, " to support a comprehensive response to the infestation and its consequences." It is difficult to track where such a vast sum of money actually goes, which begs the question: how much of the $200 million has actually been used to help communities affected by the pine beetle? It was to have been a four year plan, which currently brings us to the half-way point. From what Madison's could determine, Western Economic Diversification Canada is meant to disperse the money to actual communities. A large portion of the funds have already been given to various research agencies, including our friends at NRC, in addition Forest Innovation Investment and Forintek have been major recipients. A call to the Forintek got Madison's through to the librarian, Barbara Holden, who very quickly sent along a list of all the pine beetle research Forintek has done since 2006. The list is far too long to detail here, but includes such uses for beetle-kill as wood-cement composites, plastic composites, blue-stained landscape products, pheremones, thick laminated wood plates, glulam, as well as a brand-new paper on the uses of beetle-kill for biofuels.
As far as Madison's could determine, the amount of money to reach affected communities directly totals about $16 million. The largest by far was the expansion of the Prince George Airport runway announced towards the end of February 2009,$11 million of federal funds will be matched by $11 of BC provincial money to "create new and exciting opportunities for Canadian goods and services to reach new markets abroad, ” according to the government press release. One of the smaller programs, announced on April 6, 2009, will use $220,000 of the Pine Beetle Initiative money to "support the Cariboo-Central Interior Poultry Producers Association to create a mobile poultry-processing unit that will help diversify the local economy and encourage growth in the poultry industry."
Western Economic Diversification Canada was not able to provide the total figures of money allocation to date by press time. Madison's will print the latest figures when we receive it.
Not satisfied with the Canadian government’s offer last week to send one lump-sum payment of $47 million in compliance of a London Court of Arbitration tribunal ruling, the US Department of Trade has slapped an additional 10 per cent “surcharge” on softwood lumber imports from Option B (quota + duty) provinces, effective April 15, 2009.
Quebec, Ontario, Saskatchewan and Manitoba lumber exporters may become subject to drastic and costly changes to entry requirements for shipments subject to the 2006 Softwood Lumber Agreement. Together with the additional 10 per cent “surcharge” the economic hardship to relevant companies during this time of an extended downturn in lumber demand could very well cause more bankruptcies and permanent closures. On Wednesday Canada’s Prime Minister Stephen Harper indicated that more communication is needed with the US Trade Department to settle this issue of different interpretations of the London tribunal’s ruling by Canada and the US.
The seasonally adjusted annual rate of housing starts increased to 154,700 units in March from 136,100 units in February. Urban multiple starts increased 28 per cent, while urban single starts moved up by 1.3 per cent in March. New home construction is now at a more sustainable level after having been exceptionally strong over the past seven years, exceeding 200,000 units per year. “Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre.
Canadian Home Building
The CMHC said housing starts last month were 297 units and the lowest level of overall activity for the month since 1995. They were 3,068 units in March 2008.
Through the first quarter of this year, total housing starts have reached 746 units, about 4,000 units lower than year-to-date production in 2008 -- or a decline of 84 per cent.
“Last year was a record (for March),” said Lai Sing Louie, senior market analyst in Calgary for the CMHC. “So when we compare any month to last year, March will be a low number.”
Building permits decreased 16 per cent to $3.7 billion in February across the country, compared with the month before. StatCan said the largest decreases were in the non-residential sector in Ontario; the value of all building permits in Toronto fell 41 per cent during that period.
“While no doubt a pleasant surprise, we wouldn’t read too much into today’s rebound in starts,” notes Douglas Porter, BMO Capital Markets Economics. “The housing sector is still trying to find a bottom, and with prices in retreat in most major cities, we wouldn’t look for a lasting rebound in homebuilding until at least 2010.”
US production capacity for paper, paperboard and pulp slowed to a 0.8 per cent decline in 2008 at 96.3 million tons, the American Forest & Paper Association reported in its 49th Annual Survey of Paper, Paperboard, and Pulp Capacity. Inventories at all US users of newsprint declined 3.3 per cent in February from a month earlier to 744,000 metric tons from 769,000 tons in January, according to the Pulp and Paper Products Council According to the 49th Annual Survey taken at the end of 2008, total US paper and paperboard capacity is projected to decline 2 per cent in 2009 and then expand by 0.3 per cent in both 2010 and 2011. That corresponds with last year’s survey finding that there would be gains of 0.2 per cent in 2009 and 0.3 per cent in 2010.
The decline was slightly less than the 1 per cent annual rate of contraction recorded from 2001 through 2007 but close to the 0.7 per cent drop the previous survey had suggested. Cumulatively, paper and paperboard capacity has contracted 7.3 per cent since its 2000 peak level. The AF&PA survey also reported that 18 US mills were permanently closed in 2008, shutting down 27 paper and paperboard machines, and an additional 14 machines were permanently shut down at other mills -- a total of 41 in all. Another two machines (one entire mill) are scheduled to be shut in 2009. In 2007, 17 mills and 38 machines were permanently closed as capacity dropped 0.6 per cent to 97.1 million tons.
Meanwhile, newsprint production was down 25 per cent from a year earlier to 625,000 tons from 829,000 tons, the PPPC said.
Also, inventories at US daily newspapers rose 6.4 per cent to 712,000 tons from 669,000 in January, to a record of 59 days’ of product on hand. Mills in February operated at an estimated 75 per cent of capacity, down from 96 per cent in February of 2008. The PPPC report showed US consumption plummeted 29 per cent from a year ago in February. Consumption by the daily newspapers fell 26 per cent as the recession bit into advertising revenues for the newspapers.
April 14, 2009An annoucement Tuesday out of Canada’s department of International Trade that a lump-sum payment of $46.7 million to the US is in full compliance with the ruling on arbitration by an international tribunal caused the US Coalition for Lumber Imports to announce it is “deeply disappointed” with Canada’s non-compliance. Madison’s examines the terms of the ruling, and gets input from those involved as well as experts in cross -border lumber trade.
London Tribunal Ruling
Whether it is $46.7 million or $68.26 million, the sum of money involved in the recent London Court of International Arbitration ruling regarding the Canada/US Softwood Lumber Agreement is substantial. Especially considering it is imposed on an industry that has been suffering from a great drop in demand and profits over the past couple of years.
The US and Canada have a fundamentally different interpretation of the ruling about Canadian lumber overshipments in the first half of 2007. The US Coalition for Fair Lumber Imports maintains that the reason for the initial US claim, and the basis for the tribunal decision, is that there needed to be a remedy for Canadian lumber overshipments from January to June of 2007. Lumber producing provinces in central Canada choose Option B of the 2006 Softwood Lumber Agreement, which couples an export quota with a 5 per cent duty. The export quota is calculated on lumber production and demand in the US. When demand and production of lumber fell towards the end of 2006, the level of exports from the Canadian provinces that had chosen Option B should have fallen correspondingly.
Zoltan van Heyningen, of the Coalition, explained to Madison’s that his office had notified Ontario, Quebec and other eastern provinces that there needed to be a reduction in Canadian lumber imports into the US as a reflection of the shrinking markett. It was told by the Canadian department of International Trade that “no adjustments to what meets the quota level needed to be made until June of 2007,” according to van Heyningen. He maintains that, as the ruling was meant to be a remedy to overshipments, the only cure was a corresponding limit to shipments from the relevant Canadian provinces. Therefore, he explained, Canada has two choices: to either implement the remedy (of the additional 10 per cent tax), or to impose an alternate penalty with similar economic affect on the companies that breached the 2006 SLA. For the federal government of Canada to simply make a lump-sum payment to the US, then recover the money later from the relevant companies, would not be in compliance with the terms of the ruling.
Conversely, the Canadian government interprets the Tribunal ruling to mean that a lump-sum payment of $46.7 million, which is equal to the amount of revenue the US industry claimed it lost due to the Canadian overshipments, would fully compensate the US.
Melisa Leclerc, Director of Communications at Canada’s Office of the Minister of International Trade sent Madison’s the terms of the ruling, pointing directly to the paragraphs Canada is using to back up its interpretation. Paragraphs 2 and 3 on page 148 of the ruling respectively state that, “the Tribunal identifies 30 days from the date of this Award as a reasonable period of time for Respondent to cure the breach” and, “Canada shall be required to collect an additional 10 percent ad valorem export charge upon softwood lumber shipments from Option B regions until an entire remedy amount of CDN $ 63.9 million, plus CDN $ 4.36 million in interest (a total of CDN $68.26 million) has been collected.” (ed- definition of ad valorem - A tax, duty, or fee which varies based on the value of the products, services, or property on which it is levied.)
There is, as always interpretation of the Softwood Lumber Agreement, the claim by the US Coalition that any money from Canadian governments, federal or provincial, in aid of the Canadian lumber industry is a subsidy, therefore counter to the 2006 Softwood Lumber Agreement.
In terms of the vast sums of money being bandied about, Madison’s enlisted the expert advice of Michael Jones, president of Jones & Jones Customs Brokers and Trade Consultants. He determined that the London Tribunal ruling had in fact gone beyond the remedy initially requested by the US.
British Columbia chose Option A of the 2006 SLA, which has no quota limit on lumber exports, and a duty of 15 per cent. The US admitted they lost $46.7 million in duties on the lumber overshipped from Option B provinces. The Tribunal ruled that Canadian producers must pay the $46.7 million, as well as an additional 10 per cent duty, bringing the total figure owed to $68.26 million. Madison’s suggests that there is a basic difference in what each of the two countries understands to be the spirit of the ruling. The US Coalition believes that the ruling is meant to reduce Canadian lumber shipments by the subject provinces into the US until the level of former overhipments is rectified. The additional 10 per cent duty on future shipments is deemed by the Coalition to be a sufficient hardship to reduce Canadian lumber exports. Canada, however, seems to see the Tribunal ruling as simply a requirement to pay whatever money was not paid to the US during the time of underreporting.
An interesting aspect to this latest development is that the Tribunal ruling is final, with no ability to appeal. Once a panel of the London Court of International Arbitration makes a ruling the members are sent on their separate ways to other business. That panel never meets again. So the only way this issue can be addressed in the future is for Canada to propose some form of settlement and for the US to decide whether that settlement meets legal requirements. Should there be disagreement, there is the option to start a new round of arbitration.
As a final note, Madison’s can’t help but notice continued mentions in various Coalition press releases that “the British Columbia government is expanding the use of low-priced stumpage fees . . . for timber that continues to be milled into lumber.” Feeling the need to know what is coming next, Madison’s got confirmation from Zoltan van Heyningen that the next most damaging SLA violation is indeed BC’s stumpage fees and that the Coalition is “committed to addressing the issue by working proactively with the new US administration”.
One thing we can all agree on is that in the next two or three weeks there are likely to be some major new developments regarding the 2006 Softwood Lumber Agreement.
On Tuesday afternoon last week, fire crews were called to the 80-year-old Kelly- Ramsey building in Edmonton, AB, which houses the offices of Worthington Properties, owners of an idled pulp mill in Mackenzie, BC. Damages to the building, which Worthington Properties also reportedly owns, are estimated at about $3.5 million. On Thursday, Edmonton police said an arson investigation is underway. BC Minister of Forests and Range, Pat Bell, told the Prince George Citizen Friday that he is less worried about the fallout from the fire than he was earlier in the week. “We really have done a lot of work on Worthington and we have a pretty reasonable understanding of the ownership structures and the assets that associated with Worthington,” said Bell, the MLA for Prince George North. Arson is a suspected cause of the blaze and Bell was concerned key documents were lost.
Worthington bought the bankrupt Pope & Talbot pulp mill in Mackenzie in the fall of 2008 but in January the the province stepped in to ensure workers remained on the job to prevent the rupture of tanks that could release a cloud of deadly chlorine gas just kilometres from the townsite of 4,500.
According to a CBC report, Worthington president Dan White was in St. Petersburg, Russia at the time and was notified about the fire by staff in an e-mail.
Montreal-based Tembec Inc. will be shutting its Kapuskasing, ON, operations beginning April 9 for a minimum of four weeks due to the challenging market conditions for both newsprint and lumber, taking 20,000 tonnes of newsprint and 8 million board feet of construction lumber off the market.
The shut will affect about 510 employees from all levels of the Kapuskasing sawmill, newsprint and forestry operations. The Kapuskasing shut adds to cuts Tembec announced last month, which include cutting jobs, idling operations, and freezing salaries.
Cascades Inc. is shutting down its Norampac carboard products plant in Quebec City, QC, affecting 145 workers.
Mill Closures
Cascades said Thursday the shutdown will occur by the end of the year and reflects a big reduction in business for the plant and the weak economy. Sales and distribution services at the Quebec plant will remain, but production will be shifted to other Norampac Quebec plants in Vaudreuil, Le Gardeur, Victoriaville, Drummondville and Montreal.
Cascades produces, converts and sells packaging and tissue mainly from recycled fibres. The company employs 13,000 people at plants and mills in North America and Europe.
Norampac, a wholly owned subsidiary, is Canada’s largest cardboard maker and employs 5,000 people.
Canadian pulpmills and sawmills reduced production in 1Q 2009 as demand for pulp, paper and lumber continued to slump both domestically and in the US.
Many Canadian pulp mills run at operating rates of less than 70 per cent in the 1Q 2009, resulting in falling wood chip prices in most provinces, according to the North American Wood Fiber Review. British Columbia and Alberta had the lowest wood chip prices in North America in the 1Q.
The biggest drop in lumber production occurred in British Columbia, where the January figure showed a decline of 28 per cent compared to a year ago. The production as a share of practical capacity was down to a mere 42 per cent in BC late last year, while the rest of Canada ran at 46 per cent of capacity, according to WWPA.
Wood fibre costs have become much more competitive in British Columbia and Alberta in the past six months. Softwood residual chip prices in the 1Q 2009 were the lowest in all of North America. In addition, pulp mills in Western Canada generally have a higher share of relatively inexpensive residual chips while other regions rely on fairly large volumes of costly chips from roundwood.
View the entire report at http:// www.woodprices.com
The Japanese Ministry to Agriculture, Forestry and Fisheries has issued a report of lumber statistics for 2008, according to the Japan Lumber Report.
Log consumption by sawmills fell by 12 per cent from 2007, and lumber consumption also declined, by almost 11 per cent for the same time period, due to sluggish demand.
Confusion over the proposed, then delayed, 80 per cent Russian tax on log exports caused a significant amount of mill closures. Other mills chose to switch to milling domestic logs only.
Domestic logs accounted for 65 per cent of the total, at 11,336 thousand cubic meters. That figure is 2.5 times more than the top North American log import, at 4,410 thousand cubic meters, said the report.
Total log imports were 6,147 thousand cubic meters, 16 per cent less than in 2007. Russian log imports were down 40 per cent, to 771 thousand cubic meters.
