Softwood comes lumbering back

Thanks to China, Canada's long-suffering forest industry is starting to recover.

The U.S. housing collapse saw to it that the forest industry missed out on recent price spikes affecting other commodities. But that is about to change, according to some analysts’ reports. Vancouver-based consulting firm International Wood Markets is predicting standard-dimension lumber will soar from a low of US$180 per thousand board feet in 2009 to $500-plus by 2013 or 2014, the result of a housing recovery in the U.S. coupled with rising demand in China and supply constraints brought on by the mountain pine beetle infestation in British Columbia. What’s more, it could spell an end to the decades-old softwood lumber dispute with the U.S.

Canada’s sleeping giant of a forest industry is already showing signs of awakening, especially for B.C. operators with their foot in the door of the Chinese market. While exports to the U.S. recovered somewhat to nine billion board feet in 2010 (from a low of 7.5 billion a year earlier), exports to China jumped 75% to a projected 2.8 billion board feet worth $660 million.

That’s just a hint of how big a market China could become, B.C. Forests Minister Pat Bell enthused at a speech following a trip to China last fall. There were about 600,000 housing starts in the U.S. last year; China is building 10 times that many over the next three years under its affordable housing initiative alone, he noted.

The challenge to date has been Chinese builders’ tradition of all-concrete construction, which relegated wood to lesser uses such as scaffolding and remanufacturing for furniture. Canadian industry and governments finally started getting some traction in their 25-year effort to woo China’s builders after the Sichuan earthquake of 2008, when they positioned wood as seismically safer and more energy efficient than concrete. Demonstration projects followed. The Greenland Group, China’s No. 2 housing developer, recently committed to using more wood-frame building.

On this side of the Pacific, mills that had been shut down, such as Canfor’s in Quesnel, have been refitted and restarted specifically to serve the Chinese market. Tolko Industries last year signed an agreement with China National Building Materials that is keeping two of its mills running flat out. Not only is the Chinese market growing, Canada has increased its share, edging out Russia as the largest supplier of lumber imports last year. Should wood construction continue to proliferate, the Chinese market could easily grow bigger than the Canadian industry’s capacity to supply, a development that Bell says will obviate the chronic softwood lumber dispute with the U.S. by diverting any surplus to Canada’s export quotas — and then some — offshore.

The U.S. launched a new challenge under the 2006 Softwood Lumber Agreement in January, just days before winning two arbitration rulings affecting mills in Quebec and Ontario. It accuses B.C. of undercharging stumpage fees on beetle-killed timber. But that phenomenon, too, will pinch supplies in the coming years as salvage logging operations wind down, according to Wood Markets’ 2011 outlook.

“In three years, this [softwood lumber dispute] is all going to be irrelevant,” Bell said in his November speech. And investors might start thinking about trees the way they think about copper.