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Is the ‘Super Cycle’ Coming?

For almost half a decade now, we have been hearing, “one more year,” referring to how much longer it will be before business improves for North America’s battered, bruised and bleeding forest industry.


November 7, 2011
By Bill Tice editor
Bill Tice For almost half a decade now

As anyone who reads this magazine can attest, it has been a rough road. There have been many mill closures, production curtailments, bankruptcies both in the mills and in the bush, and of course, employee layoffs. Many industry veterans say this is the worst downturn they have experienced in their careers. And that’s saying something when our industry typically goes in fairly short cycles of around seven or eight years and some of these guys have been through four or five cycles or more.

When lumber prices, markets and U.S. housing starts headed south a few years back, most industry insiders were confident that it would be a one-year setback, maybe two at most, according to the “glass is half empty” crowd. After all, we were on a high, with U.S. housing starts topping two million annually, a market in China that was just starting to show promise of big things to come, and a rise in timber supply in western Canada that was aimed at using up as much mountain pine beetle infested timber as possible while it still had value. We had it all – the raw materials, reasonable prices for our products, and market demand. So who could blame us for being optimistic about a quick comeback and recovery?

However, after the second year of struggling, the tune started to change as many both inside and outside of the industry came to the realization that our neighbours to the south were in much worse shape than we ever anticipated. U.S. foreclosures were rising at a rapid rate, the number of homeowners who owed more than their real estate investments were worth was hitting an all-time high, and unemployment numbers were blossoming. Even some of the banks in the U.S. were going under and money for mortgages and other investment opportunities was virtually non-existent.

An increase in demand from China was the only bright spot, and even then it was mainly B.C. producers that benefited from this rising star, and it wasn’t nearly enough to come close to offsetting the market losses in the United States, especially when U.S. housing starts hit rock bottom at less than 500,000 annually. We, as a Canadian industry, were for all intents and purposes, a one-country market, and that country was gone.

Despite all of the facts and figures, some still predicted 2009 would be the year for a return to normal conditions. It wasn’t. Then, many said 2010. Wrong again. With a huge amount of lumber coming out of the market due to mill closures and curtailments, we did experience an improvement in lumber prices in 2010 and some of the big producers started to report profits, but the improvements were supply driven, rather than market driven, making for a volatile situation. Now, the buzzword is “Super Cycle” and the “experts” predict it will hit between 2013 and 2015.

In early May, many top forest industry executives from all over the world converged on Vancouver for the Global Forest Products Leadership Summit 2011 (see page 34 for more on the event). Most were looking for the magic bullet and news on when things would improve. The consensus was that we are already on the mend, but the “Super Cycle” was what most wanted to hear about.

So why 2013 to 2015 as the time frame for the big improvement?

That’s when it is predicted that all of the stars will line up for the forest industry once again. The word is that an imbalance in supply and demand created by increased consumption in Asia and improvements in the North American and European markets will create much higher log and lumber prices, with some experts pegging lumber prices at $550 per thousand board feet.

Do we know if the experts are correct in predicting a “Super Cycle?” From the predictions of the past few years, I for one, would say, “no,” we don’t know if they are right. However, since we have a couple of years to see if we are at least heading in the right direction, let’s hold on to the idea of “next year” being just a little bit better than this year. Any improvement will be welcome while we wait for the good times to return.

 

Bill Tice, Editor
btice@annexweb.com