First Cut: Building baskets
February 26, 2016 - When the U.S. housing market collapsed back in 2008, Canada’s forestry sector knew it needed to diversify its markets and find new homes for its wood products. Thanks to a rapidly growing Chinese economy with a voracious appetite for cheap lumber to feed its construction sector, B.C. was able to send a significant amount of its beetle-kill lumber overseas while it still retained significant value – a great way to kill two birds with one stone.
Fast forward to 2016 and China’s economy is still growing, just not at the double-digit pace anymore, so exports of Canadian lumber to that market have decreased. Add to that the U.S. housing market recovering slower than expected – recovery over the past two years has ranged between 10 and 15 per cent – and the dwindling supply of beetle-kill lumber in B.C., and Canada’s forestry sector has a problem that needs solving.
Some industry experts have stated that the answer to finding new homes for Canada’s lumber lies in climbing up the value chain in countries such as China and Japan, while breaking into markets like India, Malaysia and Vietnam.
In China, climbing up the country’s value chain will hopefully get a little easier now that it has acknowledged wood as a climate-friendly building material in its most recent five-year economic plan, according to recent news reports. (The world’s renewed interest in battling climate change should help open up a few new doors for the application of wood products in various types of building construction.)
In Japan, B.C.’s industry associations have been hard at work promoting the use of their engineered wood products in mid-rise commercial and residential buildings. Thanks to recent changes to building codes back home, Canada’s forestry sector can show off the use of engineered wood products in mid-rise construction in their own backyard to potential customers overseas, while growing the domestic side of Canada’s wood products industry.
Another potential helping hand for our wood products sector in Japan, as well as other Asian markets, is the Trans-Pacific Partnership (TPP). The trade agreement includes 12 Pacific Rim countries including Canada, Japan, Malaysia, Vietnam, Singapore, New Zealand, Australia, Brunei, Chile, Peru, Mexico and the U.S.
The TPP, if ratified by all countries, would eliminate and reduce tariffs in participating countries, allowing Canadian wood products to potentially become more competitive opening up new markets for our timber. The duties and tariffs imposed on Canadian wood products in some of these countries can range from five to 25 per cent. Removing or reducing these trade barriers should definitely increase Canada’s opportunities to expand into new Asian markets – of course, it will also expand the opportunities of the other participating TPP countries as well.
In the case of a massive potential market such as India, the main hurdle will be selling industry and governments on the use of wood products in construction. In our 2016 Industry Outlook report, Forest Products Association of Canada’s interim CEO Paul Lansbergen, explains that India doesn’t have a culture of building with wood, so convincing the country to build with it continues to be an ongoing work in progress. But with such a massive potential market, breaking into India’s construction sector is certainly a worthy long-term investment.
As the U.S. housing sector continues its slow recovery, one other barrier to timber entering the U.S. housing market in the short-term is the end to the Softwood Lumber Agreement, which expired this past October starting a ticking clock on the 12-month standing agreement that the U.S. government agreed to for not pursuing trade remedy action. It’s anyone’s guess right now where the two countries will stand on this contentious issue by the time October 2016 comes around.
As the old saying goes, never put all your eggs in one basket, and that’s exactly what our forestry sector is trying to avoid by creating new markets and opportunities for Canada’s wood products. And with good reason, nobody wants our sector to experience another 2008 scrambling.