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Random Lengths Through A Knothole In Depth
This section is updated periodically. Last update: January 2, 2012
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In the Through A Knothole section of our full 12-page newsletter are articles of interest to the industry, including production/price trends, new products, trade issues, statistics, and much more. This section provides supplemental information to the stories covered in Through A Knothole.
Correction: Lumber Weekly Price Changes table Dec. 28 issue
Incorrect numbers were printed in the Lumber Weekly Price Changes table for Random Lengths, page 3, for the December 28 issue.
We apologize for any inconvenience this may have caused. You can download the completely revised and corrected Random Lengths Lumber Price Guide page 3 pdf file, which includes the corrected Lumber Weekly Price Changes table, here:
Comment: Rosy housing forecasts do market a disservice
(The following is an article that appeared in the September 17, 2011 issue of Random Lengths.)
More and more wood products traders are taking housing forecasts with a grain of salt — for good reason.
After several downward revisions, forecasts for the current year look to be on target — and they should since we’re now three-quarters of the way through it. But many outlooks for next year and beyond once again look far too rosy, as if the forecasters are oblivious to the many problems still confronting the U.S. housing market.
How is it, given all the headwinds blowing against the market, that we go from sub-600,000 starts this year to 750,000 next year, and to 900,000-plus in 2013?
In fairness, many of these more forward-looking forecasts are based on best-case scenarios, and the economists presenting them, if pinned down, would readily admit that there are downside risks.
Downside risks? Let us count as space allows:
There are an estimated 1-2 million empty distressed homes on the market. Then, there’s the so-called “shadow inventory,” which adds another 4-7 million units, depending on what one counts as part of it. Until these inventories are drawn down and home prices stabilize, hyper-cautious mortgage lending will continue and builders will keep new single-family construction reined in at historically low levels.
As the banks try to clear their backlog of foreclosures, they remain hampered by the robo-signing legal mess. While this was of their own doing, the intent was expediency, not fraud. Now, federal regulators are suing lenders over the huge losses stemming from the subprime meltdown, generating additional uncertainty and potentially billions more in bank liabilities.
Let’s assume there are 1 million Americans with good-paying jobs, good credit, and a burning desire to buy a new home. They have record-low mortgage rates on their side, but lenders aren’t bent on underwriting right now for the above reasons and many more.
Some of these potential buyers would have to sell their current home first. Assuming they’re not among the one-quarter of homeowners who are “stuck” because they owe more than their home is worth, they still need a qualified buyer.
This buyer, assuming he or she is among the 1 million in good financial standing, and doesn’t need to sell a home, might very well need 20% of the purchase price for a down payment. This eliminates most first-time buyers.
For those who are left, there are still plenty of other uncertainties to contend with. Will home prices continue to fall? Is their job really that secure? Will the mortgage interest deduction be reduced or scrapped?
For all the above reasons, rosy forecasts for housing gains in 2012 and beyond do a disservice, as they tend to let lawmakers and regulators off the hook. Best-case forecasts suggesting that recovery is just around the corner provide cover that allows bad policies to continue, damaging proposals to move forward, or politicians to do nothing on the false premise that the market is healing itself.
Quarterly Price Patterns graph correction
(Random Lengths, issue of April 15, 2011, Page 3)
(The following is a correction to the Quarterly Price Patterns graph, which was published in the April 15, 2011, issue of Random Lengths.)
The Quarterly Price Patterns graph was not properly updated in the April 15, 2011, issue. The revised graph with the correct data is available in pdf format, to view or download on this page:
Correction: Lumber Weekly Price Changes table Sept. 5 issue
Incorrect numbers were printed in the Lumber Weekly Price Changes table for Random Lengths, page 5, for the September 5 issue. The "This Week" and "Chg 3 Weeks" change columns were incorrect. The 8/22 column for two weeks prior, and 8/29 column for previous week, were correct.
We apologize for any inconvenience this may have caused. You can download the completely revised and corrected Random Lengths Lumber Price Guide page 5 pdf file, which includes the corrected Lumber Weekly Price Changes table, here:
2006 Yearbook Correction
(The following article is supplementary to an article published in the February 16, 2007, issue of Random Lengths.)
In the 2006 Yearbook, the 5-year graph on page 301, International Section, Hemlock Clears, 2-1/2x6&wdr, is incorrect. It is a duplicate of the graph that appears on the following page 302 for Western Red Cedar, 4x6&wdr #2, #2 Clear&Btr. The prices that appear in the table are correct; only the graphic under the heading "Five-Year Trends" is incorrect.
We apologize for any inconvenience this may have caused. You can download the completely revised and corrected 2006 Yearbook page 301 pdf file here:
Print the corrected PDF on your printer, and cut or fold on the line to insert the corrected page into your copy of the Yearbook.
Wood Products Industry Financial Results
Hot markets, consolidation boosted sales and earnings in 2004
Quarter ending December 31, 2004
(The following article is supplementary to an article published in the February 25, 2005, issue of Random Lengths.)
One of the most robust lumber markets in history, as well as a record year in structural panel prices, helped many publicly held U.S. and Canadian companies post record earnings in 2004. But the good times for many are a stark contrast to a few Canadian companies, which posted heavy losses.
With the final fourth-quarter results from most of the companies now available, it’s clear that companies with a strong solid-wood focus continued to fare best. “2004 was a record by virtually every measurement,” noted Barrie Shineton, president and CEO of OSB-producing giant Norbord, headquartered in Toronto. Louisiana-Pacific, North America’s largest OSB producer, also reported record earnings.
Yet for Eastern Canadian giants Domtar, Abitibi-Consolidated, and Tembec, stagnating pulp and paper markets, duties on lumber shipments to the U.S., strength in the Canadian dollar, and increases in costs of raw material and freight took a heavy toll. “These are trying times for companies with a large manufacturing base in Canada whose products are sold in U.S. dollars,” noted Domtar CEO Raymond Royer.
Consolidation was a big story in 2004. Canfor’s integration of the former Slocan mills into its operations helped the company post record net income. West Fraser, which acquired Weldwood from International Paper, reported sharply higher sales and earnings in 2004. Acquisitions during the year also placed major publicly held companies in private hands. Among these were Riverside, acquired by Tolko Industries, and Boise Cascade, which is destined to re-emerge as a publicly traded company.
(The following article is supplementary to an article published in the December 17, 2004, issue of Random Lengths.)
Here is the latest information available to Random Lengths regarding questions that have surfaced since the new 21.2% duty rate was announced December 14 by the Department of Commerce.
When will the U.S. refund money owed to those who shipped wood from Canada to the U.S. from May 2002 through March 2003?
No specific date is set because the money collected from the duties will remain in the U.S. Treasury until the NAFTA appeals process is exhausted.
Is the Byrd Amendment still in place?
Yes. The World Trade Organization ruled that the Byrd Amendment did not conform to international trade law, but the U.S. has not repealed it. Under the amendment, money collected from the lumber duties can be distributed to U.S. companies who supported the filing of the duty petition by the Coalition for Fair Lumber Imports. A very small portion of the duty funds have been distributed to U.S. companies, according to the Southeastern Lumber Manufacturers Association. A distribution of $5.4 million came from money collected from Canadian companies who did not appeal the original Commerce ruling. The amount of money collected from the duties, which were implemented in May 2002, totals more than $3.5 billion.
Can Commerce's final administrative review be appealed?
Yes. Any party involved in the duty case can appeal the results of the review, but the new 21.2% duty rate will remain in effect, pending the outcome of any appeal. Canada has not officially appealed the review to NAFTA, but is widely expected to do so.
How does the NAFTA injury case affect this whole duty process?
It has a huge impact on the case. The U.S. lost the injury case before a NAFTA panel, and has now asked for an Extraordinary Challenge Committee to overturn the NAFTA ruling. If the U.S. loses the injury case before the ECC, it cannot legally collect either the countervailing or anti-dumping duties. A decision from the ECC is scheduled for March 9, 2005, but the panel of three former judges has not yet been selected. Each country will have one panelist seated, and whether the third is from Canada or the U.S. will be determined by the luck of the draw. The decision from the ECC is final and cannot be appealed.
Because the anti-dumping duty of West Fraser and Canfor came out below 2%, are they excluded from that portion of the duties?
No. In the preliminary review, if a company's anti-dumping duty dropped below 2% they were declared "de minimis" and excused from paying that duty. However, in the final review, a company's rate has to drop below 0.5% before they are excused from the AD duty. Canfor's new AD duty is 1.8% and West Fraser's is 0.9%. The individual rates of other Canadian companies investigated are: Abitibi 3.1%, Buchanan 4.8%, Tembec 10.6%, Tolko 3.9%, and Weyerhaeuser 8.7%. The weighted average of those investigated was 4.0%, which is the new "all other" AD rate that will be charged to companies that were not investigated individually.
Are the Maritimes provinces included in the countervailing duty order?
No. Because most of the timber in the Maritimes is privately owned, producers in those provinces do not have to pay the 17.2% countervailing duty on shipments to the U.S. It should be noted that while each of the provinces included in the CVD were investigated in the case, the 17.2% duty is applied equally countrywide, excluding the Maritimes.
MOU signed in 1986 lasted five years
As officials from the U.S. and Canada work to settle their long-standing lumber trade dispute, a number of industry sources predict that something similar to the 1986 Memorandum of Understanding may result.
That agreement was signed only minutes before the Department of Commerce was scheduled to give its final ruling in a countervailing duty case. Canada agreed to impose a 15% export tax on softwood lum-ber shipments to the U.S., and the Coalition for Fair Lumber Imports agreed to withdraw its CVD peti-tion. Bonds and deposits collected by U.S. Customs under the preliminary CVD were returned to the im-porters of record.
Under that earlier agreement, Canada could choose to reduce or eliminate the export tax by increasing stumpage fees or other charges. The tax was later rescinded in British Columbia due to increased stumpage rates, and was reduced in Quebec.
The MOU lasted until 1991 when Canada terminated the agreement, which led to the filing of the third CVD case by U.S. interests.
Countervailing Duty Summary
(The following is supplemental to an article that appeared in the February 9, 2001, issue of Random Lengths.)
Prior to the signing of the Softwood Lumber Agreement in 1996, three countervailing duty cases were filed by U.S. interests relating to Canada's shipments of softwood lumber into the U.S. Here's how those cases were resolved:
October 1982 -- The Coalition for Fair Canadian Lumber Imports, formed in July 1982 and now the Coalition for Fair Lumber Imports (CFLI), files a petition with the Department of Commerce seeking countervailing duties on lumber entering the U.S. from Canada.
March 1983 -- The International Trade Administration (ITA) issues a preliminary ruling that Canada does not significantly subsidize its industry.
May 1983 -- The ITA's final decision confirms its preliminary ruling that Canada's exports to the U.S. aren't unfairly subsidized, and that Canadian lumber can continue to enter the U.S. duty free.
May 1986 -- The CFLI files a CVD case seeking a 27% duty on Canadian softwood lumber imports.
June 1986 -- The International Trade Commission (ITC) rules that the U.S. industry has been injured by Canadian imports.
October 1986 -- The ITA makes a preliminary ruling that Canada is subsidizing its industry and places a 15% interim duty on Canadian imports. A final decision is expected December 30.
December 1986 -- An agreement is reached just minutes before the ITA's final ruling is scheduled. A Memorandum of Understanding (MOU) is signed December 30 calling for Canada to impose a 15% tax on lumber exports to the U.S. The U.S. cancels its 15% duty and returns all bonds and deposits collected. The CFLI withdraws its CVD petition.
May 1987 -- Canada's Parliament approves the 15% tax, and legislation is signed into law. The tax is retroactive to January 8.
December 1987 -- The tax on exports from British Columbia is rescinded after the province proposes to raise stumpage fees.
April 1988 -- The U.S. and Quebec agree to lower to 8% the tax on lumber exports from that province. Ontario opts to maintain a 15% tax while keeping stumpage unchanged.
November 1990 -- The export tax from Quebec is lowered to 6.2%.
October 1991 -- Canada terminates the MOU, and the U.S. immediately imposes provisional duties. The duty on Quebec lumber is set at 6.2%, while 15% duties are placed on lumber from Ontario, Alberta, Manitoba, and Saskatchewan. Lumber from British Columbia is exempt since higher stumpage fees were imposed as a result of the MOU. The U.S. files a CVD case.
December 1991 -- The ITC finds there is evidence that the U.S. industry has been injured by Canadian imports.
March 1992 -- The ITA's preliminary ruling says Canada subsidizes its softwood lumber industry, and a provisional duty of 14.48% is placed on Canadian lumber entering the U.S. from all provinces except the Maritimes.
May 1992 -- ITA rules 14.48% provisional duty should be 6.51%.
June 1992 -- ITC votes 4-2 to make provisional 6.51% duty permanent. Canada appeals ruling to five-member bi-national panel.
May 1993 -- Bi-national panel rules ITA did not provide sufficient evidence to justify finding that Canada subsidized its softwood lumber industry.
July 1993 -- Second bi-national panel finds that ITC's finding that U.S. industry is injured by Canadian imports was unsupported by the evidence ... and otherwise not in accordance with law.
October 1993 -- ITC reaffirms earlier finding that U.S. industry is injured by Canadian imports.
January 1994 -- Commerce Department announces that, in accordance with bi-national panel's instructions, it has determined that Canada's stumpage and log export policies are not countervailable.
February 1994 -- U.S. Trade Representative's office appeals bi-national panel's ruling to Extraordinary Challenge Committee (ECC).
August 1994 -- ECC rejects appeal by U.S. in countervailing duty case. ECC's decision is binding and cannot be appealed.
December 1994 -- U.S. says it will return all deposits collected, plus interest, from provisional duty.
Housing report widely used, little understood
(The following is an updated version of an article that originally appeared in the August 21, 1992, issue of Random Lengths.)
Wood products traders have a love-hate relationship with the Census Bureau's monthly U.S. housing starts report. At times, the numbers are cited as confirmation of a market trend; at others, they're ignored.
Traders sometimes use them as a sales tool, but they don't hesitate to charge that the government is fudging the numbers if starts contradict their view of the market.
A Census Bureau source says there are stringent safeguards against outside influence or early release of the numbers. He says access to their offices is restricted, the data are kept under lock and key, and the FBI maintains a list of people who have access to the numbers. Census also turns away people who insist they need the numbers early.
This much-discussed and little-understood report is issued on the 12th working day of each month by the Manufacturing and Construction Division of the U.S. Census Bureau. It defines housing starts as occurring when excavation begins for the footing or foundation of a residential structure, or when rebuilding begins on an existing foundation, such as might occur after a natural disaster.
About 19,000 local jurisdictions issue building permits in the U.S. Nearly half fill out and return monthly reports to the Census Bureau, which are expanded into a national building permits total. Meanwhile, field employees of the Census Bureau are contacting a sample of owners and builders to find out how many permits are turning into starts. The resulting ratio of starts to permits is used to compute a monthly housing starts total.
The seasonally adjusted annual rate (SAAR) is one of the most quoted and least understood housing start statistics. Adjustment factors in the SAAR remove the impact of normal seasonal factors, such as weather, that cause predictable month-to-month fluctuations in the number of starts.
For example, if the number of housing starts normally rises by 20% between April and May, a starts gain of exactly 20% would result in no change in the SAAR. A gain in actual starts of more than 20% would raise the SAAR, and a gain of less than 20% would push it down.
The starts figures reported each month are revised in each of the following two months as the available information is expanded and refined. Census tries to keep the revisions of its preliminary reports to 1% or less, and to have a roughly equal number of upward and downward revisions.
Because the starts figures are based on a sample, some sampling error is unavoidable. The Census Bureau acknowledges this by computing a relative standard error (RSE) for each set of numbers it reports. For example, the RSE for the monthly seasonally adjusted annual rate of starts is 3%. RSEs range as high as 15-20% on some multifamily segments of the report.
Still, many users treat the preliminary SAAR as if it were a dead-accurate number. A source with Census said, I cringe when I see the media trying to analyze a 0.4% change in housing starts.
Outside training available for traders
(This list is supplemental to article appearing in Random Lengths, Friday, April 7, 2000)
The following associations offer training programs for wood products traders:
Northeastern Retail Lumber Association
585 North Greenbush Road
Rensselaer, NY, 12144
Phone: (518) 286-1010
Web site: www.nrla.org
Virginia Tech Center For Forest Products Marketing and Management
1650 Ramble Road, mail code 0503
Blacksburg, Va. 24061
Phone: (540) 231-9759
Fax: (540) 231-8868
Web site: vtwood.forprod.vt.edu
Western Red Cedar Lumber Association
555 Burrard St., Suite 1200
Vancouver, B.C., V7X1S7
Phone: (604) 684-0266
Fax: (604) 687-4930
The Society of Wood Science and Technology
Web site: www1.fpl.fs.fed.us/swst
Universities that offer degrees specifically in wood products marketing:
Virginia Tech (address above)
Pennsylvania State University
213 Furguson Building
University Park, PA 16802
Phone: (814) 865-4237
Fax: (814) 865-3725
Oregon State University
119 Richardson Hall; College of Forestry
Corvallis, Ore., 97331-5751
Phone: (541) 737-4257
Fax: (541) 737-3385
West Virginia University
P.O. Box 6125
Morgantown, WV 26506-6125
Phone: (304) 293-2941
Fax: (304) 293-2441