Russian log supply into UK are hampered by
wide range of growing production and
economic complications.

Shortages of wood from mainland Europe are being caused by a combination of factors. Russia has shown a propensity to retain logs for domestic processing and consumption, a direction supported by the application of export tax on round timber; Scandinavian mills have been preoccupied with the consequences of reduced log supply from Russia, wind-damaged forests of their own and labour problems; while log availability in both regions has been reduced following difficult harvesting conditions experienced during the winter and spring of 2007. In addition, the acceptability of Russian material has been questioned by importers seeking assurances regarding the origins and legality of their purchases. Raw material supply difficulties have come at a time when the demand for timber from China, Russia, Europe and North Africa has increased.

Resulting imbalances between supply and demand have led to price increases in the UK. The combination of high demand and low availability resulted in fencing UK manufacturers having to pay 20-30% more for their timber supplies since the end of last year. Higher timber costs have also hit the pallet sector, with prices paid by manufacturers said to be 15%-20% higher for April 2007 than for late 2006. Scandinavian, Baltic and Russian carcassing prices have risen similarly, and are currently in the region of £155 per m³ for KD stock FOM.

The changed circumstances have increased UK buyers' interest in supplies from Canada and Germany, during a period when exchange rates have become more conducive to trade with Canada, and Canadian softwood suppliers have been looking at alternatives to the US market. Nearly 160,000m³ more softwood was imported to the UK during the first quarter of 2007 than in the first quarter of 2006, equivalent to a 9.6% increase, and 80% of this increase comprised higher volumes from Germany and Canada. German and Canadian share in the first quarter of 2006 was 3.5% and 0.8%, and in the first quarter of 2007 had risen to 7.8% and 3.4% respectively. In March 2007, 4% of UK softwood imports arrived from Canada, making Canada the UK's 6th largest supplier.

The total volume of softwood lumber exported to the United Kingdom from Canada during the period January to March 2007 was 42,535 mfbm, compared to 9,806 mfbm for the first quarter of 2006. The biggest provincial exporter to the UK during the first quarter of 2007 was British Columbia with 18,515 mfbm, followed by Québec with 17,999 mfbm and Maritimes with 5,463 mfbm. It is interesting to note that the UK accounted for 60% of EU imports of Canadian softwood lumber during the year to March 2007, compared to only 27% in the year to March 2006, illustrating the disproportionate growth in demand placed by the UK over the last 12 months. Belgium retained its position as Canada's second largest EU softwood lumber customer, in spite of importing only 6,869 mfbm during the first quarter of 2007 compared to 7,872 mfbm during the same period of 2006.

The UK market is currently well stocked with carcassing, supplies bolstered in recent months by imports from Canada. One agent reports that the UK market is currently full of Canadian C16/C24. The influx of material supplied by Canadian East Coast suppliers has resulted in some serious imbalances at quaysides, where volumes in some specifications have been in surplus and accumulated. As UK importers have tried to offload excess stocks, domestic re-sale prices have fallen sharply, improving the likelihood that import prices will stabilise at current levels in the coming months.

Some traders suggest that the availability of almost limitless supplies of carcassing from Germany threatens the sustainability of trade with Canada; the consequent recommendation is that Canadian suppliers take the current opportunity to build strong relationships with UK importers where they can, and explore niche markets. Recent complaints about the quality of Canadian softwood imports by UK buyers have proved to be the result of outdated expectations concerning the appearance of structurally-graded material. Communications between sellers and buyers need to be improved, and suppliers will increasingly need to recognise the importance of offering materials that are certified in accordance with recognised sustainable forest management standards (i.e. CSA, FSC and SFI), verified by means of compatible chain-of-custody.

High demand and low availabilty for lumber
products have imposed timber supply price
hikes of 20 to 30% for UK manufacturers.

Market conditions favor Canadian suppliers
who are urged to build strong relationships
with UK importers and explore niche markets.

Economic recovery continues but progress
is hindered by dramatic decreases in yen.

Despite the dramatic depreciation of the yen in the first half of 2007, Japan’s economy remained on the path of solid growth. Japan’s GDP posted an annualized growth rate of 3.3% between January through March. The Nikkei exchange rallied to a 7 year high in late May surpassing the 18,000 benchmark, fueled by swelling profits from repatriated funds from exporters, the strengthening real estate sector and strong order files for manufacturers in heavy industry.

Buoyed by strengthening balance sheets, Japan’s corporations are expanding to acquire new hires and additional office space. The unemployment rate fell to 3.8% in May: the lowest level since 1998. The ratio of job offers to employment seekers improved marginally to 1.06 jobs for every job seeker. Property markets have seen dramatic gains in the commercial real estate and condominium sectors. Office space tightened to 2.71% in May, while office rents, surveyed from among Tokyo’s 5 leading commercial property firms, are rising at between 10 to 15% for this fiscal year. The condominium sector continues to enjoy robust growth with average condo values in the Tokyo suburbs up a full 30% over the past year.
      
Despite signs of growth, the Bank of Japan’s sustained low interest rate policy has led to a rapid depreciation in the yen over the first half of 2007. The yen is trading at a 4½ year low versus the US Dollar, an all time low versus the Euro and has lost 12% of its value versus the Canadian dollar in the first 6 months of this year. The slide is being prompted by both consumer and the “yen carry trade” institutional investors chasing more attractive returns globally. The yen’s dramatic slide has prompted US Lawmakers to advocate the BOJ to tighten it’s monetary policy.

Results in Japan’s housing sector were mixed. The seasonally adjusted forecast for housing starts for 2007 is on par to match last year’s results at 1.29 million starts. Wooden housing is maintaining it’s market share at 45% of all housing starts. However, housing starts in April fell 3.6% and 5.5% in May, pointing to slowing activity in this sector. There is considerable market speculation as to whether this is a temporary lull in housing activity or merely a pause in activity that builders required to review the newly revised Building Standard Law and 2x4 Building Code which came into effect in mid-May. As is witness by a 2 year high of Tokyo Lumber Terminal inventories at the end of May and given the recently diminishing housing starts, Canadian shippers appear to be faced with challenging conditions near term.     

Japan LCA Comparison

Recent trends in Japan’s Life Cycle Assessment have pointed to the development of protectionist interpretations of LCA data by means of “Wood Mileage” calculators designed to discriminate against overseas imports of lumber into Japan. The WoodMiles Forum, a locally based NGO supported by local industry, prefectural governments & Japan Housing & Forest Products Research Centre, is actively promoting the benefits of utilizing local forest products in view of reducing greenhouse gas emissions that result from shipping forest products to Japan from overseas.

To counteract this potentially damaging public relations campaign and in view of shifting the LCA debate onto a standpoint that emphasizes the benefits of WFC versus the alternatives, COFI Japan worked in concert with the Japan 2x4 Builders Association Environmental Committee to commission a study in 2007 that assessed CO2 emissions produced by 2x4 WFC versus steel frame and hybrid construction. The study also sought to determine CO2 emissions associated with importing SPF from the forests in BC to Japan.

The study was released in April 2007. By means of BEAT LCA software and based on an average 30 year lifespan of a house in Japan, data was collected from three 2x4 home builders, one hybrid home manufacturer and one steel frame home builder to compare CO2 emissions. The study’s LCA results, highlighted below, indicate that 2x4 wood frame construction result in over 30% less CO2 emissions when compared with steel frame and hybrid construction. Moreover, when looking at CO2 resulting from ocean transport of SPF from the BC Coast to Japan, the emissions accounted for only 1% of the total greenhouse gas emissions over the 30 year lifespan of an average Japanese 2x4 house.    

To further educate the Japanese market on the LCA benefits of WFC, COFI, Japan is organizing a speaking engagement by Wayne Trusty, President of Athena Sustainable Materials Institute on September 21st at the Canadian Embassy in Tokyo.

Ocean Shipment as a Percentage of 2x4 House Total (1.02%)

Canadian Blue-stain and Japanese JAS
Industry Grading Mission - May 22 to May 28

Fireproof 2x4 Structures in Japan consume
19,500 m³ of SPF dimension lumber

Fire proof approvals in Japan for the month of June totaled 29, the largest number recorded in a single month this year. To date, since the Japan 2x4 Home Builders Association and Council of Forest Industries received the Japanese ministerial fire approval on April 27th 2004, five hundred and sixty nine 2x4 fireproof structures have been approved for construction in Japan.  The volume amount of structural wood material consumed in these structures is estimated to be 19,500 m³ (approximately 485 40’ containers) of SPF dimension lumber.  Of the 569 units approved, the majority of these fireproof 2x4 structures, 447 units (79%) have been 3-storey buildings and 61 units (12%) were reported to be non-residential and commercial structures.

Chinese GDP growth for 2006 was recently adjusted upwards to 11.1% reflecting continuing strength.  Chinese stock markets continue to track sharply upwards due to optimistic investor sentiment and restrictions on alternative investment options.  A recent wobble in the Shanghai market threatened to ruin the party but the pressure of surplus capital in the economy quickly beat down negativism in the markets. 

In 2007 China is projected to maintain an 11.0 % growth rate (in fact Q2 growth was 11.9%). Consumer price inflation is creeping up and has now reached 3.0%.  Even so, consumer spending rose 15% in Q2 of this year (vs. Q2 2006).  Export growth shows no sign of decline with a 29% year-on-year increase for the first half of 2007.  (China’s trade surplus widened to US $112 billion for the first six months of 2007.) Although China’s economic health is very reliant on exports and problems are likely building for the future in the overheated property sector and stock markets, the government’s position is strong with very large capital reserves.   Chinese exchange rates are gradually appreciating against major western currencies.  China recently overtook the USA as Japan’s largest trading partner. 

Canada Wood and FII China will be launching
a wood roofing campaign in the fall of 2007.

Canadian SPF exports to China are on track to at least double over 2006 figures.   Canadian lumber is currently favourably priced versus alternative offerings.  A number of wood-frame developments are in planning presently and Canada Wood’s training and quality assurance team will be supporting these projects as they go forward.  However it has to be said that the villa market is still depressed due to government restrictions and uncertainly about the property market.    Canada Wood and FII China will be launching a wood roofing campaign in the fall of 2007.  Roofing has big opportunities in new build and retro-fit construction.  Canada Wood will also be highlighting the use of wood in wall retrofit systems which can be used to thermally upgrade existing apartments.

Tonji University students were a captive
audience in April Canada Wood seminars.

The China Developer Club includes large
developers of WFC projects in China.

Putian, China delegation receive conclusive
assurances MPB pose no threat for imports.

A delegation from the city of Putian, China came to Canada recently with questions regarding the risks of importing Mountain Pine Beetle (MPB) wood into China. They were accompanied by representatives from the Canadian Food Inspection Agency and the Canadian Forest Service. The BC portion of their trip was organized by COFI. In Prince George the group toured an urban Mountain Pine Beetle harvest operation as well as Canfor’s PG Wood sawmill. They learned that it is often the case that there are no live MPB in the harvested trees. To the extent there might be live MPB in the trees, it is unlikely that they would survive the debarking and sawmilling process. The final most definitive assurance was provided when it was explained that the Heat Treatment (HT) stamp on kiln dried lumber guarantees that the product reached a minimum 56° Celsius for at least 30 minutes. Detailed records of the treatments are maintained by the manufacturer. Third party verification of this is provided by lumber grading agencies such as COFI and is again verified by the CanadianFood Inspection Agency.

A major challenge to overcome in the Chinese Construction Market is the perception that Wood Frame structures are more expensive to build than concrete ones. Canada Wood has recently completed an illustrative cost-analysis which clearly and factually explains the cost differences for choosing wood over concrete to developers in China.

For this report, three selected sample model houses compare conditions to get the construction cost difference, including typical roof system construction costs. The report concluded that the total construction cost of a wood frame house in Shanghai without loft (Model A1) including the foundation cost is 122.09RMB/m² lower than that of a concrete house. The total construction costs of a house with loft (model A2 and model A3) including foundation cost are 114.49RMB/m² and 208.40RMB/m² higher than that of concrete houses separately.

If you're interested in this study available in both English and Chinese, please contact Wayne Iversen at iversen@cofi.org

Korean imports of logs for the first half of 2007 increased 36.3% to US $475,478,000, while Canadian log imports climbed 67.1% to US $39,637,000 for the same period of 2006. The sharp increase of Canadian log imports for the first six months of 2007 is due to the Russian log price hike and log shortage in Europe. As a result, the Canadian log market share in Korea has grown to 8.3% of total log imports.

Lumber imports for the first half of 2007 compared with the same period of 2006 rose 20.2% to US $145,784,000 while Canadian lumber imports increased 11.7% to US $21,545,000 accounting for 14.8% of total lumber imports. Industry sources estimate that Canadian lumber orders from the Korean industry has almost tripled during the 2nd quarter of 2007, but temporary mill shutdowns by a major Canadian lumber supplier and an extended rail strike hampered meeting the order.

Doug Konkin, Deputy Minister of Forests of British Columbia visited Korea from April 4-7, 2007 in order to gain the comprehensive view of the Korea wood industry and wood construction market.

The deputy minister visited local wood industries and WFC sites - Younglim Timber, Taewon Lumber, Eagon Industrial in Incheon during the first day, and BHK construction site at Pangyo, NS Home building products distribution center and SK Apelbaum construction site at Dongbaek on their second day.

Deputy Minister Konkin’s visit to South Korea
includes tour of local wood industries and
WFC sites.

Through the visits arranged by Canada Wood Korea (CWK), they both expressed their support for local industry and advancing the use of wood in housing and landscape applications in Korea through the CWK activities. They also were very impressed with the CWK team’s work and accomplishments and promised their support on the resources they are directing towards Korea.

Case Study I
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