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‘Canfor College’ in Shanghai, which the company established to train young people from rural cities to be carpenters. (Canfor)
‘Canfor College’ in Shanghai, which the company established to train young people from rural cities to be carpenters. (Canfor)

Cover story: lumber

For mill towns, China beckons Add to ...









Pine trunks rumble down conveyors and sawdust clouds the air. The noise inside the sawmill nearly deafens, but in this remote town of 3,500 people, some 700 kilometres north of Vancouver, there are few sounds as welcome as the buzz and clatter of a mill back at work.

People in Mackenzie have worked in sawmills since the town was carved out of the wilderness back in 1966. For decades, most of the lumber they produced headed straight to the United States - until the U.S. housing bubble burst in 2007 and demand collapsed. One after the other, the local mills closed. Mackenzie itself appeared to be on a conveyor belt to extinction.

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But salvation has emerged from a faraway source. As a result of growing demand from across the Pacific, Canfor Corp. reopened its Mackenzie mill last year, part of a massive bet by British Columbia's forestry industry on the potential of the Chinese market.

The province's foresters are gambling that new demand generated by China's rapidly expanding economy can wrench towns like Mackenzie out of the worst slump in their history. "The volume China could consume is far beyond our capacity to supply," says Pat Bell, B.C.'s forests minister. "It would be enormous."

Annual exports of B.C. timber to mainland China tripled over the past two years, reaching more than $300-million in 2009 on a volume of 2.5 million cubic metres. In the first four months of this year, exports hit $132-million - 60 per cent higher than a year earlier and more than was sold during all of 2007.

Mr. Bell predicts that China could soon be buying 10 million cubic metres of B.C. lumber a year. A breakthrough of that size in China would radically reduce the province's dependence on the depressed U.S. market and give the forest industry a second cornerstone for future growth.

Success, though, is far from assured. To win in China, Canada's foresters must convince a nation of 1.3 billion people to begin using wood, rather than concrete and steel, for construction.

Canadians must try to accomplish that feat as concerns grow over China's housing bubble. After several years of rapidly rising prices and speculative building, the supply of apartments in many eastern Chinese cities appears to vastly exceed demand. According to a recent report from the Carnegie Endowment for International Peace, vacancy rates of more than 30 per cent are common.

As the Chinese government tries to deflate its real estate bubble, the pace of building is slowing. GaveKal Dragonomics, a Beijing research firm, predicts large declines in construction through the rest of this year. For Canadian wood producers, it's a cruel twist: Having been hit hard by the collapse of the U.S. housing bubble, they now face a similar problem in their new market.

But Canada's foresters are forging ahead. They know that the long-term potential of China is enormous. For Canadian forestry companies, China is not a quick profit grab. It is an attempt to ensure the viability of the industry - and places like Mackenzie - for a generation.

‘Canfor College’ in Shanghai, which the company established to train young people from rural cities to be carpenters.

A carpenter school

Don Kayne, Canfor's vice-president of wood sales and marketing, has been seeding the Chinese market for nearly a decade.

On his first visit to the country in 2001, B.C.'s wood exports to mainland China were worth just 0.4 per cent of the province's sales to the U.S., and China's potential as a lumber market was next to invisible. The country had burned through forests of its own wood to fuel steel factories during Mao Zedong's Great Leap Forward in the 1960s. A generation had grown up with no experience of wooden housing.

Mr. Kayne arrived in a China where carpenters were unknown, and where wood was viewed as a flimsy, flammable material fit only for peasants.

His most immediate problem was $70,000 of unsold lumber sitting in a warehouse in Beijing and a local agent who couldn't give it away. Mr. Kayne's bosses were growing skeptical. "I was getting heat, 'We can't keep going like this.' "

Then, through a mutual acquaintance, he met Mayco Lou, a Taiwan-born, North American-educated businessman who had started a small lumber importing business in Shanghai. "I told Mayco the situation and said, 'If you can sell this, I'll give you a shot at being our agent,' " Mr. Kayne says. "So he went away and a week later it was sold, gone."

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