Industry News Markets
Made in China with Canadian Wood

Total Canadian softwood lumber exports increased by 7% last year to $3.8 billion. B.C. lumber going to China accounts for 32% of all B.C. softwood lumber exports; only the U.S. remains a larger market for Canadian lumber with a market share of 42%, accounting for almost $1.6 billion of exports. Japan is the third-largest market for B.C. lumber, having received $648 million worth in 2011, while exports of B.C. lumber going to South Korea rose by 30% in 2011, to $55.6 million.

Seattle-based research firm Wood Resources International recently reported that China is now the world’s largest importer of softwood lumber and logs, and the company predicts that these imports are likely to continue to trend upward over the long-term. International Wood Markets Group (IWMG) in Vancouver also foresees that China’s demand for wood products will increase in the future – at a predicted rate of 10% to 20% during the next five years.

A resort building located in China that utilizes Canadian wood products for many of its interior features.

“Despite all the economic problems in the western world, China’s GDP grew by about 10% per year in 2010 and 2011,” Gerry Van Leeuwen, IWMG’s vice-president says. In the February edition of its WOOD Markets publication, IWMG explains how the huge growth of government-financed, affordable houses in China from 2011 to 2015 will create strong housing market stimulus. “The Chinese government is expecting that 200 million Chinese will move from the country into urban cities during the next 10 years,” observes Van Leeuwen.

In China’s building construction sector, the number one market for structural lumber is resort buildings, notes Wayne Iversen, the program manager of emerging markets at Canada Wood branding initiative, and at the Council of Forest Industries (COFI), a non-profit organization of 67 companies that work to revitalize the B.C. forest industry.

“One of the most popular building types is the ‘clubhouse’, which can range in size between 10,000 and 30,000 sq. ft. and can be used for accommodation, restaurants or other types of recreational facilities,” Iversen says, adding that the remaining B.C. lumber is being used for concrete formwork, furniture making, and 1×2 furring strips for walls and ceilings; or for producing decorative elements, as the Chinese consumer really likes the look of exposed wood.

Fourth-Quarter Slowdown
There was a slowdown in the growth of China’s rate of lumber imports during the fourth quarter of 2011. “The housing situation in China has had some growing pains over the last few months,” COFI’s Iversen explains. “People who had a good income were buying properties as investments, but the government then created policies to try and reduce the amount of speculation, and it’s put a bit of a damper on construction. Real estate prices were increasing so much that homes were becoming unaffordable for many, and houses were staying up for sale.”

“During the slowdown, improved housing activity in the U.S., Japan and South Korea allowed Tolko Marketing and Sales Ltd. to reposition product which was not in demand in China,” says John Langley, general manager of Tolko’s export sales. “The central government’s efforts to rein in inflation have had a significant impact on construction activity. We expect this to limit growth in lumber demand in 2012, and that will be at least partially offset by government funding of an estimated seven million affordable housing units (apartments) to be constructed this year.”

In 2011, Tolko shipped approximately one-third of its lumber products to China. Langley says his company expects wood products consumption to grow in 2012, “but at a much slower, sustainable pace in line with GDP growth, than over the past three years.” Most others in the industry agree. “The number of shipments had been doubling in 2011, and they will still increase modestly this year,” COFI’s Iversen says.

According to Langley, Tolko projects that SPF lumber products will continue to be an established niche in the Chinese market. “From a quality and price perspective, we do not expect significant threats from competing wood products or other materials,” he notes. “From a supply perspective, we may be reaching the limit of our capacity to supply China while maintaining a balance with our other existing markets.”

Canadian Forest Products Ltd. (Canfor) is also optimistic about the future of the Chinese market. “As the Chinese uptake in wood-frame construction occurs, the potential for lumber demand is limitless,” Christine Kennedy, Canfor’s public affairs director, says. “As China grapples with housing its people affordably and sustainably, the role for wood products is simply immense,” Kennedy says, while noting that Canfor’s Chinese customer base has moved beyond government agencies to include major developers able to build with wood on a large scale.

A clubhouse and presentation centre in Shenzhen, China, featuring an SPF glulam and SPF 2×4 roof structure. Photo courtesy FPAC.

Even though there was an overall slowdown in Chinese lumber demand in the fourth quarter of 2011, Canfor’s offshore shipments during that period were 15% higher than during the same period of the previous year. And like Tolko, Canfor ships about one-third of its product to China. “The big opportunity in China is wood-frame construction, so Canfor has focused on working with these large developers to take the China market to the next level,” Kennedy explains.

West Fraser Timber is also developing relationships with Chinese building companies, working with company representatives as well as with Chinese officials on building codes aimed at increasing the general acceptance of wood-frame construction. “Wood-frame is most popular in high-priced villas and quite modest resort homes constructed primarily near large urban areas,” says Chris McIver, vice-president of West Fraser’s lumber sales. “We are moving from a demonstration stage to a more commercial relationship.” McIver adds that the “housing bubbles” within China appear to be isolated in the modern urban areas of Shanghai and Beijing. “Inflation is a concern, but again the Chinese government has been quick to address the issue,” he says, adding, “We cannot predict our sales into China for the next five years, but when one looks at GDP growth in the country and the continued emergence of a middle class – as a lumber producer, one has to feel the future is bright.”

Marketing Canadian Wood
Companies have been getting lots of governmental support to expand sales in China and in other emerging economies as well. Over the last 10 years, the federal government and the B.C. Forestry Innovation Investment (FII) agency have worked hard with industry members to promote the use of wood-frame construction in China.

“As a result, SPF dimensional lumber has been the primary product sold into the market, which is now seeing an increasing desire for higher-grade products,” says Isabelle Des Chênes, vice-president of marketing relations and communications at the Forest Products Association of Canada (FPAC). “Some great successes have been achieved with wood truss roofing, which was introduced by the Canada Wood Group (China) and FII in the form of demonstration projects.”

Des Chênes says this approach to re-roofing has tremendous potential for growth, given the vast number of six-storey walk-ups (apartment buildings) in need of renovations in cities such as Shanghai and Beijing, “We’re also seeing more interest in multi-family housing in the four-to six-storey range, including hybrid construction comprised of both cement and wood,” she says, adding that Canada is also enjoying strong Chinese demand for its pulp. “The global financial conditions have really forced the industry to find ways to transform itself and its business model, and moving towards new products and new markets is key to this transformation,” she says.

“Lumber companies have made a big move up the value chain,” Pat Bell, B.C. Minister of Jobs, Tourism and Innovation, says. “It used to be all economy and utility wood, but now Chinese builders are buying some 2&btr. grade and J-grade, and the prices continue to increase. In 2007, we were shipping $100 million of lumber into China, and now it’s just under $1.1 billion,” notes Bell. “In terms of jobs, that’s 4.6 billion board feet, which is 18 sawmills’ worth of production, creating employment for about 500 people directly in the mill or in logging, in addition to the indirect jobs.”

Canada continues to send delegations to China to facilitate ongoing trade relations. B.C.’s Minister Bell visited China in November 2011 with B.C. Premier Christy Clark; Steve Thomson, B.C. Minister of Forests, Lands and Natural Resource Operations; along with a large number of lumber company CEOs. Canada’s Prime Minister Stephen Harper also paid a separate visit to China in February of this year.

Since maintaining market diversification is important for long-term trade strategy, Canada is also aggressively looking beyond China. “We’re also starting to focus on India,” says Bell. “We’re doing lots of research to develop the potential there. There are numerous new initiatives coming that will be announced later this year.” B.C. lumber exports to India climbed 327% in 2011 over the previous year to $10.6 million, equalling approximately 35 million board feet.

“The forest industry is now Canada’s number one sector-exporter to both China and India,” Des Chênes concludes. “Productivity has been improved to the point where it is over 20% higher than the Canadian average and it is now a gold standard for environmental leadership and forest stewardship, integrating bioenergy and high-value-added bioproducts into the traditional lumber, pulp and paper product mix.” And that means that high-quality Canadian wood and wood products are expected to remain consistently in demand by the fast-growing and perpetually hungry Asian markets.

Treena Hein is a freelance journalist based in Pembroke, Ont. She researched and produced this article for Canadian Forest Industries.