During the Montreal Wood Convention, which was held between 20-22 March 2018, there have been a lot of discussions on the wood industry opportunities worldwide. Particularly, one of the talks referred to Canada’s opportunities on the Chinese wood products market.
At the moment, nearly ¼ of the world’s sawnwood is consumed in China and nearly ½ of all the wood-based panels are also consumed in the country. By 2025, there might be 60 million m3 additional forest products and timber imported into China, as a RISI study revealed.
Margaret Stewart, Principal, MSC Marketing Solutions Consulting, explained that China is a growing and vibrant market, that is continuously changing, becoming a very good opportunity for Canada’s wood export sector.
Considering Canada’s largest export product, softwood lumber, Stewart explained that 13% of all production goes to the US, when times are good. But when there is a lot of tension between the two countries, it’s good to have diversified market to turn to.
“Even more important for hardwoods, 19% of all hardwoods are sent to China and that’s a significant part of Canadian hardwood exports. So if we look at our exports in terms of dollars (it does not include pulp and paper, but only our solid wood products – panels, components, etc), in 2008 we didn’t do a lot of business in China, it was pretty small, 220 million Canadian dollars. But if we look at 2017, the sales grew to 1.7 billion canadoan dollars,” Stewart explained.
In 2007 there weren’t a lot of softwood lumber exports to China from anywhere. China was mainly a log import country and they were mainly importing tropical logs and logs from Russia. But in 2008, Russia put in a log export tax. China was getting most of their softwood from there and this represented a huge drop in wood imports into China over the next few years. The Russian lumber capacity in the Far East and Siberia was not up to fulfill that capacity and China wasn’t ready either.
So in 2008 there was significant growth in the lumber exported from Canada into China, as China started to look at alternatives to logs. At the same time, the US market was in the tank and Canada already had problems with the mountain pine beetle that was causing logs to degrade. Though, a lot of lumber got shipped out in those times and it was mainly log grade going into China.
“In 2013 Canada was still producing lots of log grade and shipping lots of material into China and that was the peak of the market for us,” Stewart said.
In 2016, Canada did the China market development strategy, where the goal was to get to 1 million m3 of softwood lumber exported every year. At the moment, this value was exceeded already.
Stewart also explained that Canada is trying to move beyond shipping log grade. “We need to move up the value chain and that means getting out of the blue and red pies (where the log goes into concrete forming and it goes into furring strips), (see table 1). And that type of material is not where we need to be anymore. We’re trying to get into furniture and the wood construction,” she added.
Factors influencing China’s wood consumption
The IMF says that between 2011 and 2015, 35% of the global growth was in China. Through to 2020, they are predicting a third of global growth will be due to China.
Urbanization is one of the main factors developing at the moment. 100 million people have to find hew homes, which is going to drive the construction industry in China. Also, the number of middle class consumers is growing dramatically, together with the amount of wealth they control. “This is critical to our business,” Stewart said.
“The Chinese furniture production is growing. In 2016 it went up 8.6%. The important thing is not that they control 40% of the market, but that 60% of that is actually consumed at home. 80 billion dollars of furniture never leaves Chinese soil. For that, when we talk about market opportunity, we don’t talk about raw material being exported to China to be manufactured at the lowest possible rate and exported back overseas. It’s being exported to niche manufacturers who are producing for key Chinese consumers. The wood furniture companies make up for over 60% of all furniture companies”, Stewart also said.
China’s air quality problems
There are also positive opportunities because of some negatives for China. At the moment, the country is the largest emission in the world. Unfortunately, after a couple of years of stable emissions, looks like they rose about 3.5% last year. This happened becuase they had economic growth: natural gas prices rose, so they burned more coal. Being a huge problem, China is strongly pushing towards more carbon neutrals solutions. One of their major issues is construction. It causes a lot of emissions and it also causes a lot of pollution. China is pushing really strong for pollution controls.
The country is actively working on changing this. They are changing it by focusing on green development and low carbon construction opportunities.
“Where does that come to for us, in the Canadian wood industry? There is significant opportunity for pre-fabricated solutions that have controlled pollution, low carbon options and green development,” Stewart pointed out.
Who are Canada’s competitors?
Canadian firms have exposure to importers whom account for 47% of imported lumber volume; where Canada competes they have 68% of this market demand.
“We only overlap supply with 11% of Russian export volumes,” Stewart showed.
For the supporting graphics of the conference here
Full video conference: