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The Land of Opportunity

This may not seem like news to those of us who have ridden a forest industry upswing before. This is, after all, a market that tends to get away from us in a hurry, forcing a mad scramble for fibre, talent, new production technology, railcars, and supplier resources. Yes, we’ve seen that before.

But not like this. This time a set of global circumstances will conspire to choke the supply side of the equation, creating massive opportunity, and massive challenges for regions with access to a more elastic fibre supply.

Fibre as gold
Those supply constraints start in what has been the lumber heartland of Canada for decades – the B.C. Interior. We’ve all heard of the leaked report detailing how quickly, and dramatically, fibre supply will taper off in the Interior in the coming few years. That will not surprise anyone who has flown into Prince George in the past decade. What’s left also seems to be increasingly problematic and dangerous to process in conventional mills.

International Wood Markets Group just released its own analysis of the coming B.C. Interior lumber sector. It predicts that a sharp decline in AAC from 60 to 40 million m3 over the next 15 to 20 years will cause a sharp decline in lumber production, starting as early as 2014. In fact, much of this capacity has already been lost, as mills shut in the current downturn will not re-open. Other regions in B.C. will have the opportunity to increase production somewhat, market and fibre cost depending, but the overall lumber volume from B.C. will continue to fall (see a full report on this in our next issue).

This will be a key factor in determining how the lumber markets react when demand starts to rebound as early as next year. Yet, at the recent Canadian Woodlands Forum Spring Meeting held in Moncton in late March, industry analyst Peter Woodbridge cited a whole slew of additional factors that will make the coming “super cycle” unique. These include:

• China: Woodbridge does not share the concerns of some analysts who feel the housing boom in China will be short-lived. The coming starts will dwarf anything happening in the U.S. or Europe, he feels, creating a massive demand for lumber and building systems. Much of B.C.’s production will continue to go to China, creating a vacuum south of the border.
• Brazil: Timber production here has hit a plateau, as the land available for plantations is limited. Government policy is also heavily favouring the use of fibre for bioenergy, especially to fuel the country’s cement industry.
• U.S. housing: While still in the doldrums, Woodbridge expects it will regain the 1.5 million mark within the next few years. As this happens, there will be very little elasticity on the supply side.
• Labour constraints: Employment in forestry is a shadow of what it was in 2004. Many of the players have left the industry to pursue other opportunities, and like many of us (see the editorial in the last issue), Woodbridge expects few will choose to return when the cycle rises. That will mean a host of newbies to recruit, reduced production as the traditional father-son training cycle is broken, financing challenges, and reduced shifting. The combination of production rush and fresh faces will also create a safety nightmare, but that’s the subject of another editorial.

Add it up, and we are in for a unique recovery cycle, one in which suppliers that have answers to both the timber and labour issues will do very well. Woodbridge suggests a few other ways to position your operation for success. Building systems will be a key market opportunity as the U.S. housing sector also deals with its own skills shortages, so component suppliers will do well. MSR lumber will be in demand, as the B.C. Interior supplied close to 85% of those products in the past. This may be a niche for players in the north.

I would add that diversification outside the B.C. Central Interior would be wise for lumber manufacturers and suppliers alike (see Canfor’s recent investment in southeastern B.C. or the Vaagen Midway mill in southern B.C. as examples), and that any investments in fibre access, recovery and automation will be rewarded handsomely. But it would be a good idea to take care of your staffing, equipment and technology needs before the boom if you have the available cash. Otherwise, get in line.

Scott Jamieson, Editorial Director
sjamieson@annexweb.com