Last week’s extension of the softwood lumber agreement with the U.S. offers B.C. lumber producers a bit of certainty in an otherwise uncertain market.
But with home construction in the U.S. still depressed, and predictions being made that the U.S. may never again recover its pre-recession economic might, the B.C. forestry sector is focused more on Asia these days than the U.S.
B.C. lumber exports to China hit 4.25 billion board feet in 2011 – exceeding the government’s own targets – and in just a few years has surpassed Japan to become the second largest market for B.C. wood.
With traditional lumber markets in the doldrums, and the quality of B.C. wood being literally eaten away by pine beetles, the Chinese market – now worth $1 billion, according to the B.C. government – could not have come along at a better time.
“It came along at a critical juncture,” said Ric Slaco, vice-president and chief forester for International Forest Products Ltd. (Interfor). “Obviously the timing of it was very beneficial to the people in B.C.”
What is most remarkable about the Chinese lumber market is how fast it developed.
“It’s come from zero to 60 in eight years,” said Rick Jeffery, president and CEO of Coast Forest Products Association (CFPA).
“In fact, in May and June 2011, China surpassed the U.S. in terms of total value of lumber shipped,” Pat Bell, minister of jobs, tourism and innovation, told Business in Vancouver. “They actually paid more for the wood.”
In 2003, B.C. exported just $69 million worth of softwood products to China and Hong Kong, according the B.C. government. By 2010, those exports had grown to $687 million.
“It’s a big part of our business today,” said Hanif Karmally, CFO for Teal Jones Group, which has two mills in Surrey.
One quarter to one-third of the lumber his company ships now goes to China. China likewise accounts for up to a third of Interfor’s market, and it has gotten there in just four years.
“In the fall of 2006, when we signed the [softwood lumber] agreement, our market share in the U.S. was 34% of a market that was 51 billion feet of lumber,” John Allan, president and CEO of the Council of Forest Industries, told Business in Vancouver.
“Now, Canada’s market share [in the U.S.] is down around 26%, and the market is only about 32 billion feet of lumber. So we’ve got a lower percentage of a smaller market.”
Fortunately, by the time the American housing construction market went south, B.C. had already built a new market in China.
Ten years ago, during the last round in Canada’s intermittent softwood lumber war with the U.S., the B.C. government and lumber industry decided to diversify. The B.C. government invested a portion of stumpage fees in marketing B.C. wood products in China.
“We’ve been doing yeoman’s work to convince them to build with lumber for energy efficiency, seismic, carbon storage, as well as good performance and value for money,” Jeffery said.”
One of the benefits of doing business in China is how fast things can get done there, once the government makes a decision.
“In [China’s] last five-year plan, there is a requirement for a 30% increase in energy efficiency in their buildings,” Jeffery said. “China sees one of the ways to do that is to increase the amount of wood they use. The amount of wood used in housing has gone from less than 1% to 3%. If we can continue to move that number, 3% of 10 million housing starts is a big number.”
While B.C. and Ottawa were aggressively marketing B.C. wood, Russia put curbs on its raw log exports to China, which uses a lot of low-grade lumber for framing. (Japan, by contrast, buys premium lumber for post-and-beam construction.) Thanks to the pine beetle, B.C. just happens to have a surplus of low-grade wood to sell.
The 4.28 billion board feet that B.C. exported in 2011 was a 78% increase over 2010 and a 200% increase over 2009, according the B.C. government.
Even more important than the volume, however, is the value. While the U.S. still constitutes the largest volume of wood shipped, the value B.C. gets for its wood in Asia is higher, with 51% of the value of B.C. wood sales coming from Asia.
“So, not only does it mean we have 18 mills running that wouldn’t be running otherwise, but it also means that the other mills that are running are getting enough money because of the supply-demand curve to allow them to operate at a profitable position,” Bell said.
Bell believes B.C. can increase lumber exports to China to six million board feet in two years.
Given Bank of Canada governor Mark Carney’s predictions that the U.S. economy may never fully recover to pre-recession strength, Slaco said the B.C. forest industry can’t afford to stop developing new markets.
“We shouldn’t be resting on our laurels, saying it’s great that we have China. We should be looking for the next China.”
With significant economic and population growth, India is an obvious potential customer.
“They are a world force, as is China,” he said. •
