Recently, I had an opportunity to participate in 4th Annual Conference “Mapping the Course”, organized by Western Forestry and Conservation Association and Wood Resources International in Vancouver in the State of Washington. The main idea, behind this cyclical conferences, was to discuss timberlands, wood industry, forest products, processing and fiber issues for 2017 in North America.
January 19, 2017: This year the 4th Annual Conference “Mapping the Course” took a place in Heathman Lodge in Vancouver, WA. The conference was organized in the cooperation between Western Forestry and Conservation Association and Wood Resources International. The main idea for this meeting was to receive in-depth analysis on forest products market challenges, opportunities, and threats for 2017 in the North American West Coast timberland region. Over 100 representatives of academia, forest and wood industry business, government and investors attended the conference.
What can wood industry expect in North America, in 2017?
Wood prices in western North America
After welcome words of Richard Zabel (Western Forestry and Conservation Association), Hakan Ekstrom and Tim Gammell from Wood Resources International (WRI) gave a presentation entitled “Outlook for Sawlog, Pulplog, and Wood Chip Prices in Western US and Western Canada”.
According to WRI, log exports from wester U.S. to China will increase in coming time, while exports to South Korea may decrease. Log exports to Japan will remain on stable level. The increase in log exports from western U.S. may lead to the higher log prices for key lumber producers in coming year.
READ MORE: Low prices for wood
It was projected that log imports to China will increase especially from New Zealand, while from Russia will decrease due to further problems with infrastructure. U.S. contribution to China’s log import will be at least on stable level, despite projected increase in harvest in U.S Pacific Northwest.
READ MORE: High log prices in New Zealand
Interestingly, it was said that 20 U.S. pellet plants exported 4.8 million tones of pellets oversea in 2016, and this number has grown significantly in recent years, and it is expected to grow further due to renewable energy policy of the European Union. In addition, three new pellet plants (450-600 Kt each) are expected to begin pellet production and shipping to Europe in 2017 in the U.S. Wood industry is becoming stronger in South East U.S. to satisfy growing EU demand.
On the other hand, 16 pellet plants in Canada exported 10% of their pellets to Asia, while 90% also were shipped to Europe (around 2.2. million tons, with expected modest growth in coming years).
Regarding Canada, presenters mentioned expected lower harvest levels in British Columbia and quite stable sawlog prices in 2017.
New U.S. Administration Impacts
Another interesting presentation was given by Charles Spiggle from Well Fargo Securities, who was presenting wood fiber supply chain outlook for 2017. Especially intiguing part was about the uncertainty related to new U.S. Administration. Mr Spiggle mentioned key contemplated changes to the fiscal environment that could have a dramatic impact on corporate finance policy, such as:
- lower corporate and individual tax rates (there is a plan to reduce corporate tax rate from 35% to 20% (House plan) or 15% (Trump plan), what may cause lost in federal revenue over 10 years of $2.4 trillion (House plan) or $ 5.9 trillion (Trump plan). The revenue offset under these two plans is still unspecified.
- benefits from keeping cash overseas may be eliminated or significantly reduced
- greater tax incentives on business investment
- elimination of carried interest tax benefit (Trump plan, where income may be taxed at ordinary income tax rates).
British Columbia vs. Bark Beetle
During the conference, there were two presentations about British Columbia and its timber supply outlook. First one, presented by Albert Nussbaum, Director of Forest Analysis and Inventory Branch under the Ministry of Forests, Lands and Natural Resource Operations, who provided information about the infestation of bark beetle and its effect on timber supply and annual allowable cuts in BC. In British Columbia, 22 million hectares of land are available for timber harvesting (out of 56 million hectares of forestland), and annually about 200 000 hectares are harvested.
Mr Nussbaum mentioned that worst year of infestation was 2004, where 140 million m3 were killed that year. Since then, annual kill declined rapidly, down to less than 1 million m3, and is projected to remain below 1 million in coming years. Since this biotic disaster, the Ministry started programs to control spread. The main message of the presentation was that harvest levels in British Columbia are expected to decrease significantly between 2021 and 2070, what may cause significant impacts on wood industry in Canada.
Second presentation was given by Walter Matosevic, Group General Manager at Canfor company – a producer of sustainable wood-building solutions, one of them is words’s tallest wood building (mentioned before at the blog).
READ MORE: Word’s tallest wood building has 53 metres
The impact of bark beetle in BC was so strong in 2004, that Canfor expet post mountain pine beatle (MPB) harvest levels similar to levels experienced during 2007-2008 financial crisis. Mr Matosevic mentioned a strong reduction in sawlog supply and resultant residue fibre supplies in coming years. There are forecasts that say that production in BC of lumber will peak this decade, and then start a slow steady decline. What was the major uncertainty for Canfor and BC? Mr Matosevic mentioned the Softwood Lumber Trade file with the U.S. as a major unknown at this point, what will create volatility and shifts in supply until clarity is attained.
Main image credit: Cover of the “Mapping the Course 2017” conference materials.