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Montreal Wood talks about growth

Feb. 21, 2014, Montreal – The Montreal Wood Convention 2014 kicked off with a positive forecast for the wood products industry from Stefane Marion from the Banque Nationale du Canada. He said the industry's growth perspective is decent.

He pointed to the current volatility in China whose focus is on better allocation of capital within the domestic economy and putting more emphasis on maximizing profits. This is good news for Canada, according to Marion, though it is creating more volatility in the short term. But as long as inflation remains low, China can experiment in this manner and will continue to grow.

Marion predicts an acceleration of U.S. growth in the second half of 2014. Profitability has been restored and small and medium-sized enterprise jobs have recovered.

The job market that has been growing faster in part-time employment is shifting towards more full-time positions. This has led resale activity in the U.S. housing market to pick up and stopped the deflation of home prices.

"Multi-family homes will play a greater part of the new houses being built," said Marion, "it's the new normal because of the ageing population."

In Canada, we're not subject to the same volatility as U.S. housing because of our immigration policy. Net immigration is near a 50-year high and 55 per cent of immigrants are aged 20-44. This is what sets us apart from other countries and gives us a stable housing market since it is this age demographic that buys homes. Without immigration, however, there is no growth in this demographic in Canada.

Russell Taylor from Wood Markets spoke about the tightening timber supply. Recovering demand in the U.S., Europe and other markets and the new role of China could outpace the economic timber supply.

"Are we running out of wood?" Taylor asked. "Never, but sort of," he said. China needs more wood and Russia cannot deliver the wood they need anymore. In the B.C. Interior, they'll be harvesting 20 per cent less fibre. Taylor predicts a huge and growing fibre deficit in 2020.

"Gains in the East don't offset the drop in the West," said Taylor. "Timber supply issues limit lumber production and exports."

As demand for wood fibre comes back in the U.S., it will need to increase imports from Europe, though European wood costs are through the roof. Given the demand forecast Taylor predicts, the prices will rise and European wood will fill some of the demand.

The outlook is good for the Canadian stud market now that the housing market is recovering. Stud mills will be working at 100 per cent capacity by 2018 and the lack of supply will result in higher stud prices in the North American market.

"Europe has great, low cost mills but their big Achilles heel is high lumber prices," Taylor explained. "They're three times the price of B.C. Interior logs so European mills need high prices to access the U.S. market."

If U.S. housing starts continue to rise as forecast, demand will strain the entire supply chain, Taylor said. "Elements of the super-cycle are already in play and it is possible to keep going even stronger if demand continues to improve over the next two to five years while supply becomes more constrained."

Taylor said that we are in the super-cycle but the question remains how long is this super-cycle going to be and how high are the prices going to get?

On the second day of the conference, Greg Brooks, President of Building Supply Channels, spoke about the state of the North American building product distribution.

He spoke about the volatility in the U.S. "When we boom, we boom hard and when we crash, we crash hard," he said. "Canada is much more stable, more reasonable."

The good news is that Americans are starting to spend again and things are starting to move forward, Brooks told the attendees. "We're going to have a breakout year in the U.S. but we don't know when it will be."

Brooks told the crowd that because of the downturn, the U.S. is extremely underbuilt and will require a ramp up to meet the housing demand that has been unmet and is growing rapidly. "We have enough raw demand for either a fast increase or a sustained increase in housing starts."

Canada isn't the only country with a lack of skilled labour. Seven years into the current downturn, the U.S. has lost a generation of skilled labour that has moved on to other careers from the building supply industry and construction too. But companies that made it through the downturn are now investing in technology. This allows them to operate more efficiently and compete more effectively and the technology attracts young people as well.

Conference attendees were pleased to hear about growth in the U.S. markets but new opportunities in Canada caused a buzz as well. Christian Dagenais, a scientist who specializes in serviceability and fire performance, talked about opportunities in mid-rise wood construction. He said Canada does more multi-storey buildings than in the U.S. and shifting to more wood buildings would be great news for the industry.

Wood buildings can be less expensive and quicker to assemble. He gave an example of a cross-laminated timber building that was six storeys in height and took only 23 days to assemble. The structure can be left exposed, which speeds up construction and saves on the cost of materials as well.

"Now that 6-storey is a done deal, we're looking at more than 10 storeys," said Dagenais. "We're looking forward to our first high-rise wood building."

February 21, 2014  By  Amie Silverwood