Log Exports
Panacea, Poison or Painkiller?
David Lewis
January 31, 2013
Note:
Can also be found under the working title:
“Log Exports: Why you got out of bed today to listen to some former industry bozo”
“EDUCATION IS WHAT REMAINS
AFTER YOU HAVE FORGOTTEN
EVERYTHING THAT YOU LEARNED
AT SCHOOL”
- ALBERT EINSTEIN
Coastal Harvest Trend (1987 – Present)
Coastal AAC vs Harvest
35,000,000
30,000,000
25,000,000
Crown AAC
(coast)
m3
20,000,000
Crown
Harvest
(coast)
15,000,000
10,000,000
5,000,000
0
1985
1990
1995
2000
2005
2010
2015
Foregone/lost Jobs Due to Unharvested AAC
80,000
60,000
Lost Jobs
(Annually)
40,000
Lost Jobs
(Total)
20,000
-20,000
Full-Time Equivalents
20
11
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
0
Coastal AAC vs. Harvest (exports overlaid)
35
30
90 Million m3 of unharvested AAC between 1990 and 2012
Crown AAC (coast)
25
Crown Harvest
(coast)
BC SW Log Exports
Volume (m3)
Million m3
20
15
10
Log Exports: Cause or Reaction?
5
0
1985
1990
1995
2000
2005
2010
2015
Export process
Regional Harvesting
Economics
Mid-Coast – OG, Cedar leading stand, high costs (engineering, roads, harvesting, transport & stumpage)
AMV
$115/m3
>
DC
$20/m3
+
HC
$45/m3
TC
+ $12/m3
St+F
$30/m3
+
High value timber can overcome high costs
North Coast – OG, HB (80% pulp stand), low costs, except for transportation
AMV
$ 55/m3
≠
DC
$12/m3
HC
+ $30/m3
TC
+ $18/m3
+
St+F
$0.25/m3
Poor timber in an isolated location doomed to fail due to transport cost. (All costs minimized)
West Coast, Vancouver Island – OG, HB, avg. timber, avg. cost, avg. transport
AMV
$75/m3
≈
DC
$17/m3
HC
+ $40/m3
TC
+ $10/m3
+
St+F
$7/m3
The average OG stand borderline economic, extremely sensitive to market fluctuations. Requires high up front investment.
West Coast, Vancouver Island – 2G, HB, avg. timber, avg. cost, avg. transport
AMV
$65/m3 >
DC
$10/m3 +
HC
$25/m3 +
Cost pressures have forced a shift into 2G harvest
TC
$10/m3
+
St+F
$7/m3
The Economics of Producing Commodity Lumber
Commodity
Lumber Price
= Sawmilling
+ Delivered + Tariffs/taxes
Production Cost
Log Cost
Two Different Industries in BC
Interior $235/mfbm > $100/mfbm + $125/ mfbm (SPF ≈$30/m3)
Coast
$235/mfbm < $100/mfbm + $330/mfbm (HF ≈$78/m3)
(Note: 2009 Avg. Delivered Log Costs used – source PWC. )
(In 2009, Chinese buyers paying $380/mfbm for commodity grade coastal logs - more for logs than lumber.)
The Economics of Harvesting:
Stand
AMV
$/m3
> Development + Harvesting + Transportation + Stumpage/
Cost
Cost
Cost
Fees
Development
Costs
= Planning, Engineering, Road Building, Silviculture (obligation incurred)
Harvesting
Costs
= Falling/bucking, Yarding, Loading, Hauling, Sort/Scale
Transportation
Costs
= Delivery of logs from the sort to the point of sale
Stumpage/
Fees
= Government Rents, taxes, fees
Operability Equation for Domestic Commodity Log Sales
PLc > CM + CDT + CHT + CT + CS
WHAT CAN BE CONTROLLED OR INFLUENCED HERE?
PLc
CM
= Price of Commodity Lumber (price takers, little control @ commodity level)
= Cost to manufacture lumber (coast uncompetitive, antiquated mills, no investment in sight,
taxes – maybe but with public backlash, labour – probably not, land – values increasing)
CDT = Cost to develop timber (Roads/Regs getting more expensive, substitute 2G for OG, smaller
harvestable land base, lower vol/ha which lead to smaller harvest)
CHT = Cost to harvest timber (can substitute 2G for OG and seek to innovate to reduce costs,
however current logging rates unsustainable, fuel and labour rising, regulation increasing.)
CT
CS
= Cost to transport timber to mills (fewer mills, all lower mainland/mid island, again fuel/regs)
= Cost of stumpage/fees (gov’t has cut rates or rates have been blended to historic lows, little
room left to go down, SLA implications)
(Lesson: Constant cost side pressure when trying to compete in commodities. Cost factors will
determine harvest level. Dumbing ourselves down.)
Coastal AAC vs. Harvest (exports overlaid)
35
30
90 Million m3 of unharvested AAC between 1990 and 2012
Crown AAC (coast)
25
Crown Harvest
(coast)
BC SW Log Exports
Volume (m3)
Million m3
20
15
10
Log Exports: Cause or Reaction?
5
0
1985
1990
1995
2000
2005
2010
2015