By: Business Vancouver
Some time in the new year, the new federal Liberal government will begin consulting Canadians on the Trans-Pacific Partnership (TPP) – a 12-nation trade agreement that is supported by the B.C. forest industry.
It will also have to try to fill the vacuum that the expiration of the softwood lumber agreement has left – a vacuum that exposes Canadian lumber producers to potential anti-dumping duties in the U.S.
In the meantime, production and exports of B.C. lumber are expected to pick up slightly in 2016, despite a drop in demand for wood in China.
After the American housing market began crashing around 2009, China emerged as a life-saving new market for low-value lumber, used in construction. B.C. happened to have an abundance of it, thanks to a mountain pine beetle infestation that killed roughly half of the province’s harvestable timber.
But that surplus of pine beetle kill has largely been used up and China’s economic slowdown is now reducing demand.
Russ Taylor, president of International Wood Markets Group Inc., has been to China about 25 times in the last 15 years. He recently returned from there, where he said he has never seen such a poor outlook.
“It’s the first time I’ve come away and everybody we talked to was negative, not just for the three to six months period, but for all of next year,” he said. “It won’t be improving next year, is what we are hearing.”
Housing starts in China are down about 14%, Taylor said, which means B.C. will have to try to find other markets for its lower-grade wood.
“We are looking at continuing the work of diversifying our markets,” said Susan Yurkovich, CEO of the Council of Forest Industries. “TPP is helpful in that regard, and we’re looking at continuing to diversify into other markets – Asia, China, Korea, Japan, also a little bit of work [is] underway exploring the market in India.”
Fortunately, B.C.’s biggest market – the U.S. – is growing again, after nearly a decade of stagnation.
The U.S. housing market is expected to grow from one million new housing starts in 2015 to 1.1 million in 2016.
Most lumber-producing countries like Canada and Sweden are able to undercut American producers because their currencies are lower compared with the U.S. greenback. So despite a growing demand for lumber in the U.S., prices are lower than they might be.
Canadian mills are able to continuing running while some American mills have had to curtail production, Taylor said.
In the past, a strengthening U.S. housing market would mean a boom for Canadian sawmills. But Canadian mills in both B.C. and Quebec won’t be cashing in as they have in the past because they no longer have the volumes of harvestable timber they once had.
The annual allowable cuts in both B.C. and Quebec have shrunk, though for different reasons. A shrinking supply of timber is expected to result in an era of lower lumber production and higher prices.
“The U.S. housing market is still growing,” Taylor said. “In fact it’s going to be growing for the next five years. The question we keep asking is, ‘Where will the U.S. be getting its lumber?’ Because it’s not going to be from Canada.
“We’re forecasting lower exports to China and more exports to the U.S. market because of the fact we don’t have that low-value wood.”
It has been suggested that the expiration of the softwood lumber agreement should not be as big a threat to the Canadian forest industry as it has been in the past because Canadian producers no longer have the capacity to flood the U.S. market with cheap wood.
“We don’t have the supply,” Taylor said, “but I’m not sure the Americans believe us.”
With a relatively low Canadian dollar, Canadian mills will have an advantage when selling lumber to the U.S., and the fear is that that could prompt protectionist actions from the U.S.
Yurkovich said her industry hopes the new Liberal government will be able to negotiate an agreement with the U.S. to prevent that from happening.
“We are hopeful that we can find a new agreement with the U.S.,” she said, “but if we don’t, we would also prepare for the litigation that might follow.”