With its chief trading partner awash in uncertainty, will Canada's softwood lumber industry double down on China and other further-flung markets? It's complicated.
As U.S. President Donald Trump's protectionist bent shifts from rhetoric to reality, the United States International Trade Commission (USITC) is in the midst of investigating softwood trade with Canada, which very well may lead to a familiar-looking tariff and multiyear legal battle. But even though China has become a growing partner for Canadian softwood since the early 2000s, circumstances are aligning against a much deeper relationship.
Logistical problems prevent most of the industry's landlocked companies from shipping substantial quantities of lumber overseas. China's economy has slowed down, and its appetite for lumber is shifting. And some industry players remain optimistic about their opportunities in the United States.
"Maintaining secure access to the U.S. market is really important to our sector while we continue to explore other opportunities," says Susan Yurkovich, chief executive officer of British Columbia's Council of Forest Industries, which represents the sector in the province's Interior.
The U.S. Lumber Coalition has long claimed that imported Canadian softwood is subsidized by land-owning provinces, and thus deserving of a tariff. The dispute goes back decades, and the most recent truce, the 2006 Softwood Lumber Agreement, expired in 2015. The USITC investigations could lead to the return of a tariff on imports in a matter of months, which in turn would prompt another legal battle – one that Canadian softwood stakeholders are confident they could win again.
Ms. Yurkovich says that if the fight ends, the two countries could band together to promote wood as a sustainable building product, increasing domestic demand in both countries. "Let's focus on taller wood structures. Let's talk about infill wall systems. Let's talk about new applications for wood in an environment where everybody's looking for an environmentally sustainable product; wood is the perfect product," she says.
As for China, the country's economic growth has fallen from its soaring highs – its gross domestic product grew 6.7 per cent year-over-year in 2016, but that was its slowest pace in 26 years. Data provided to The Globe and Mail by international forest-industry consultancy report provider Wood Resource Quarterly indicates that B.C.'s softwood lumber exports to China fell 11 per cent year-over-year in the first nine months of 2016; its shipments to the U.S. in the same period were up 31 per cent.
While B.C. is by far Canada's biggest softwood lumber exporter to China, Wood Resource Quarterly's data show the U.S. accounted for about 70 per cent of the province's exports as of last September.
The provincial softwood industry's relationship with China first bloomed in the early 2000s, when mountain pine beetle infestations brutalized B.C. forests. To make use of the low-grade wood salvaged from the wreckage, the sector turned to China, where it was purchased for purposes such as concrete form-work. As the forests rebounded, higher-grade lumber had a turnaround, and exports elsewhere picked up again.
Another economy has hindered a deeper push into China, too. With the Russian ruble devalued over the past few years, China has been gobbling up cheaper wood from its northern neighbour, shrinking other countries' market share.
"The collapse of their currency made them competitive," says John Burch, vice-president of sales and marketing with Teal-Jones Group, one of the biggest private forestry companies on Canada's West Coast with 1,100 employees.
Teal-Jones began earnestly exporting to China about seven years ago, when the country still had double-digit GDP growth, and the fallout from the global recession collapsed the lumber-hungry U.S. housing market. But the ruble's rout has reduced Teal-Jones's exposure to the country; now, Mr. Burch says he and the rest of the industry are waiting for the dust to clear around President Trump's trade intentions.
"No business likes uncertainty, and we have a world full of uncertainty," Mr. Burch says. Depending on how the next few months shake out, he imagines there may be some renewed industry interest in exporting to China, especially higher up the value chain than the original low-grade materials. "We're planning to grow business in China, but on the furniture side," he says.
Not all Canadian lumber businesses can easily increase their exposure to China in the face of other precarious trade relationships. "B.C. does a lot of export with Asia for lumber, but it's too costly from central Canadian provinces such as Ontario and Quebec," says Seth Kursman, the vice-president handling government affairs with Resolute Forest Products Inc., the Montreal-based wood-products giant.
Some eastern-Canadian businesses still want Chinese exposure, despite the costs. Murray Brothers Lumber Co. Ltd., a 105-person operation based in Madawaska, Ont., began exporting to China a decade ago. "One way or another, our lumber was finding its way over there," says vice-president Ted Murray. After realizing that the volume of its lumber that went there via brokers and wholesalers was growing, the company began shipping directly to Chinese manufacturers via truck, rail and ship.
About a quarter of Murray Brothers's production goes to the United States, though Mr. Murray says the company is actively looking to push further into Asia. "We understand the need to be diversified with the protectionist mentality that's developed in the United States," he says.
Ms. Yurkovich was recently on a trade mission to China with B.C.'s Forests, Lands And Natural Resources Operations Minister, Steve Thomson.
Even though she has faith that U.S. trade could remain strong, she says Asia remains a market with great potential. "We're definitely trying to move up the value chain," she says. "There are lots of opportunities in China for furniture. … How could we adjust our production to be able to meet some of those opportunities?"