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West Fraser sees China import slowdown as blip

A transporter carries logs through the yard at the West Fraser Timber sawmill in Quesnel, B.C.


Canadian lumber is piling up on docks in China as its housing industry slows rapidly, but Canada's No. 1 forester says the drop in demand is due to a temporary inventory build-up that will give way to long-term growth.

China now accounts for almost one-third of sales of British Columbia lumber, up sharply from a 20-per-cent share last year.

But the growth is slowing, first indicated by government-collected industry statistics last week and further emphasized by quarterly results posted by West Fraser Timber Co. Ltd. The company said sales to Asia in the third quarter were "slightly lower" than the second quarter.

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Canadian foresters have already been decimated by the burst housing bubble in the United States, sparking what West Fraser chief executive officer Hank Ketcham calls a "five-year depression."

Worries about the same outcome in China are beginning to surface. The last months of this year - normally the best sales months to China - will be challenging, some analysts believe. Prices for lumber are also down about 15 per cent, dragged lower by cheap rates in the U.S.

Chinese government efforts to temper inflation are hitting the housing market hard, as tighter lending squeezes builders and buyers. On Tuesday, the country's top developer, China Vanke, said housing sales in China's largest cities plummeted by half in September compared with last year.

But Mr. Ketcham emphasized China's long-term potential. "There is a bit of a buildup in inventory in China," he said in a response to a question on an earnings conference call Tuesday. "It's probably working itself off right now, we hope. It's hard to say … We think it's just going to continue to grow for us."

"We don't see a significant slowdown," Mr. Ketcham added in an interview.

For foresters, trouble in China would taint the one good-news story the industry has enjoyed, after the U.S. housing crash killed tens of thousands of jobs and shuttered many mills. Growth in China has helped alleviate continued pain in the United States. Sales to China rose as much as 186 per cent earlier this year, but the growth rate dropped to 29 per cent in August, the latest available government figures.

With only eight months of sales through August tallied, 2011 is already a record year at $731-million. But West Fraser's results indicate that growth did not reignite in September.

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Chris McIver, West Fraser vice-president of lumber sales, said September sales to Asia were still up about 40 per cent from a year ago, even though monthly sales are lower than they were in spring. He said sales for October and November have been solid, adding that it does not feel like 2006 in the U.S. when the housing bubble there broke.

"We're still seeing growth," said Mr. McIver in an interview. "I'm still very bullish on China."

Canfor Corp. results will be closely watched when the industry No. 2, and leader in China, reports quarterly results Thursday.

The slowdown in China casts a cloud over the industry's annual pilgrimage to the country next month, this one led by B.C.'s new Premier Christy Clark and joined by all the industry's important CEOs. It is a unified front that was first presented in 2007 and 2008, a strategy that helped secure Canada's strong position in China.

Even with the still-weak U.S., and worries in China, several analysts - RBC Dominion Securities, Raymond James, Dundee Securities - have this month recommended a "seasonal" trade in lumber makers such as West Fraser, whose stocks have tended to rise in the autumn and winter in recent years.

Dundee Securities was particularly bullish on China. "We expect China to remain a key driving factor for Western Canada lumber producers for the remainder of 2011 and into 2012," said analyst Richard Kelertas in a report on Oct. 21.

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About the Author
National correspondent, Vancouver bureau

David Ebner is a national correspondent based in Vancouver. He joined The Globe and Mail in 2000 and worked in Toronto and Calgary before moving to Vancouver in 2008. He has reported on a wide range of stories – business, politics, arts, crime – and has covered sports since 2012. More

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