Chinese demand for Canadian lumber is falling rapidly, sparking worry for foresters who have looked to Asia for crucial revenue as the housing depression in the United States continues unabated.
Sales of B.C. lumber to mainland China rose just 29 per cent in August from a year ago, a small fraction of the booming pace of growth earlier this year of as much as 186 per cent.
August sales did propel 2011 to record territory for B.C. foresters. Illustrating how much wood has set sail for China this year, B.C. sold $731-million to the country in the first eight months of the year, eclipsing the $668-million sold over all of last year.
But with worries of a housing bubble in China, Beijing's effort to contain inflation and quell speculative lending, and the country's weakening economy and slowing total trade, B.C. foresters may face a difficult end to 2011. The spectre of a slowdown hangs over the four months of the year that are typically the best-selling period in China for companies such as West Fraser Timber Co. Ltd. and Canfor Corp.
"Any falloff in demand from China is a significant concern," said economist Jock Finlayson of the Business Council of British Columbia.
China has exploded as an important customer for B.C. wood in the past two years, after industry and government spent a decade working in the country to stoke sales. In May this year, monthly sales to China exceeded those to the U.S. for the first time, a major surprise. That feat was repeated in June. In August, however, sales to China were roughly half of those to the U.S.
The U.S. market remains very weak. While sales in August ticked up 6 per cent from last year, they are still down in 2011 from 2010 and remain mired more than 60 per cent down from the peaks of the mid-2000s, before the U.S. housing bubble burst.
In China, the housing outlook is not good. Capital Economics this month noted that sales are declining swiftly and a new burst of completed units is about to hit the market. The forecast is "grim."
"Developers are likely to find themselves holding large volumes of unsold property," Capital Economics said in a report.
As China weakens, and the U.S. struggles, some analysts believe foresters will still be strong over the next several months. Paul Quinn at RBC Dominion Securities is highlighting seasonal strength in forestry equities, observed in recent years, as lumber companies on the Toronto Stock Exchange typically climb through the winter months, before falling back in the summer.
"We believe that 2011-12 will be no different," said Mr. Quinn in a report Monday.
Year-over-year growth in sales to China spiked as high as 186 per cent in March and was at 162 per cent in June, before dropping to 79 per cent in July and plummeting to 29 per cent in August.
But the slowdown is relative, said analyst David Elstone of Equity Research Associates. Growth in 2011 has far exceeded expectations and the boom makes the still-strong gain of 29 per cent look weak by comparison. He said it is difficult to tell how the slowdown might unfold and, like other observers, believes long-term strength in China remains impressive.
"It's a relatively fledgling market," Mr. Elstone said. "Think about five years ago, there was hardly anything going to China."
August figures support that claim. The $79.8-million in sales for the month exceeded B.C. lumber sales in all 12 months of 2006, which came in at just $65.3-million.
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The slowing pace
Sales of B.C. lumber to China have set a new record this year, but the pace of growth is slowing. Here's a look at the rate of year-over-year growth so far:
January: 158 per cent
February: 125 per cent
March: 186 per cent
April: 139 per cent
May: 178 per cent
June: 162 per cent
July: 79 per cent
August: 29 per cent
David Ebner