In bad markets, rumours spread like disease. Here are two hot ones right now:
• Russia’s graduated log export tax will lead to a surge in domestic wood products manufacturing (lumber and panel), bringing new levels of competition to global markets.
• Canadian sawmills and panel plants are not taking their share of downtime in the current market, especially in BC, to the detriment of mills in the US and the Maritimes.
I hate to douse a good rumour, but here are some reasons why I don’t think either one of these notions holds water. If you disagree, and you’re neither lobbyist nor trade lawyer, I’d be glad to hear from you.
Myth 1: Russia as Threat
It’s always been there, poised to strike. Only now the Russian Bear looms ever larger, as the rest of the world guesses the ramifications of the country’s graduated log export tax, which rises to a whopping 80% by Jan.1, 2009. The tax is designed to boost domestic log processing, so many feel this will dump more lumber and panel products on the European, and even US markets.
“The bad news is that growing exports of manufactured products by new, low-cost Russian mills are expected to increase competition in the wood products markets of Europe, Japan, the Middle East, and eventually North America,” is how Gerry Van Leeuwen wraps up his excellent, first-hand report on Russia’s wood products industry in the October issue of Wood Markets.
Actually, Van Leeuwen is almost sedated compared to the “Russian wall of wood” predictions heard elsewhere. Maybe such concerns are valid. But even leaving aside China’s ability to channel basic Russian wood products into its economy to replace the logs it now imports, these concerns take a static view of Russian society. Consider the US, an economy that produces far more wood products than even Canada, and yet is hardly an export threat. That’s because the US consumer needs it all, along with just about everything we can make as well in normal times.
It’s unlikely Russian consumers will be so rapacious in the near future. Yet given its population and wealth of resources, we can expect Russia’s ability to consume wood products to rise in step with its ability to produce them. Certainly many of the Finnish sawmillers I have spoken with hope so.
Myth 2: Poor US, or Poor Us
Reading the October issue of the normally excellent US publication Timber Processing, I noticed my longtime colleague and editor Rich Donnell once again blaming Canadian sawmills for his readers’ woes. In his editorial section, he ran a southern sawmiller’s letter stating that US sawmills are taking downtime at twice the rate of Canadian mills, so the latter must be cheating the new SLA. Even some folks in eastern Canada, who have either 5% or no duty to pay, are crying foul about those mega mills in BC.
For Rich’s part, he’s understandably playing to the home crowd, but this time he and his guest writer have the facts wrong. First, unlike mills to the south, Canadian mills produce for markets other than the US, like the booming Canadian housing sector. With that diversification, there is no reason our production should fall as fast or hard as lumber production in the US.
Yet it has. The Western Wood Products Association released numbers in early November showing US production across the country as of Aug. 31 down some 12%. North of the border, Stats Can released numbers in late October showing 2007 production to the end of August down some 10%. Not only are these comparable pain levels, they are likely inflated as well. In the November issue of Wood Markets, the very reliable Russ Taylor has both countries taking less downtime than this. Extracting data from his forecast tables, Canadian production dropped just 8% total from 2006 to 2007, while the US only 7.5%. Both whopping hits for commodity markets to be sure, but a far cry from 12%. Also a far cry from the downtime needed to shore up pricing.
But back to the original myth. I know the US education system has a few challenges, and it has been a while since I did percentages and ratios in school myself, but two times 8% is not 7.5%. Maybe it’s the exchange or metric percentages that have our US colleagues confused.
In fact, broken into regions, the most suffering by far has been in Quebec, where downtime has been at least double that of the US, and not the reverse. Production in Quebec YTD in August is 20% lower than 2006, itself already down by a large chunk over 2005. It has dropped a staggering 29% since 2004 even by Taylor’s more conservative stats. Moreover, Stats Can numbers show the rate of downtime increasing in many other provinces, especially Ontario, NS and, yes, BC, with August drops much sharper than those in previous months. Nationally, production in August ’07 was over 12% lower than August ’06.
Part of the reason for the outcry from the Maritimes likely has to do with the loonie finally forcing accelerated downtime even in this duty-exempt region. For instance, Nova Scotia, which started off the year taking relatively little downtime, saw its production plummet over 17% in August, while shipments fell by 22%. While its YTD drop of 11.7% was little different than BC’s almost 10% drop, that accelerating, sinking feeling has some in the region looking for someone or something to blame.
Yet anyone following downtime reports, on our website www.canadianwoodproducts.ca or elsewhere, will realize that even the BC Interior and its megamills are now accelerating their shutdowns. Business 101 says the low-cost or higher margin producer will go down last, so it’s no surprise it took longer to reach some of these low unit-cost, multi-shift mills. Another factor is the outrageous scarcity of labour in western Canada as a whole.
You think long and hard about laying anyone off in BC, Alberta or Saskatchewan these days. And there’s the beetle salvage. Yet the market is winning out at last, and shifts are dropping like lumber demand across BC. In early December 07, the USDA Forest Laboratory’s downtime watcher Henry Spelter predicted that of the one billion bdft in downtime expected for that month, over 65% was to come from shutdowns in Canada.
Feel better now? Then you’ll be happy to know we’ll all have to feel even more pain to get prices back in shape. If misery loves company, we’re in for a love-fest.
On a sad and much more serious note, you’ll notice an obituary for Ed Komori below. Ed was an innovative and very passionate sawmiller, quick with a laugh or smile, and always ready to help machinery suppliers, and magazine editors, make their products better. He will be missed.
Scott Jamieson, Editor
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