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Six Storey Wood Framed Construction; Japanese Housing Starts Up in 2008; Closures and Curtailments; US Home Sales; Lumber Industry Success Stories; Tembec Dictates to Suppliers; Federal Government Announces Aid; US Housing Starts; Global Forestry and the Environment; Wood Cellulose Uses; British Columbia Forestry Announcements; Catalyst Paper Unilaterally Declares Tax System Unfair; US State Department Contacts NL Government; Forest Industry Future; Western Forest Products Major Closures; Pulp and Paper Mill Changes in Atlantic Canada; Canadian Housing Starts Steady
New building codes in British Columbia, as well as a push for more green development elsewhere, has lead to some radical progress in wood framed buildings above the tradition four storey height. Six Storey Wood Construction
Part of the British Columbia government’s efforts to bolster the faltering lumber industry is a change in building codes that would allow six storey wooden framed commercial and residential buildings, up from the previous allowance of four storeys. The province of BC is not the first to move forward with this idea, actually following on the heels of developments made in Germany and at the Washington State University Civil and Environmental Engineering Department. As soon as the change to BC building codes became common knowledge various segments throughout the province set off alarms. Of course concrete and steel suppliers immediately detracted from the structural safety of a wood framed building of such height, as did a civil engineering professor at the University of British Columbia, and concerns of fire hazards were raised by various fire safety experts. In much the same way that the North American lumber industry is slow to move away from simply chopping up logs into 2x4’s and shipping them into the US, despite a absolute lack of current demand there, the building experts are also looking backwards, citing old models and old data.
There has been significant progress made both in engineered wood and architectural practices for sufficient weight-brearing wood structures. In addition there is now a remarkable - ingenious, even, in its simplicity - patent filed in the US in 2007 for a wooden “vertical wall framing stud connecting system”. As for the claims of increased fire hazard with taller wood framed buildings, suggestions for non-combustible exit stair shafts, sprinklers and more should certainly be taken into account. However in terms of overall safety, the proven durability of wood-framed construction when subjected to earthquake stresses compared to similar concrete and steel can not be ignored.
A project funded by the German Federal Ministry of Education and Research, completed by the middle of 2007, aims to access new markets for building with wood through the construction of a six-storey nursing home built of wood. “A renewable, all-purpose construction material, wood contributes to energy reduction and to climate and resource protection”, explains the project website (at http://www.holzwende2020.de ). The project brochure adds that, “the construction material, wood, not only enables the realisation of excellent ecological and economical concepts but also of buildings which attain high fire protection standards” (link to brochure ).
In our research to find this information Madison’s stumbled across another six storey wood framed building in Germany, by a different architectural firm. Unfortunately there is no English translation provided for the site, but the photos are self-explanatory. Further information is available here http://www.e3-berlin.de/ .
Using information from international companies and agencies researching earthquake safe multi-storey wood buildings, the WSU has released a study with detailed 3-D models of “timber equivalent frames with semi-rigid joints are used to simulate the behaviour of the actual walls”. The report is comprised mostly of highly technical data and test results which are too finite to detail here, however can be seen on the website here.
Probably the most exciting discovery to date, however, is the patent quietly filed by a couple of California inventors in April of 2008. The patent builds on an earlier model, first filed in July 2006. The invention is a “pair of connectors for joining wall studs to a base plate and to a top plate for framing a wall” which “serves the dual purposes of locating the connected at the ends of the studs and of resisting tension forces.”
Essentially this eliminates the problem of the insufficient structural strength of wood when compared to steel. If MSR or engineered wood is taken into account, the possibilities seem even higher. Taking a step back and considering the issue on a larger scale, one is forced to acknowledge - common opinion to the contrary - that wood buildings are more environmentally sound (less carbon released in production, more carbon trapped in the structure) and longer lasting, as well as being more economical to build than concrete and steel buildings.
These facts are scientifically documented. The public needs to get beyond ancient history with the frailty and flammability of wood buildings (we are not talking about 1890s wild west building construction here) and its immediate gut reactions and look at the facts. All the lumber industry needs to do is to put these new technologies, developments and building codes into practice. Once a few examples of modern wood-framed six storey buildings come on the market and people see this construction in action, the concept will sell itself.
Stricter building standards imposed by the Japanese government in 2007 caused home building to plummet in that year. 2008 showed a correction, with housing starts up 3 per cent on an annualized basis, but down almost 6 per cent in the month of December compared to one year ago, the first year-on-year fall in six months.
Annual housing starts in 2008 fell short of the average of around 1.2 million units in the five-year period previous, the Ministry of Land, Infrastructure, Transport and Tourism said. A sharp drop of almost 18 per cent was seen in 2007 compared to one year earlier due to the new building standards.
The unprecedented drop of benchmark western spruce-pine-fire 2x4 prices to $130 this week, together with grim financial results, has caused a furious round of mill closures and curtailments as the lumber industry desperately cuts production in the face of remarkably weak demand.
Smurfit-Stone Container Corp. filed for bankruptcy this week, allowing the company to continue paying US workers. Company operations in Canada are not expected to be as harshly affected. Production cuts at AbitibiBowater’s plant in Thunder Bay, ON will put 700 people out of work. Canfor is taking downtime at five of its mills. The closures will reduce the company’s annual lumber production by roughly 29 million board feet.
Mill Closures
Boise Cascade has announced it will close its White City, OR, plywood plant and lay off 110 workers on March 13.
Weyerhaeuser Co. said late Monday it is closing two mills in Washington state immediately, due to weak market conditions. The closure of the Aberdeen sawmill and Pacific Veneer mill will affect approximately 196 hourly and 25 salaried positions.
The century-old Comeau Lumber mill is closing in Meteghan, NS, affecting about 60 employees.
Ainsworth Lumber has decided to permanently close its two Northern Minnesota-based OSB mills in Cook and Bemidji effective immediately. The Cook mill has not been in production since January 2008, when operations were indefinitely curtailed. The Bemidji mill curtailed operations in October 2008. Prior to the closures, the Bemidji mill had an annual production capacity of approximately 350 million square feet (3/8” basis) and the Cook mill had an annual production capacity of approximately 450 million square feet (3/8” basis).
Quebec’s Longlac Wood Industries has announced the permanent shutdown of its mill in Longla, QC, impacting about 130 employees.
December figures show an increase in existing single family home sales in the US, likely prompted by continued falling home prices. New home sales for the same month, however, showed a sharp drop.
US Housing
Sales of new homes in the US dropped by 15 per cent in December as the credit crisis has made mortgages harder to get and fewer houses go on sale. December new home sales were 331,000, off 45 per cent in year over year comparisons and the lowest level since records began in 1963.
Median house prices fell 9 per cent to 206,500 compared to one year ago. Overall 2008 home sales were 482,000, the lowest level since 1982. Unsold inventories continue to fall and were off 10 per cent to 357,000 units. However, while sales of new homes have dropped, there are signs that lower prices are encouraging to people to buy existing homes. Figures from the National Association of Realtors released on Monday showed that sales of existing homes rose 6.5 per cent in December, however that last year’s building activity represents a fall of 76 per cent from the market peak in 2005. The median price of a home fell 3 per cent to $175,400 from November’s $180,300. Median prices were off 15 per cent against year ago levels.
Inventories fell sharply to 3.676 million from 4.163 million units. At the current sales pace this reflects 9.3 months supply, down from 11.2 months in November. Builders have had to slash prices to sell homes as they are often competing with the huge supply of foreclosed homes at deep discounts.
In times of change it is difficult to know how to adjust business practices in order to remain profitable. Particularly when, as right now for the lumber industry, things change both quickly and radically. Just keeping up with the changes is daunting enough, not to mention launching into new and innovative business methods. December US housing starts announced this week once again show sharp reductions, at levels even more disasterous than expected by many analysts. Based on this reality, the continuing policy of Canadian lumber producers of ‘waiting for US housing to come back’ is accordingly foolish at best.
New Reality
Madison’s has come across several examples of Canadian mills and remanufacturers, both in British Columbia and central Canada, that made some alterations to their business model in 2008 and are now happy to report they actually made money last year. A few ended up making more than they ever have before.
A tiny remanufacturer close to the Alberta border bought out a defunct facility from a builders’ wholesaler, and is now operating a fast-growing business in value-added products. Providing service beyond simply delivering some sticks of lumber is proving to be highly prized by customers across the entire breadth of the industry.
Each of these innovative companies has trimmed staff, keeping a core of hard-working, skilled people who are well paid, therefore motivated to continue producing quality product in a timely manner. A few are now looking for new hires, being sure to keep with the practice of taking on only the best and paying them accordingly. In this way owners and managers don’t need to waste valuable time running around the yard telling people to get back to work.
A sizable Cedar remanufacturer in central Canada tripped across an excellent business plan last year. The changing face of the industry left a hole in supply which the mill filled by sourcing logs directly. An agreement was reached with the log supplier whereby the logs were squared before trucking, for the same fee it would have cost the mill to do, saving enough space to cut a few truckloads for delivery of the same amount of logs. This simple idea brought trucking costs down by $4,000 and raw material costs down by 30%. This outfit actually goes out and puts up the fences they produce, even installing the posts, bringing a sizable profit margin.
In addition this producer was recently informed by his US broker that its sales staff was put on contract and are now working from home. This mill owner has a long-standing relationship with the traders, so contacted them directly as individuals to sell for him, thereby avoiding the 15% agency fee. In his words, ‘when everyone else is getting out, I am buying in’. Or, put another way, he is rushing in to fill the holes left by others. Even if he can only get half the business left behind by the broker he stands to significantly increase his profit from 2008, which was up significantly from 2007. A very encouraging story in a time when many in the industry, particularly the big companies, are losing buckets of money.
The wisest advice Madison’s gleaned from these exemplary companies was that they do not go into debt. When dealing with America for example, a supplier can register to be bonded by Export Development Canada. Doing so takes the risk out of shipping across the border, because the agency guarantees payment. From the EDC web page on bonding, “We can help free up your money by providing guarantees to your bank so that they, in turn, can issue guarantees to your customers and suppliers.” An agency statement explains that Canada’s forestry exports totalled $38 billion in 2007, with EDC supporting over $13 billion in financing, contract insurance and bonding for over 1,200 forestry exporters. At the end of November 2008, the federal Department of Finance injected another $350 million, on top of the $1.5 billion existing budget, “to help address emerging stresses and financial gaps in Canada’s export sector [. . . ] for those most affected by the financial crisis.” Visit the EDC website for more information: http://www.edc.ca/ .
When considered together with programs offered by the Canada Wood Council, the British Columbia Ministry of Forests, Forestry Innovation Investment and others, there are significant resources available for Canadian lumber producers, remanufacturers, and exporters both into the United States and China. While those that are backward-looking may be satisfied to sit back and wait for something that only seems farther and farther into the distant future to return, there are others who are taking this opportunity of a changing market to get themselves in at the ground floor level of new enterprises. When the US home building market does finally, slowly creep back to healthy levels, out of those that waited only a few will still be operating. In the meantime those that were forward-looking will have made a consistent profit year over year and grown a sizable customer base.
Tembec Inc. chief executive officer James Lopez has sent a sharply worded letter to suppliers telling them to shave up to 20 per cent from their prices or lose the company’s business, according to the Globe and Mail. Tembec has no choice but to further tighten its belt, he explains. Suppliers, Mr. Lopez says in the letter, “will have to do the same.”
As of Feb. 1, all suppliers of materials to Tembec will have their prices reduced by 10 per cent, while suppliers of services will see a 20 per cent cut, he states. “If this request cannot be accommodated, we will be forced to take our business to another supplier.”
Natural Resources Minister Lisa Raitt said the federal budget, to be tabled Tuesday, will contain three new initiatives to help the forestry industry, totalling $1.15 billion in aid. The budget will contain a new community adjustment fund worth $1 billion to help rural areas adapt to the changing economic climate, more than $100 million to invest in the development of emerging technologies for the forest sector, including forest biomass utilization and the development of next-generation forest products, and $50 million to promote the forest sector abroad.
In other news, the Honourable Lynne Yelich, Minister of State for Western Economic Diversification, announced a Government of Canada investment of over $2.8 million toward the development and commercialization of world leading Canadian bio-energy technologies. The Nexterra direct-fired gasification system selected for this project is a platform technology that can be used in many industrial applications. (Refer to the Nov 28, 2008 issue of your Madison's Reporter for details on Nexterra. - Ed)
American building permit applications in December were at a seasonally adjusted annual rate of 549,000, 10.7 per cent below the November rate of 615,000, and 50.6 per cent below the December 2007 estimate of 1,111,000.
US Housing Down
An estimated 892,500 housing units were authorized by building permits in 2008, 36.2 per cent below the 2007 figure of 1,398,400. Single-family authorizations in December were at a rate of 363,000, 12.3 per cent below the November figure of 414,000. Authorizations of units in buildings with five units or more were at a rate of 170,000 in December.
An estimated 904,300 housing units were started in 2008, 33.3 per cent below the 2007 figure of 1,355,000. Privately-owned housing starts in December were at a seasonally adjusted annual rate of 550,000, 15.5 per cent below the revised November estimate of 651,000 and 45 per cent below the revised December 2007 rate of 1,000,000. Single-family housing starts in December were at a rate of 398,000, 13.5 per cent below the November figure of 460,000.
The December rate for units in buildings with five units or more was 145,000. These levels are to the lowest since record keeping began in 1958 -- a 50-year low.
British Columbia’s culverts and bridges have been assessed as extremely damaging to vital fish populations.
The Canadian forest products industry is welcoming a European Union bid to crack down on the illegal logging trade.
Environmental Impacts
Lauded as an opportunity for re-employment of laid-off forestry workers, a study by Forest Practices Board has found that stream crossings, including culverts and bridges, represent a vast and little-known threat to the survival of salmon and other fish.
The board investigated 1,100 road crossings of streams in 19 watersheds around B.C. and found that only 42 per cent are sufficiently well-designed to allow salmon, trout and other fish to swim above them. The report cites government estimates that there are 550,000 kilometres of resource roads on Crown forest land in B.C., with approximately 370,000 crossings including 76,000 culverts.
Participants in the study suggested that the government “could get a lot of people back to work” -- particularly laid-off forestry workers, by initiating a large-scale project to fix the problem.
Meanwhile, EU parliamentarians are meeting Wednesday in Brussels to discuss the Green Party’s bid to toughen a new law aimed at banning import of wood cut by rogue operators that typically operate in Africa, Asian countries like Indonesia and Burma, as well as eastern Europe and Russia.
Canadian firms would benefit from the levelling of the playing field, since illegally-cut lumber is cheaper and puts major Canadian firms at a disadvantage.
An estimated 19 per cent of lumber products shipped to Europe come from illegal sources, which contributes to climate change, biodiversity loss, and damage to the lives of indigenous populations, the EU said when the law was introduced in October.
Perhaps the most fascinating piece of information to come out of the Truck Loggers Convention this week was new uses for wood cellulose. Biomass fuel is a hot topic here at Madison’s, and will continue to be as developments come forward in this fast-moving field. Other, less known, uses include finishings, plastic-polymer blends, carbon-fibre tools and sports equipment, and others. The speaker, from FP Innovations, extended an open invitation for everyone to tour their research facility at UBC, which Madison’s intends to do in the very near future.
BioEconomy: Wood Cellulose
The 66th annual Truck Loggers Association Convention and Tradeshow this week in downtown Vancouver proved to be a very interesting source of information. The speakers covered a wide range of expertise and experience, together offering plenty of insight and suggestions for how to handle the current difficulties of the North American lumber industry. While the general mood of participants attending speeches regarding exciting future directions was tempered with the present gloomy reality, everyone was equally intrigued by the proposals.
One that immediately caught Madison’s interest was by FP Innovations, the world’s largest non-profit research institute, situated at the University of British Columbia in Vancouver.
“Save the Planet; Grow More Trees, Use More Wood”, was the mantra of the speaker, Jim Dangerfield of FERIC, which operates under the umbrella of FP Innovations. In a world rapidly becoming enlightened about the realities of climate change, expanding the use of wood for commercial, institutional and multi-family building makes perfect sense. Carbon is locked in for extended periods, much longer than with concrete or steel, and after the harvest new trees are planted which absorb much more carbon than their fully grown predecessors. At the institute’s UBC lab is a display of a ten-storey cross-laminated timber building in London, England. As the wood products industry launches a campaign to move into non-residential construction, this building is solid proof that wood framing is viable for six-storey construction. Or even more, if engineered wood is used.
Cellulose is the most common organic compound on Earth. Cellulose as a fuel source is being investigated, and even now put to use, around the world in variety of ways. In September 2008, the 6th annual Biobased Industry Outlook Conference at Iowa State University attracted over 700 participants to discuss current research, collaborate on issues facing advanced biobased products and explore climate change adaptation and mitigation innovations. Main topics included New Advances in Chemical and Biological Processing of Biomass, Performance of Biofuels and Biolubricants, and Pyrolysis Co-Products: Bio-oil and Bio-char. Its quite amazing that Pyrolysis, which only last May enjoyed a breakthrough making it an economically viable fuel source on a large scale, is already being studied for the potential value of its by-products.
The volume of research just by the attendees of this Conference is too much to mention here, but a few examples include; catalytic conversion of biological-based feedstocks, cellulosic biorefining technologies on a large industrial scale throughout the world, cooperative catalysis, carbonyl activation, biodiesel production and other biorenewable energy applications, thermochemical conversion of biomass and fast pyrolysis of biomass for bio-oil production from empty palm fruit bunches, and bio-oil production and upgrading, syngas production and upgrading, bio-oil and syngas fermentation. Full details of the Conference and its speakers are available at http://www. bioeconomyconference.org.
Here in Canada, Northern Ontario is growing an innovative bio-economy with leading technologies in a wide range of sectors as well. Aggregated sequestration projects in reclamation/agriculture, domestic forestry, and Clean Development Mechanism forestry include just a small portion of what is already being done in Northern Ontario. Back on the west coast, developments of uses of wood cellulose at the FERIC lab include nano-crystalline cellulose and carbon-fibre golf clubs and tennis rackets. When a 25 per cent ratio of nano-crystalline cellulose is combined with 75 per cent generic pulp, the resulting mixture can be used to make finishings for almost any surface. In addition, blending 1 oz. of nano-crystalline cellulose with 1 lb. of polymer creates a plastic with 3,500 times the strength of an unblended product. As a source of material for carbon-fibres, the potential for wood cellulose is enormous. Original carbon fibres made from oil are valued at $1 million per tonne, while those from generic pulp cost just $1,000 per tonne.
All this from something that two short years ago was termed ‘wood waste’ and disposed of as quickly as possible. In the same way that oil-producing countries used to burn off natural gas to get at the crude oil, because at that time demand for natural gas was too low to make processing and transport profitable, in that same way biomass is not ‘waste’. It is rather a viable and growing huge potential source of revenue.
The Premier of British Columbia, Gordon Campbell, chose this week’s annual Truck Logger’s Convention to announce major changes to forestry policy in the province, including a cut to coastal stumpage fees. Reflecting current market realities, effective Jan. 15, the average sawlog stumpage price on the Coast will be less than $5 per cubic metre – compared to a rate of $18.56 per cubic metre one year ago – a reduction of more than 70 per cent.
In addition programs were announced to expand domestic markets for wood by requiring all new public facilities to include BC wood in their construction whenever possible, establish selected areas of the land base where forestry has the priority both for harvesting and for growing new trees to secure forest jobs and investment, increase access of fibre supply by connecting tenure holders with customers, and tenure and pricing specifically for bioenergy, ensuring 100 per cent of a harvested tree can be utilized.
The US Coalition for Fair Lumber Imports, which had two delegates attending the Truck Loggers Convention, promptly declared they consider the cut to stumpage a direct violation of the current Softwood Lumber Agreement and would seriously look at launching a complaint upon returning to their offices.
Catalyst Paper Corporation has told the provincial government they won’t be paying what the government says they owe. Catalyst wants to pay only for the services it uses, estimated to be about $1.5 million in each of the four communities where it operates.
Catalyst Financial Trouble
The company wants to move to a consumption tax model as a pilot project and first step toward industrial property tax reform in the province. Catalyst was expected to pay the Municipality of North Cowichan $5 million in taxes this year. Powell River city council has not been unsympathetic to the company’s financial difficulties and, over the last 11 years, the municipality has reduced the percentage of total property taxes paid by major industry nearly 20 per cent -- from 62 per cent to 44 per cent. If Catalyst simply doesn’t pay its bill in July, the four municipalities have tax laws they can implement.
The company that’s asking for relief walked away from a re-investment in their future that would’ve been subsidized by the province. NDP MLA Scott Fraser spent a year and a half trying to broker a deal to partner Catalyst with Voith Paper, which makes machines responsible for one third of the world’s paper production. Fraser claims that the provincial government was onboard for $10 million to assist the project. Then in September, Catalyst said no, they weren’t going any further with the plan. Now Catalyst is asking the government for $52 million over five years to help pay their municipal taxes.
Campbell River City council says it respects Catalyst president Richard Garneau and understands that he wants to keep the company viable and return it to its former success, but the city can’t foot the bill.
The government of Newfoundland/Labrador’s bold move in December 2008 to gain control of timber licenses and hydro energy not being used by idled Abitibi- Bowater mills has prompted the company to seek legal assistance from the US State Department.
AbitibiBowater Claim
Formed out of the merger of Canada’s Abitibi Consolidated and America’s Bowater Corp, Abitibi- Bowater is headquartered in Montreal, but incorporated in Delaware. Abitibi- Bowater spokesman Jean-Philippe Cote said the company has raised concerns about the expropriation with the Canadian and US governments. AbitibiBowater is threatening legal action against the province, and says it could challenge the decision under the North American Free Trade Agreement.
But American officials are not saying much about the situation, noting it is a legal matter between the company and province. The US government first issued a statement expressing concern about the expropriation days before Christmas. Karl Duckworth, a Washingtonbased spokesman for the State Department, steered inquiries to U.S. embassy officials in Canada, who declined further comment.
“We are not going to elaborate on the statement,” Marcia Seitz-Ehler, a spokeswoman for the U.S. consulate in Halifax, wrote in an e-mail.
With early 2009 indications out of the United States that the economic downturn of the past year will continue, in fact will likely worsen for the first half of this year, the wood products industry must move away from old business models. A return to healthy levels of home building in America seems only further away now than it did in 3Q of 2008.
New markets, new customers and new products is the only answer for lumber and panel producers to survive to the end of 2009 and beyond.
A Whole New Ball Game
In financial terms, 2008 had a very messy end for banks, businesses and individuals alike. So many changes, of such magnitude, happened that it was difficult for even a seasoned analyst to keep up. In the end everyone agreed that clarity and understanding could come only in retrospect, possibly as soon as the beginning of 2009. Early indications are that economic recovery for Canada can be expected to start after the middle of 2009. The situation in the United States is more difficult to determine, but a recent spike in unemployment figures does not bode well for a quick economic rebound.
While other industries were caught by surprise toward the end of 2008, forestry in North America - and indeed globally - had already been suffering for two years. After enjoying an exaggerated housing boom in the US, Canadian lumber producers were hit hard by the requisite sharp decline that followed. Two years later, the most commonly quoted phrase of CEOs and Boards of Directors was still, “We just have to wait for US housing to come back.” That wait has been more prolonged than anyone expected, and signs of renewed home building seem even more elusive than they did in 3Q 2008. In fact, all indicators but a few point to a continued slowdown of home buying, which has almost a full year of inventory available, thus putting any rebound in home building that much further into the future.
As Canada’s primary wood products customer languishes in severely decreased demand, other markets and new products are rapidly emerging to take the place of US housing. Madison’s will continue to research these, and inform our readers on any developments. However a very close look at what is actually going on in the US housing market seems prudent at this point. The National Association of Realtors ‘Pending Home Sales Index’ showed a drop in pending sales of existing US homes to a seven-year low in November. Rising job losses and a deepening economic recession kept potential house buyers on the sidelines. Based on contracts signed in November, the Index dropped by 4 per cent from October to 82.3, which was 5.3 per cent lower than a year-ago and the lowest level since the series started in 2001. NAR said its housing affordability index, which looks at the relationship between home prices, mortgage interest rates and family income, was on track to match a record high set in 1972.
High end real estate markets were hit particularly hard by the stock market drop of 3Q 2008. Florida and Manhattan sales, for example, ground to a virtual halt. Corcoran Group, a real estate brokerage, reported that the number of closed sales declined by at least 30 per cent compared with 4Q 2007 as the Manhattan market all but stopped after the failure of Lehman Brothers in mid-September. A report by the Prudential Douglas Elliman brokerage found that resales of existing Manhattan apartments fell by 25 per cent, to 1,408 sales. The reports found that the number of transactions declined by 9 per cent from one year earlier.
More disturbing, however, is what these experts predict for the first half of 2009. “The worst is yet to come; there is a blood bath coming,” said Matthew Haines, who prepared the Corcoran report. Gregory J. Heym, an economist who prepared reports for Halstead and Brown Harris Stevens, said that unless the economy strengthens, the weakening job market in New York City could further dampen enthusiasm for real estate. He said the city had lost about 18,000 jobs in the 12 months that ended in November 2008, while city economists are now predicting a loss of 170,000 over the next year or two. “Each time they update the forecast, it gets worse,” Heym said.
Unemployment figures across the US are showing similar increases. The US labour department reported January 1, 2009 that people continuing to draw unemployment benefits increased by a larger-than-expected 140,000, to 4.5 million for the week ended December 20, 2008. A year ago, the number of people continuing to draw jobless benefits was 2.7 million. The unemployment rate in November jumped to 6.7 per cent, a 15-year high, as employers eliminated a staggering 533,000 jobs in that month alone. Since the recession began in December of 2007, the economy has lost nearly two million jobs. As more people lose their jobs, or fear the possibility of unemployment, the real estate market will remain in a slowdown.
These factors together put new home building even further down the road than was expected in the middle of 2008. Massive investments in infrastructure building, both in Canada and the US, do point to an increase in demand for lumber products needed to make concrete forms, and for other industrial uses. China, in addition, has announced a similar stimulus package. Building formats that can be either concrete, steel or engineered wood will naturally veer towards lumber as competing products are currently higher priced. Beetle kill, in particular, has a distinct advantage in being the most inexpensive product for utility grade and structural applications.
In all, 2009 will be a year of change. The fundamental shift in the business of lumber production and sales which started in 2008 will really see the light of day this year. The industry can either lament the inevitable force of progress, or embrace it and be the first on the block to break into a new market or start selling a new product.
Western Forest Products has decided to keep its three Nanaimo-area operations closed indefinitely, meaning another 720 sawmill workers and loggers are out of work. The company announced indefinite curtailments to its Alberni timberlands operations Tuesday. WFP had already closed its manufacturing plants for an extended Christmas shutdown putting 1,230 woodworkers and loggers out of work for as long as a month.
Neither WFP sawmill in Port Alberni will be affected, for now. “The mills are maintaining,” compay spokesman Gary Ley said. Besides the WFP contractors working out of the Alberni Valley, other logging outfits in the Queen Charlottes and on the Mainland will be shut down. Ley says about 400 workers will be affected. The company is also laying off employees at three of their manufacturing facilities including the Nanaimo sawmill, the Duke Point mill and the Mid Island Reman. The total number of layoffs there will be around 320.
Just before WFP posted a $25 million loss in 3Q 2008, President and Chief Executive Officer Reynold Hert resigned his position. Those losses were on top of the loss of $36 million in the first six months of that year. The company then attempted to raise $50 million by offering additional shares to existing shareholders. $50 million in operating capital was raised for the company, but David Lewis, executive director of the Truck Loggers Association, said they only realized $35 million after they repaid the $15 million in bridging capital they borrowed to tide them over. “How long can the company run on $35 million?” Lewis asks, “They might have two quarters left.”
Meanwhile WFP and an association of private land owners have won their BC Supreme Court challenge of bylaws that would have restricted the development potential of their land on southern Vancouver Island.
The head of AV Group, which operates the AV Nackawic pulp and the AV Cell in Atholville, NB, is leaving to take a new job overseas. Company operations are still strong, said the executive in explaining that his departure shouldn’t affect either operation.
The mill’s original owner decided to close the operation in 2004, so the introduction of the AV Group, a member of the Aditya Birla Group of India, into the small central New Brunswick village of Nackawic in early 2005 offered a degree of stability. The company and provincial government invested millions in the mill so that it now produces dissolving pulp, the main raw material used to make rayon.
Outgoing president and chief executive officer Peter Vinall expects the mills will be temporarily shut down once or twice during the next year and a half, but said both mills should do well once the economy recovers. Unionized workers in Nackawick are hoping there won’t be any disruptions. Loretta Kent, a spokesperson at the Canadian Auto Workers who works at AV Nackawic, said the empty CEO’s chair doesn’t have plant workers worried. The union official said a number of senior staff at the two mills will take over Vinall’s responsibilities in the interim.
Meanwhile, a Norwegian company has confirmed it is buying all of UPM’s assets in New Brunswick, including its shuttered paper mill in Miramichi and a sawmill near Bathurst. Umoe Solar Inc. has interests in bioethanol and solar energy. The Miramichi site will not operate as a paper mill.
Housing starts and permits released Friday by the Canadian Mortgage and Housing Corporation show little change in December 2008 from the previous month, falling by only 0.4 per cent.
The seasonally adjusted annual rate of urban starts decreased 0.5 per cent to 150,100 units in December. Urban multiple-family dwelling starts rose 3.2 per cent to 87,400 units, while urban single-family dwelling starts fell 5 per cent to 62,700 units in December.
The country’s home construction industry had slowed sharply in the previous month, with the seasonally adjusted rate of starts dropping almost 22 per cent month-over-month. With the December results, CMHC chief economist Bob Dugan said work began on an estimated 212,366 homes in 2008, topping the 200,000 unit mark for a seventh consecutive year.
Pent-up housing demand which built up over the 1990s meant Canadian housing starts exceeded long run demographic demand for the majority of the decade, he said. Starts increased in Ontario urban areas from 55,500 in November to 60,300 in December.
British Columbia also reported a small increase from 18,100 to 19,900 in urban areas. Quebec, Atlantic Canada and the Prairies all posted month-over-month declines.
