Demand for Wood Products from China and Japan Fuel Growth in Forestry

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LogsTHUNDER BAY – There is a glimmer of light at the end of the tunnel for wood producers in Canada. “Canada has been diversifying its export markets away from the United States for several years, and gains in export sales will be responsible for industry growth in the next few years,” said Michael Burt, Director, Industrial Economic Trends. “The overall fragility of the American economy and continued U.S. softwood lumber litigation are contributing to Canadian wood producers’ search for further export markets. Ongoing demand in China – and Japan’s need for wood to rebuild following the March 2011 earthquake and tsunami – will support growth in Canadian wood exports to these Asian countries.”

Profits for Canada’s wood producers are expected to double in 2012 compared to this year, and employment is forecast to grow by more than 6,000 positions next year. A long-awaited recovery in U.S. housing markets and growing demand in China and Japan are responsible for this more promising forecast, according to The Conference Board of Canada’s Canadian Industrial Outlook: Canada’s Wood Products Industry-Autumn 2011.

Between January and September of this year, 63 per cent of Canadian wood exports went to the U.S, down from 86 per cent in 2006. In contrast, exports to China grew from less than one per cent of the Canadian total in 2006 to 14 per cent so far in 2011. Even though the U.S. housing market is expected to begin recovering in 2012, the share of Canadian exports to the United States is not likely to return to previous peaks.

Nevertheless, the U.S. market remains important to Canadian producers. Double-digit growth in Canadian wood exports is forecast in both 2012 and 2013, due not only to overseas markets, but also to U.S. housing demand. Indicators such as homebuilder confidence, housing starts, and inventories are looking more positive than they have in years. The recovery in the American housing market is, however, contingent on whether U.S. and European governments take measures that avert another global recession.

The outlook for exports to the United States also remains uncertain because of the continuing softwood lumber dispute between the two countries. Canada has already lost two arbitration cases with the United States under the 2006 softwood lumber agreement, and the U.S. brought a third complaint last year.

Overall, the Canadian industry has rebounded from its 2008 and 2009 woes, when it lost more than $800 million each year. After returning to profitability in 2010, profits are expected to end the year down almost 40 per cent to $283 million. In 2012, however, the industry is expected to post profits of $565 million, and subsequently enjoy profit growth of more than 20 per cent annually for at least two additional years.