Dollars vs Volume

The stories about B.C.’s forestry sector looking to push/increase lumber exports as demand in U.S. and Asia improves are certainly out there on several fronts this week. Interestingly in the same Vancouver Sun newspaper today, in one report we’re all agog over expanding our wood sales offshore, while another frets that offshore investors are coming over here to buy up our local real estate.

  • Dollars

The latest forecast making news comes from Export Development Canada (EDC). It projects that B.C.’s forestry exports will grow 8% this year. According to EDC, this growth will be driven by lumber exports which are expected to increase 15% this year and another 10% in 2015. As more timber supply areas in B.C. approach the end of salvageable beetle-killed wood, where will this increased capacity come from, I wondered? Ross Prusakowski is the economist at EDC covering the forestry sector. In response to my question this morning, he clarified that EDC’s outlook is based on stronger nominal prices in the face of declining volume. He expects the fibre fallout from the mountain pine beetle to begin really having an impact on B.C.’s export capacity more towards the end of this year. “As the supply side in BC is constrained,” explained Prusakowski, “we expect global demand to continue to strengthen with Chinese demand steady and U.S. demand continuing to show strength with U.S. housing starts forecast to be greater than one million units for the first time since the onset of the global financial crisis. With the constrained supply (in B.C. and other parts of North America) and growing demand, we forecast that prices will increase and more than offset volume declines.”

  • Volume

“It’s all about capacity” declared Ted Seraphim, West Fraser President & CEO, at last month’s COFI Convention. So just what is the lumber capacity here in B.C.? Citing data from the Western Wood Products Association (WWPA), Mark Kennedy, CIBC confirms B.C.’s lumber production last year was 12.75 billion board feet (“If you assume coastal production around 1.5 billion FBM, then the Interior would have been 11.25 billion FBM”). Total production last year was 80% of capacity according to WWPA, suggesting an underlying capacity of 16 billion board feet. In a post-beetle world however, can B.C. ramp up lumber production by 20% to 16 billion FBM? Mark says “Maybe the Coast can boost lumber production to two billion, but there’s no way the Interior can get above 12 billion – and they won’t even be able to sustain that rate for very long.” In other words, lumber capacity in B.C. might be closer to 14 billion FBM according to Mark. Compared to 12.75 billion FBM last year, this capacity represents a maximum production increase of 10%, “with almost half of that (increase) being on the Coast”.

interformilllogs43

.. on the Coast (Photo credit: ejh)

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