British Columbia’s lumber sales to China are booming beyond the most optimistic expectations, eclipsing those to the United States for the first time.
In May, a record month, B.C.’s producers sold $120-million of softwood lumber to mainland China, triple the level of a year earlier and, more significantly, edging out the $119-million in sales to the United States.
It’s an extraordinary development, given that the United States has always been the biggest customer for the province’s sprawling forests of spruce, pine and fir. The higher Chinese sales, though, are not likely to last as America’s depressed new housing market eventually recovers.
But the May numbers - and the general trend - are significant, particularly for struggling mills and workers in the B.C. Interior but also as the contentious Softwood Lumber Agreement with the U.S. expires in 2013. Canada previously had little leverage in negotiations with the U.S., with the Americans able to slap on duties costing Canadian foresters billions of dollars. But now, with a second big customer, Canada could have significantly more clout in softwood talks as it becomes more difficult for the U.S. to extract duties by accusing Canada of “dumping” excess lumber.
Sales to China - according to figures from a BC Stats - have reached $446-million this year, up 178 per cent from a year ago. The U.S. has taken $661-million of B.C. wood this year.
The pace of sales growth to China, unexpectedly, has accelerated through 2011. And the $120-million of sales in May easily tops the previous record of $101-million set last December, typically the best month of the year.
Prices paid are also important. China - which still uses wood mostly for low-value uses such as concrete forming - spent $163 per cubic metre for B.C. lumber in May. The U.S. paid $142. The higher price in China reflects competition in a country that is short of wood, just as it is short of oil, coal and other commodities.
Industry leaders, while happy to have a second outlet for their product, warn that sales growth tends to occur in spurts. Ric Slaco, vice-president and chief forester at International Forest Products Ltd., said current sales in July have slowly markedly. He said attractive prices and ample demand earlier this year - reflected in the May results - led to “a window of opportunity and people rushed in.”
“The news out of China is prices are off and demand is off,” Mr. Slaco said. “Too much supply went into the system. It’s filled the bucket, in terms of demand.”
Leading exporter Canfor Corp. - which led the push to China a decade ago - said the summer months are normally slower, noting that workers in cities head back to rural family farms to help harvest crops. Viciously hot and humid temperatures that hit cities on the coast also slow business in general.
“We’re off to a strong year,” said Christine Kennedy, a Canfor spokeswoman. “And, typically, the back half of the year is the strongest.”
She cited the latest housing data from China’s National Bureau of Statistics, which showed housing sales jump by almost a third in June from May, despite government efforts to quell what many observers believe is a bubble.
A burst housing bubble in China is a risk for the world in general and particularly for B.C. foresters, who have come to depend significantly on China as the U.S. remains extremely weak. B.C.’s last great overseas market, Japan, eventually withered as an export market as that country’s housing bubble popped. B.C. sales to Japan remain at a fifth of their peak.
For China, B.C. Minister of Forests Steve Thomson credits the province’s work, in conjunction with industry, to stoke sales of lumber in a country that prefers steel and concrete in construction.
“We’re building on the momentum and foundation we’ve established in China,” Mr. Thomson said.
Analyst Daryl Swetlishoff of Raymond James said the strength in China supports his “super cycle” thesis. He believes still-weak lumber prices are set for a bigger boom than ever seen before, similar to oil, when a strong China combines with a recovered U.S. housing market.
“We still need the U.S. market - China and Japan alone are not sufficient - but look out,” Mr. Swetlishoff said. “This emerging new market is not only real and sustainable but growing by leaps and bounds.”