Canada looks to China to rescue softwood lumber

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Near the shores of Bohai Bay, scaffolding surrounds a cluster of townhouses taking shape on land that was once a mudflat. A hundred of them are being built here, barely a rounding error in a country that builds millions of homes each year.

But this place provides hope to a Canadian forest industry pummelled by punitive new duties in the United States. The townhouses are framed in Canadian softwood. In a nearby conference building, part of a Tianjin ecodistrict that is a $2.5-billion showcase for green urban development and is supported by the Canadian government, strips of drywall have been cut out to expose thick wooden wall timbers, also imported from across the Pacific.

"We feel like we are living in a little corner of Canada here," Natural Resources Minister Jim Carr said Friday as he toured the area with many of the top business and political leaders in Canadian lumber.

They want these townhomes to be a model others can replicate, spreading wood construction across the biggest housing market on Earth.

"I know that this project is just the start, because the potential is tremendous, the opportunities are real and the time is now," Mr. Carr said.

That, at least, is the new goal for those back in the crossfire of the softwood lumber feud — and for a federal government that wants stronger trade ties with the world's second-largest economy.

Softwood producers such as Canfor Corp. and Conifex Timber Inc. today send roughly a quarter of their product to China. "We think we can take that up to 35 per cent," Canfor CEO Don Kayne said. "We will be ratcheting up going forward," said Conifex CEO Ken Shields, who hopes to crest 30 per cent within two years.

But if China holds the key to liberating Canadian wood from the gripes of U.S. competitors, it's unlikely to be an easy one to grasp.

The Canadian goal is built on the expectation that China, as it pushes for a cleaner future, will turn to wood as a lower-emission construction product. By 2020, half of all new Chinese buildings must meet green housing standards.

More than a decade of government and industry lobbying has already helped make local building codes more wood-friendly; China now allows wood-framed buildings up to four storeys tall.

Other rules, however, stand in the way. At the Tianjin ecodistrict, parts of the new neighbourhood are built with concrete apartments, erected to meet strict density-ratio requirements.

"If I build everything like these houses, I can't reach the required ratio," said Wang Gang, assistant to the general manager at TEDA Investment Holding Co. Ltd., pointing to the wooden townhomes.

As a result, building with wood "is not very realistic in Chinese cities," said Cheng Yongfeng, deputy president of Zhong Liang Real Estate Group.

Then there are consumer tastes.

Even in rural areas, where density requirements are lower, wood is a tough sell for residents who "may not feel so confident in the life expectancy of such a house," said Ouyang Jie, executive vice-president of Future Holdings, another property developer.

He sees demand for wood floors – although the popularity of in-floor heating raises worries about cracking – and for vacation properties with a more natural feel. "People like the idea of the little wood houses in other countries, like the Maldives" or in "cottages with a unique ethnic flavour." Otherwise, he said, the market for homes built with wood in China is "probably not a big one."

Even the impact of the 2020 green building rule remains unclear, since China has yet to clarify what benefit there is for developers in using more expensive materials – and Canadian wood is costlier in a country with the world's largest concrete and steel industries.

So Canadian lumber companies will have to compete on price, warned Mr. Wang, whose company is investing in the Tianjin ecodistrict.

For parts of Canada's forest industry, however, it's already too expensive to get product to China. The federal government wants Quebec and Ontario to sell more to Asia to ease their dependence on the United States. But the transportation costs of moving lumber from Quebec to the West Coast for export equals roughly 20 per cent of the value of that lumber, said André Tremblay, president of the Quebec Forest Industry Council.

"Not impossible, but difficult," he said as he toured the Tianjin ecodistrict. "You have to add some value to your two-by-fours and two-by-sixes – after that you can sell it here."

Canada's industry can make itself more competitive in China – but it will require change at home, said Canfor's Mr. Kayne. "We have to adapt more to the actual end-use customer requirements," he said, whether that means customizing products or cutting metric-sized lumber.

"You're going to have to be able to act a bit quicker. You're going to have to commit to longer term, probably, in terms of how you set up your contracts," he said.

The stakes are high. Load enough wood on boats and it might even be possible to vanquish the softwood wars. If British Columbia can roughly double the volume of lumber it exports to China, the surge in prices might just push U.S. builders into demanding that their government slash duties on Canadian supplies, said Conifex's Pat Bell, a former B.C. minister of forests who has led several delegations to China.

"That will be the issue that will resolve the softwood lumber agreement – nothing else," he said.

It's an ambitious target. It took the industry a decade to reach its current sales levels in China.

Mr. Carr had this bit of advice for Canadian companies looking to China: "Listen very carefully," he said in an interview. "Listen to what a very impressive potential partner has to say about what it will take for us to make important deals. And I have a lot of confidence in the capacity of that industry to be nimble."