Lumber exports look solid – COFI 2014
Forest products manufacturers in BC can look forward to several years of solid growth and good pricing according to the opening session at this year’s Council of Forest Industries (COFI) annual conference.
April 2, 2014 By Scott Jamieson
Held April 2-3 in Kelowna, the conference opened with the traditional market overview. Patricia Mohr, the well known VP economics and commodity market specialist at Scotiabank Group, and Glen Hodgson, senior VP and chief economist at the Conference Board of Canada outlined the global and BC economic outlooks for the over 400 industry delegates in attendance.
Mohr noted that the forest sector’s share of the bank’s established Canadian commodity price index has fallen in recent years owing to the recent deep recession. When the index weighting was re-jigged in 2012, forestry represented just 15 per cent of the index, with energy now responsible for a whopping 40 per cent. She expects forestry’s share to rise in the coming years.
“With the recovery now well underway in forestry, I hope we’ll see that share rise again the next time we look at the weighting.” She had other good news to share.
For starters, she feels that fears over a slowing of the Chinese economy are largely unfounded. A close observer of this rapidly-growing economic powerhouse, Mohr agrees that recent GDP growth rates of 9 per cent per annum are likely to moderate. Yet this is the result of deliberate policy changes in China, where new leaders are moving away from a “growth at all costs” mentality to a more modest, but still impressive target of 7 per cent.
“Growth in 2014 will be slower than 2012 and 2013, which saw growth rates of 7.7 per cent. Still, we expect growth to be a very solid 7 per cent.” She also predicts that the US economy will grow nicely, making for a solid one-two punch in the BC forest sector’s two main markets.
Hodgson agrees with Mohr’s assessment of modest growth in the US economy and significant growth in US housing starts. Both economists shared forecasts of around 1.1 million starts in 2014 followed by rapid growth to 1.5 million starts in 2015. While both see the trend favouring more multi-family unit starts at the expense of single-family starts, they add that remodeling and refurbishing of the nation’s aging housing stock will also be an attractive market for lumber and panel products.
Yet this will pale in comparison to what Mohr sees coming in China’s housing market. Recently-released insights into the government’s priorities show plans to increase urbanization in China from the current 54 per cent to 60 per cent by 2020. To illustrate that torrid pace, Mohr notes that this means moving 100 million people – yes 100 million – into urban centres this year alone.
“That obviously points to construction on a massive level. I think there is an opportunity here that hopefully the BC forest sector can continue to tap into.” Indeed, she notes that BC lumber exports to China were up six per cent in 2013.
The economists also agreed on where the Canadian dollar is likely to trade in coming months. Both see it sitting in the 88 to 90 cent range over the coming 18 months, which also augers well for wood exporters. Add to that expectations of Western SPF 2×4 averages in the $390 range this year and hitting $400 in 2015, and prospects look good for the industry in the coming few years. Hodgson suggests the industry use those good times to invest in production efficiency, automation and innovation.
“We see wages rising in the coming few years at a rate above inflation, so it’d be wise to look hard at productivity to counter that as much as possible. Also, Canadian industry in general has been a laggard when it comes to investing and innovating. We are seeing some positive signs in the forest sector, as companies move to innovative products and non-traditional technologies. We’ll need to see more of that for the industry to secure a long-term future and growth.”
Hodgson sees significant growth in the BC forest sector this year and next, after which it will taper off and plateau in the following years.
Print this page