Blue Skies Coming
October is budget month around here, when I get hauled to the head shed in Ontario’s tobacco country (and you think our industry has problems) to talk next year’s numbers. No doubt the first question (again) will be “Do you expect the forestry market to turn this year?”
Last year’s answer was simple – “Sure it will turn – further south.” I take small comfort in being right. Now, 12 months later, what to tell the boss? Is 2009 the year we will see the worst market contraction since WWII start improving? For more than a few reasons, I’ll be saying yes. Here are just a few fearless predictions from the editorial offices of Canadian Forest Industries.
• Both new home sales and pricing are expected to finally bottom in the US as we reach the end of 2008 and into 2009. All that will be needed to re-start the housing sector at that point is a push. Enter the $7,500 credit for first-time buyers that must be used by July 1, 2009. We will all be surprised at how popular this credit will be, and at the rush to use it before the deadline. Think from a young buyer’s perspective. If you’re looking at a $220,000 house next May, do you hold out another few months hoping for an additional 5% drop in home values to perhaps save $11,000, or do you go for the sure $7,500? Most will go for the bird in the hand, not 1.5 in the bush.
• Once things get moving again in sales, the recovery in housing starts may also be faster than many predict. I know we have over 10 months of housing inventory on the shelf right now. But that’s 10 months at a snail’s sales pace of less than 900,000 total units per year. If we see a little rush next spring at a more normal pace of 1.5 million units, that
inventory will draw down soon enough. Once that starts, look out.
Home builders have of course been laying people off in droves over the past three years. You can bet it has been killing them, since they had fought tooth and nail to get them in the first place, and were always short skilled builders. When building picks up, few of these workers will be at home waiting for their old jobs back. There will be a capacity lag in the home building sector for years as the market picks up, creating a supply side shortage few are predicting. If builders can keep up, it will be by using pre-fab and engineered building solutions. Hopefully with Made in Canada stamped on the side.
• There will also be capacity issues on our side of the equation. There are a lot of mills down right now, many permanently. Yet even the temporary or indefinite closures will not launch back into production in a hurry. Not all of them. Leaving regional fibre restrictions aside, Canada’s economy does not have an excess of labour right now, and certainly not in some key regions that would otherwise be able to put out a lot of lumber or panels in a hurry, like BC, Alberta, northern Ontario, and Quebec. And who’s going to log it all? High demand for logs, limited supply of people to do it: You do the math.
The wood products supply side will not be as elastic as many assume, keeping supply limited and pricing solid through the recovery. Mills will automate, invest, and slowly re-start, but always behind the demand curve. It will be hard to choke this recovery with supply.
• Bioenergy and biomass will continue to grow in importance through 2009. It will not be the be-all and end-all of the forest products economy some hope, at least not for a few more years. It will help more than a few mills, loggers, and equipment suppliers balance the books next year, and it will keep fibre supplies tight in many areas. It’s yet another factor in making wood products, and loggers, more valuable. We believe this strongly enough to launch an entire magazine for the segment – Canadian Biomass. How’s that for a fearless prediction?
• Both energy costs and currency pressures will continue to ease for Canadian sawmillers, and loggers. We have all heard the heavy impact these had on our operations as they climbed to $145/barrel and $1.10 a loony respectively. The opposite is also true. A dollar under 90 cents and oil under $95 will be the norm for 2009. It’s possible we may finally see a quarterly report that does not blame either in 2009. Only possible.
• The mid-term market upswing many are now predicting – with global fibre shortages and US housing starts approaching a whopping two million units by 2012 – will become accepted wisdom by the end of 2009 as we start to see things come around. This will lead to renewed optimism, planning and investing by mills to be in a position to best serve this new market, more attention paid to the human resources side of the equation (soon to be our Achilles heel), and increased automation when we realize we’re too late for a recruiting drive.
• And now my most fearless prediction of all. Once this all starts, and certainly by mid 2010, all talk of diversifying markets or product mixes, and the need to merge efficient commodity production with customer-oriented flexibility will go out the window. All eyes, capital budgets, and available trucks and trains, will be pointed south at a market that needs every stick of wood it can get its hands on. It’ll be déjà vu all over again.
In case the boss is still reading, back to 2009. It’ll be a soft start, slow middle, and a stronger finish than most think. The credit fiasco remains a huge downside risk. It may well postpone, but not prevent all of the above. In the meantime, a writer’s gotta eat.
By the way, this issue includes the one and only subscription renewal form we will send out this year – we have to cut costs like everyone else. So if you want to continue receiving this magazine, as well as Canadian
Biomass, make sure to fill it in and fax it back today, or renew online at www.canadianforestindustries.ca.
Scott Jamieson, Editor