Forest2Mill E-Newsletter
September 2010
In This Issue
Housing Market Update
A Snap-Shot Comparison
Pacific Northwest Market Summary
BCAP Update
WoodWorks Offers Free Educational Events
Quick Links

Top 3 Stories from the August Issue
From Forest2Market's Economic Outlook 
New numbers suggest growth in the second quarter was sluggish. After two revisions, GDP for 2Q2010 is now being estimated at 1.9 percent.

Although output of the manufacturing and service sectors continues to grow, forward-looking metrics (especially for manufacturing) suggest a slowdown may be in the offing. Excess capacity and lack of credit will constrict opportunities for business expansion. As with consumer spending, foreclosures and high unemployment will prevent housing from contributing significantly to GDP for some time.

A second monthly slowdown in new factory orders is heightening concern that manufacturing (and perhaps the broader economy) is cooling. New orders for manufactured goods decreased $5.1 billion (1.2 percent) to $406.4 billion in June. Excluding transportation, new orders decreased 1.1 percent. Durable goods orders dropped by 1.2 percent (to $190.4 billion)--led by transportation equipment--while nondurable goods fell by 1.3 percent (to $216.1 billion).
House Sold
Despite historically low interest rates and home prices, home sales fell off the cliff in July, further hobbling a market that was already dangerously close to long-term lows.

The Mortgage Market
Mortgage interest rates remain at 50-year lows (Table 1). Despite this, individuals are still having trouble qualifying for loans, and these low rates are available only to the most qualified (credit scores in the high 700s or above). During August, several news organizations reported a number of horror stories about the new reasons people were being denied loans and extra obstacles that prospective buyers face.
Total Conifer Fiber Delivered Prices
Since 2006, Forest2Market (F2M) has collected delivered raw material prices from mill's accounting systems for the U.S. South in its FOB Delivered Pricing Benchmark Service. In 2008, F2M began operating this service for mills located in the U.S. Pacific Northwest, reporting prices for roundwood and chips delivered to sawmills, plymills, and pulp and paper mills. In February of 2009, upon gaining a significant market share, F2M began reporting a Total Conifer Fiber* benchmark for pulp and paper mills in the Pacific Northwest region. This analysis serves to compare delivered prices between the two regions by measuring competitiveness by raw material delivered price. Production, labor and other fixed and variable costs are not included.

On a total fiber basis, the Pacific Northwest has averaged roughly $92 per bone dry ton since early 2009. This is approximately $22, or 31 percent higher than the South's average of $70 per bone dry ton (Figure 1). From month-to-month, the difference can vary between the two regions due mostly to volatility in southern fiber pricing. Pacific Northwest fiber prices have traded consistently around a $5 range (between $90 and $95 per bone dry ton) while South prices have traded in a range of $13 (between $65 and $78 per bone dry ton). Much of this volatility can be explained by roundwood delivered prices.
Earlier this summer, world-wide pulp prices reached an all time high with NBSK prices up 30% over 2009. Northwest chip and fiber prices were flat, however, as supplies were adequate to meet production needs. This was one of the few times in recent history where raw material costs for the Northwest pulp and paper industry moved in the opposite direction of pulp and paper prices.

We are now seeing a reversal in this trend. Wood chip and pulpwood prices in the Pacific Northwest increased in July, a result of tight supplies of mill residual chips and limited pulpwood availability.
At the Florida Farm to Fuel Summit on August 12, William F. Hagy, III, Special Assistant-Director for Alternative Energy Policy at the U.S. Department of Agriculture told summit attendees that the final rule for the Biomass Crop Assistance Program would be released in three weeks. If Hagy is correct, we should expect some news this week.

Hagy did not specify whether the 60-day Congressional review of the rule was already underway, or whether that 60-day period would begin once the rule is released. We suspect it is the latter. If our suspicion is correct, the program could resume under the new rules in November. Hagy provided no details about the contents of the final rule.
WoodWorks, an initiative of the Wood Products Council that provides one-stop access to the widest possible range of information on the use of wood in non-residential structures, is presenting three free educational events in September, two one-day workshops on the use of wood in school construction in South Carolina and a webinar on the use of heavy timber in commercial construction.

1) The free workshops--Building Better Schools with Wood--will be held September 15 at Embassy Suites Hotel, Greenville Golf Resort & Conference Center at 670 Verdae Boulevard in Greenville, S.C. and September 16 at the Citadel Altman Center at 272 Fishburne Street in Charleston, S.C. The workshops will run from 8:30 am to 4:30 pm.
14045 Ballantyne Corporate Place, Suite 150
Charlotte, NC 28277-2845
 Phone: (704) 540-1440
Fax: (704) 540-6301