Canadian Forest Industry Looks to China for Lumber, Wood Exports

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If an astute investor asked a Canadian forest industry executive just five years ago about lumber sales to China, the answer would probably have been: "China? China doesn't buy our lumber." How times have changed, reports Reuters in a news report released from Vancouver, B.C., Canada, this week. China has become a bright spot on the balance sheets of companies still waiting for a recovery of the U.S. housing sector, its mainstay market for decades, the report notes.

It's so bright, a trade mission that set off to China last week included the chief executives of West Fraser Timber, Canfor Corp, Tolko Industries, International Forest Products, and Conifex Timber, along with other top industry and union officials, the report says. "The (Chinese) economy is moving ahead, and they're getting more comfortable buying from us," Hank Ketcham, CEO of West Fraser, North America's largest softwood lumber producer, was quoted in the report as telling analysts last week.

A report this month by British Columbia, Canada's largest lumber exporting province, estimated its producers had sold C$342 million ($335.3 million) in lumber to China in the first eight months of the year, up 71% from a year ago.

Canada has benefited both from China's surging demand for lumber and Russia's 2007 decision to sharply raise duties on logs exported to Chinese sawmills, Gerry Van Leeuwen, a vice-president of International Wood Markets Group, said in the Reuters report. The research firm forecasts Canada will overtake Russia this year as the largest lumber exporter to China. The U.S. remains Canada's largest lumber export customer, but U.S. demand soured with the collapse of its housing market. Few Canadian industry executives predict it will make a significant recovery soon, according to Reuters.

A stark example of China's new role can be seen in Canfor's decision in May to restart its Quesnel, B.C. sawmill. The mill had been idled because of slack U.S. demand, and its production now goes exclusively to China, Reuters pointed out.

Nearly all the lumber exports to China come from sawmills in Western Canada. But analysts say that still benefits eastern sawmills by diverting wood that might otherwise be shipped to the U.S., the report continues. Because much of the China-bound lumber is used for purposes such as concrete forms and pallets, it has also become a ready market for lower-grade lumber cut from trees killed off in Western Canada's mountain pine beetle infestation. Industry officials say, however, they are now getting more Chinese purchases of higher grade lumber, such as that used for wood-frame construction.

"It will be a market that will consume both the lower and upper grades, but over time I would expect the (higher grades) to continue to increase," Canfor chief financial officer Thomas Sitar said in the Reuters report.