Growth in sales of B.C. spruce, pine and fir to China has almost completely stalled, as a slowing real estate market there has led to excess inventories of Canadian lumber.
According to Statistics Canada data compiled by BC Stats, October was the sixth-biggest sales month for B.C. foresters in China but, at $89-million, the figure was only 8 per cent higher than a year ago. While shipments remain near an all-time peak, growth may not re-emerge until spring.
Sales to mainland China started rocketing higher in mid-2010, after years of work by B.C. industry and government. The growth peaked in March, when sales nearly tripled from a year earlier.
The China market has helped propel B.C. foresters toward their best export year since 2007, but recent problems are now causing growth to fizzle.
The real estate market in China – which many critics have called a bubble – has slowed drastically, as tighter lending to combat inflation has squeezed builders and buyers. The broader economic situation could worsen if China's export machine meets weaker demand in places like Europe.
With building softening in China, excess wood supply has piled up on docks in China, a situation not expected to abate until the end of March, analyst Paul Quinn of RBC Dominion Securities said in a report this month. It was one reason Mr. Quinn cited in his call on stock of industry leader West Fraser Timber Co. Ltd., saying the shares were "fully valued." The stock is down 18 per cent this month.
The United States remains B.C.'s No. 1 customer for lumber, though its importance has lessened considerably this year, with two months – May and June – in which sales to China topped those to the U.S. for the first time.
In 2010, roughly 50 per cent of B.C. lumber exports were to the United States, and 20 per cent to China. The percentages are now about 40 and 30.
Sales in October to the United States were up 11 per cent to $137-million, in the same low range since the start of 2009. The reason is the still-moribund U.S. housing market – with plenty of supply, low prices and little new building. Standard & Poor's in late November predicted the housing depression will continue, which the agency concluded means more "tough times are ahead" for Canadian foresters.
Wood Markets International, a Vancouver industry consultant, predicted on Wednesday that U.S. lumber demand and prices would "rise slowly" in 2012, gain "momentum" in 2013, and that "price surges" would start in 2014, propelled by strong demand as the U.S. and China chase tight supply.
While growth in China has slowed, the China story for B.C. foresters remains attractive. The $89-million in October sales is greater than sales for all of 2006. Full-year 2011 sales are almost guaranteed to top $1-billion and will likely hit $1.1-billion, up about two-thirds from 2010.
China will be the third country to which B.C. has sold a $1-billion of lumber in a single year. Sales to Japan peaked at $2.5-billion in 1995 and, for the past three years, have been stuck at an annual low of about $600-million, after falling steadily from the peak.
The record to the U.S. was $5.08-billion in 2004, in the middle of that country's housing bubble.
The overall record was $7.75-billion in 1996, when both the U.S. and Japan economies were strong.
Total export sales for B.C. lumber in 2011 are on track to reach about $3.8-billion, up about 20 per cent from last year, and the highest since $4.77-billion in 2007.