Sales of British Columbia lumber to China have begun to plunge, a startling reversal from the boom forest products companies enjoyed through much of 2011.
The lumber industry predicts additional growth in 2012 but the current situation is difficult. Inventories of wood are still piled up in China amid a weakening construction market there, sapping demand for B.C. lumber.
In December – traditionally the biggest sales month of the year – B.C. sold just $67-million in lumber to mainland China, according to Statistics Canada figures compiled by BC Stats. Sales were down 36 per cent from a year earlier, and December was the second-slowest month of 2011.
Sales have fallen month by month since September, a disappointing end to what was a record year in 2011. B.C. sold $1.07-billion of lumber to China, up 60 per cent from $668-million in 2010 and more than triple sales two years ago.
The rapid shift in China highlights the challenges Canada faces in the country, just as Prime Minister Stephen Harper made his biggest push yet this month to increase ties and trade between the two nations. Among the executives along with Mr. Harper in China last week was Don Kayne, chief executive offer of Canfor Corp., who has worked the past decade to stoke sales of lumber in China.
Even as China tries to contain inflation, Canfor sees major potential in the government's goal to build upward of 10 million units of affordable housing each year through 2015. Mr. Kayne said the Canadian government and industry have built strong connections with senior leaders in Beijing.
"We have been able to really make some progress there with the vice-minister of construction," said Mr. Kayne last Thursday, speaking from Beijing on the company's fourth-quarter conference call.
Prospects in China are crucial to Canadian forest products companies because the emergence of China as a major market has occurred while Canada's long-time No. 1 customer, the United States, suffers through a seemingly unending housing recession. In 2011, China accounted for about 30 per cent of B.C. lumber sales, compared with 40 per cent for the U.S. It was a major shift from the situation in 2010, when the U.S. bought half of B.C.'s lumber, and China took about 20 per cent.
The market in China is expected to be weak through the first quarter, said Paul Quinn, analyst at RBC Dominion Securities. "Order files are slightly picking up right now," he said.
A gain of about 20 per cent to about $1.3-billion has been projected by industry executives for 2012, Mr. Quinn said. The year is predicted to unfold as previous years had, with sales building toward the end of the calendar. In 2011, the pattern was upside down, with sales stronger in the first half and peaking in June to a record month of $127-million.
China, even with the recent decline, has become the biggest buyer of softwood lumber and logs in the world, according to Seattle-based consultant Wood Resources International LLC. The housing market is a concern, said analyst Hakan Ekstrom, with housing starts down in December by 25 per cent and housing sales in many large cities down more than 50 per cent in the fourth quarter. He said growth will "likely continue" but it could be difficult through mid-2012.
"It can be expected that the housing market will continue to face headwinds during the first half of 2012 unless the Chinese government steps in to ease the country's monetary policy," Mr. Ekstrom said in a report last week.
AGAINST THE GRAIN
Booming B.C. lumber sales to China have stalled. The final months of 2011 showed significant declines, although the industry predicts sales growth will pick up this year.
Good news: Total annual sales
Bad news: Recent monthly sales
September, 2011: $104-million