B.C. forest companies reach across the Pacific

Sector seeks to tap Asian market potential

The forest industry is cultivating the growing Asian market for B.C. wood products | Ralf Gosch/Shutterstock

Despite the housing boom in the United States in the last few years driving exports of B.C. wood products below the 49th parallel, Asia remains a crucial market for a local industry constantly seeking to diversify its global market presence.

That’s the view of several industry officials who have highlighted continued potential in expanding large existing markets like China and Japan, as well as new regions that may develop an appetite for B.C. lumber, such as South Korea, Southeast Asia and India.

“We’ve spent a ton of our time and energy looking at diversifying our market,” said Susan Yurkovich, president and CEO of the BC Council of Forest Industries (COFI). “I was in the industry in the 1990s, and we probably spent about 85% of our production efforts at the company I was working at to the United States. Now, that’s down to about 50%, with about 30% going offshore and 20% staying in Canada. It’s highly difficult to be dependent on one market.… We will continue to be a major supplier to the U.S. market, but diversification is important given the trying circumstances of dealing with the U.S. government of late.”

The latest COFI statistics put 53% of B.C. wood product exports going to the United States, followed by China at 24% and Japan at 9%. The growth in the market in China – traditionally a country that’s not used to wood as a building material – has been especially fast, with export volumes and value increasing 20-fold since 2003.

Even with the Chinese government transitioning the country’s economy to that of a slower-growth, higher-sustainability model, Yurkovich said the market of almost 1.4 billion people has to remain B.C. lumber’s primary focus offshore.

That’s why, she noted, industry groups like COFI have partnered with federal and provincial governments under the “Canada wood” banner in hitting trade shows, establishing links with Chinese government officials and launching demonstration projects to cultivate the market for wood products.

“Even with its slowing pace, its economy is growing at 5% a year – and that’s on top of a base population that’s so large,” Yurkovich said. “One of our CEOs said that China is the next China, just because there are so many opportunities….  The country has a burgeoning middle class, and we see a big opportunity in resorts there as domestic leisure travel begins to pick up. And as they begin to look at mid-rise building construction, China is really starting to adapt to building with wood, which has taken a long time because they don’t have a culture of building with wood. We are starting to see that take hold.”

Yurkovich added that environmental concerns in China have further driven demand for wood construction, since the material not only is sustainable, but it also captures and stores carbon.

But while China continues to be viewed as the largest potential market for the forest products industry, the value-added sector – makers of cabinets, millwork, timber frame and engineered wood products – continues to face challenges from the country’s lack of single-family homes and low appetite for residential wood houses, as well as the market’s preference for cheaper lumber (often sourced from nearby Russia).

Officials from BC Wood, which represents the sector, said the organization is looking more at traditionally strong markets for B.C.’s value-added products, such as Japan, to drive growth, since the market there is more mature and less sensitive to price changes, given Japanese consumers’ taste for more expensive, higher-end materials in a complete package for their wood homes.

“Japan, outside of the United States, is the only market that takes a full product line, and they’ve done so for more than 20 years,” said BC Wood’s Asia Pacific region director, Jim Ivanoff, who is based in Tokyo. “I think that’s a big misconception with Japan. Obviously, the overall population is shrinking, so big overall growth is not going to happen. But within that, how much market share do we have, and how much potential do we have of taking more market share, that’s the question.”

While construction of wood-frame housing has been growing steadily for 40 years, Japan has “fewer and fewer carpenters, so the importance of two-by-four housing is becoming more and more apparent.”

In contrast with the Chinese market, Japan builds more than 500,000 wood homes every year, 120,000 of which are framed with two-by-fours. Given the strong cultural connection to wooden homes, Japanese consumers continue to demand additional products like cabinets, floors, mouldings and the like, and B.C.’s two-by-four exports now make up 12% of the Japanese market for these types of projects, Ivanoff said.

The challenge there, he noted, isn’t cheaper wood from Russia. It is rather the Japanese government’s increasing subsidization of local, domestic value-added industries. Ivanoff said officials are keeping an eye on the situation, although the market remains very strong for B.C. products.

Another promising market, he said, is South Korea, which has a consumer base that is increasingly capable of paying for the full line of B.C. products, just like the Japanese market.

“Yes, it’s a much smaller market – about 20,000 homes a year – but that has gone from 0 to 20,000 in under 20 years, and it’s a segment that’s strong and growing because of a change in lifestyle,” Ivanoff said. “People can afford it, and there are now more people who don’t have to live in downtown Seoul and can live a little further out, and they prefer a wooden house whereas before that wasn’t really an option.”

Officials from COFI and BC Wood both added that there are ongoing efforts to develop the markets in places like Southeast Asia and India, but that process will take time. In the meantime, Yurkovich said, it is crucial for the B.C. and federal governments to support the industry, since competition from lower-cost global players like Russia and more sophisticated producers like the United States and Europe is only getting stronger.

“Industry couldn’t [pursue the Chinese market] without government support, because things like building codes require government-to-government intervention, and industry brings commercial relationships and the know-how,” she said. “What’s critical for us as an industry is to remain competitive.... We have been a huge contributor to B.C.’s GDP for generations ... but we have to keep the industry healthy.”