Director's Message

by Paul Newman

Divining the Tea Leaves

This February, March and April, an unprecedented event occurred: by volume Canadian softwood lumber exports to China exceeded those bound for Japan. In April 2009, SPF exports to China surpassed that of Japan by 40 million board feet. As recently as 2006 total Canadian SPF shipments to China were only 4.5 % of Japan-bound sales; thus this is indeed a sea change in trade flows. So what’s going on…?

Looking at Japan, it is true that the housing market there has been sideswiped by the global downturn. 2X4 wood-frame starts were down by 22% in April compared to 2008. A big hit, but Japan remains a solid market for Canadian SPF producers and 80% of 2008 volumes still represent a large market position. So a collapse in Japan isn’t the reason.

In China - importers, lumber remanners and construction companies appreciate the attributes of Canadian lumber and its cost/value proposition. Likewise China makes an attractive partner for Western SPF producers saddled with higher than normal volumes of post-mountain pine beetle low-grade.

Granted current global demand has depressed Canadian prices but competitive dynamics suggest alternatives such as Russian and domestic logs & lumber will also appreciate when global demand resumes. So unless Canadian prices go right off the Richter scale Canada should be able to maintain a position. Certainly Canadian lumber has carved out a sizeable niche in the reprocessing sector. Sustainable market creation in construction is more difficult to achieve given market biases and tech transfer hurdles but ground is being gained there as well. The ratio of on-grade SPF to total lumber shipments has progressively increased from 13.5% in 2007 to 20% now, signalling increased use in building. Growing the building aspect of our business does not eliminate competition with other wood producing regions but the thrust becomes winning over alternative building methods such as concrete and steel, which have their own pricing issues.

Naysayers suggest that the surge in Chinese demand is simply a flash in the pan. We disagree. The mix of wood flowing to different segments will ebb and flow but Chinese consumptive pressures and supply imbalances are too overwhelming to drive Canadian wood out of the market. Building sustainable positions in construction applications will only further shore up our long-term share in China. Something unprecedented is indeed happening in Asia.

True Market Development:  An Example in Japan

It is often difficult to cite an example of true market development: creation of commercial demand where none previously existed. Too often the opportunity is straight substitution or simply price-based. Therefore we are immensely proud of our success in generating new 2X4 building starts in Japan via the utilization of fire-proof approvals held by COFI and the Japan 2X4 Association.

On April 30th the Japan 2x4 Home Builders Association reported that platform frame fireproof approvals topped 1,000 starts (actual - 1,002) thanks to the MLIT Ministerial Approvals jointly held by COFI and the Japan 2x4 Home Builders Association. In 2004, platform frame construction was enabled in dense urban fireproof and quasi-fireproof districts as well as in larger commercial structures such as schools and homes for the aged. These MLIT approvals have led to the growing diversification of 2x4 building into multi-family and non-residential applications. Of the 1,002 starts 21% were single family, 56% multi-family, 13% mixed residential / commercial, 6% commercial, 3% social welfare and 1% other.

This initiative provides an exceptional example of how to push forward the boundaries of wood usage without cannibalizing existing market-shares.

Japan Market Update

by Shawn Lawlor

Economy

In the first three months of 2009 Japan’s GDP shrank at an annualized pace of 15.2%, registering a post war record for the quickest pace of economic contraction. Capital spending and exports, the twin engines of growth that had sustained Japan’s economic expansion over the past 5 years, showed significant contraction. Exports fell 45.7% in January, 49.4% in February and 45.5% in March. Capital spending in new equipment and projects also witnessed dramatic declines. For example, large scale real estate developers have shelved plans for new residential condominium projects and are focused on reducing unsold inventories. Capital investment in Japan’s residential condominium sector is forecasted to fall between 30% and 35% in 2009.

Japan’s single family housing sector also experienced notable declines in the first quarter with single family starts dropping 18.7%, 24.9% and 20.8% in January, February and March, respectively. To a lesser degree, platform frame starts also declined by 13.3%, 14.1% and 19.4% over the same period. Higher end custom homes remained relatively resilient, whereas speculative housing posted declines of up to 40%. In terms of demand for SPF exports, the first three months of 2009 trailed 2008 results by an average of 11%. Housing company analysts and builders do expect more robust performance in the second half of 2009.

In contrast to corporate Japan’s lethargic response following the collapse of the bubble economy in the 1990’s, manufacturers and exporters are swiftly implementing restructuring and inventory adjustment programs. With the top 9 electronics manufacturing firms posting a group fiscal 2008 loss of US $22.6 Billion, deep cuts have been initiated. Panasonic announced plant closures in 40 facilities worldwide, whereas N.E.C. and Sony have announced layoffs of 20,000 and 8,000, respectively. For those still gainfully employed, average wages fell 3.7% in January and 5.8% in February. Average summer bonuses are also forecast to contract 15%. In addition to reduced head counts and salaries, many corporate headquarters are moving out of ritzy buildings to more spartan addresses.

While the measures adopted by manufacturers and exporters are starting to take effect, the impact to Japan’s labour market and consumer spending is only beginning. Unemployment rose from 4.1% in January to 4.8% in March. Some economists have forecast a total unemployment of 5 million by the end of 2010 in contrast to the current level of 3 million. At present, the job offers to applicants ratio is 0.59, the lowest level in 6 years. In tandem with the darkening labour market outlook, consumer spending at department stores fell an average of 11% in the first quarter. The consumer price index fell 0.1% in March, raising concerns over deflation.

By late May, however, signs of a slow recovery are beginning to emerge. The Nikkei 225 stock index has rebounded from the 7,200 in March to surpass 9,700 in June. Manufacturer inventories are falling into balance and industrial production showed small increases in March. Exports to China in particular have recently demonstrated signs of life. Guarded optimism is returning as a Nikkei Inc. survey of 20 leading economists now forecast an annualized GDP growth rate of 1.4% in the April to June quarter. Weighing in on future prospects, Bank of Japan Governor Masaaki Shirokawa is quoted as expecting “mild recovery” as “exports and production” are beginning to level out.

Lumber Shipments Japan

Mitigating Against Discriminatory LCA Interpretations of Canadian Forest Products

by Hidehiko Fumoto

In April 2008, the Architectural Institute of Japan (AIJ) established a two-year technical project on wooden biomass utilization. COFI Tokyo, recommended by Dr. Nakajima of the Building Institute, has been invited as a new member of the technical committee beginning in March of this year. The committee covers not only biomass but also the greenhouse gas absorption and emissions to and from forests. This committee will play a highly influential role in the Life Cycle Assessment (LCA) research community in Japan.

The committee members include Dr. Ikaga who is a Keio University professor and is well known as an influential person to the CO2 emission evaluation in LCA software for buildings such as CASBEE. The discussions in the committee often involve the calculation method as to how to assess CO2 emission from the ocean freight of North American lumber shipments to Japan. Recent analysis conducted by the Athena Institute and FP Innovations has revealed that the Japanese “woodmiles” calculation methodology is flawed and as a result exaggerates transportation related carbon emissions of forest product imports in view of promoting the consumption of Japanese domestic wood. COFI Tokyo will be presenting objective scientific data so that Canadian lumber is not unduly discriminated against under LCA evaluation that favours the procurement of Japanese domestically produced products.

COFI Fireproof Starts Top 1,000

by Kevin Bews

On April 30th the Japan 2x4 Home Builders Association reported that platform frame fireproof approvals totalled 1,002 starts. Thanks to MLIT Ministerial Approvals jointly obtained by COFI and the Japan 2x4 Home Builders Association in 2004, platform frame construction was enabled in dense urban fireproof and quasi-fireproof districts as well as in larger commercial structures such as schools and homes for the elderly. These MLIT approvals have led to growing diversification of 2x4 building into multi-family and non-residential applications. Of the 1,002 starts 21% were single family, 56% multi-family, 13% mixed residential / commercial, 6% commercial, 3% social welfare and 1% other.

COFI Success Story: First Large Scale 3 Storey 2x4 Nursing Home Opens in Kyushu

by Kevin Bews

Nursing Home Harukaze was recently completed in Kyushu.

Measuring Up Performance of 2x4 Single Family Homes (New Market Research Summary)

by Shawn Lawlor

In early 2009 COFI conducted market research surveys with 15 builders to assess the competitive market positioning of 2x4 platform frame construction in Japan with respect to the key factors of cost and seismic performance. Companies surveyed included Post and Beam, 2x4 and Pre-Fab builders and the size of the firms interviewed ranged between under 100 to 10,000 homes per year. What were the key findings of the survey?

Firstly, in the context of overall single family housing starts, there is no conclusive evidence to confirm that 2x4 in particular is diminishing at a disproportional rate. Two by four starts declined 12% over the past 5 years, however, this is the same rate of decline of the overall SFH market. Measured over a 5 year period PFC SFH starts fare marginally weaker compared with Post & Beam and Pre-Fab. Results for 2008 reversed this 5 year trend with 2x4 SFH starts growing at 6.7%, compared with 1.2% for P&B. Given a decade of automation and innovation in the Post & Beam segment, is a 2x4 home still cost competitive in Japan? Consensus among interview respondents and reported cost data confirm that 2x4 builders are indeed on a level playing field with P&B homes and in most cases are more cost competitive than Pre-Fab. Results reveal that 2x4 builders are just as capable of delivering the keys to first time home buyers on a ¥20,000,000 entry level home as were P&B builders. Similarly, P&B and 2x4 Home builders were equally matched in delivering low cost structural materials packages to site at the ¥45,000 per Tsubo (3.3m²) level. In short the P&B and 2x4 builders compete fiercely, with no clear cost advantage for either building system. Please see graph below.

Structural Package Cost per TSUBO (1 TSUBO = 3.3 m²)

Immediately following the Great Hanshin Kobe Earthquake, the PFC system became widely perceived as outperforming Post & Beam structures. By benchmarking the housing products sold by each builder against MLIT’s Housing Performance Labeling Index seismic performance ranking system, results revealed that 2x4 builders were equally supplying homes of the highest level of seismic performance. Builder feedback, irrespective of building method, also confirmed that 2x4 is still widely perceived as the leader in seismic performance even if in reality the gap has narrowed.

If PFC is still competitive in terms of price and performance, then what other weaknesses or threats exist? The builders felt that the Japanese government’s recent promotion of domestic species and the indigenous Post & Beam homes as a significant threat against PFC in Japan. In similar fashion, the pendulum of consumer preferences has shifted away from “Import” or Western style housing back to the traditional Japanese Post & Beam buildings. From the Canadian SPF promotions and industry standpoint, these emerging threats suggest that a coordinated approach to challenge the promotional campaigns of domestic species and P&B construction.

New House Kogyo Canada Tsuga Success Story

by K. Charles Tanaka

Presentations showcasing the Canada Tsuga shake table test in September 2008 combined with follow up match-making efforts by the Canada Tsuga Promotions Director, Mr. Y. Miyazaki has resulted in New House Kohgyo KK of Kanazawa Prefecture adopting the Canada Tsuga branded structural lumber products as one of their main-stay materials for their high end custom built houses. The company builds an average of 450 high-end Japanese Post & Beam houses per year.

New House Kohgyo KK built their reputation based on distinctive and innovative designs, uncompromising position in quality of structural materials featuring the naturally decay-resistant Yellow Cedar and high level of customer care. Initial response to Canada Tsuga’s promotional appeal was rejected by New House Kohgyo’s design and purchasing departments due to their reluctance to change the status quo. Continued promotion efforts and a timely demonstration on cost savings and structural performance improvements using Canada Tsuga E120 and E120-F330 on a house project experiencing design vs. structural requirement difficulties, insured acceptance of the Canada Tsuga branded product as one of the company’s main-stay structural lumber. New House Kohgyo KK now not only uses CT E120 and E120-F330 lumber and CT Engineered Products but is also actively promoting the especially certified CT E120 & E120-F330 lumber.

High-end house under construction in Kanazawa. The house was plagued with Design Vs. Structural
requirement difficulties. The replacement of key structural members with the certified CT E120 and
E120-F330 lumber solved the problem.

High End Canada Tsuga Heavy Timber Structures Making Their Mark

by Charles Tanaka

Canada Tsuga Promotional efforts in Japan have been instrumental in the emergence of a new niche market for structurally sound North American Style Heavy Timber structures.  The manufacturers and supporters of this unique structural system are aiming to appeal to the emerging high-end niche 100 and 200 year house market.

Canada Tsuga’s main messaging of a structurally strong, cost effective and uniquely certified structural lumber for the Japanese P&B structures has reached specialty house builders and niche market high-end house component manufacturers in central Japan. Over the past 4 years, a small group of specialty pre-cut and house builders have taken the old growth Canadian Hem-Fir(N) a step further and developed a pre-cut system that closely assimilates the traditional North American Heavy Timber construction system to meet Japanese Building Code requirements. The key messaging that appealed to this group is the inherently strong structural properties of the fibre, the abundance of tight grained old growth fibre at competitive prices and the indirect promotional support offered by the Canada Tsuga Partnership Association in Japan.

There are now more than 86 high end structures built in Japan with old growth Canadian Hem-Fir(N) timbers pre-cut either by high tech pre-cut machines or hand-cut by trained craftsmen. The marketing of the finished high-end houses are by various companies depending on the region of final sale and built on site by local builders. This niche market helps enhance the value and appeal of the Canada Tsuga standard framing lumber.

Hi-end “Show Home” by Maple Homes K.K. – Canada Tsuga Heavy Timber Structure (8x8 and 8x10) 80% of the finishing materials is from Canada. Show home located in Tsukuba City.

Hi-end Spec House under construction in central Ohta-Ku Ward, Tokyo. The house is scheduled for completion in mid June, 2009.

Canada Wood - APA Shear Wall Multiplier Factor Approval Initiative

by Shawn Lawlor

Shear Wall Test at CBL, March 2009

As seismic performance is a key concern among home buyers, builders in Japan are continually striving to provide earthquake resistant building solutions. Shear wall diaphragms that are commonplace in platform construction are now actively being implemented in Japan’s traditional Post and Beam housing.  This is especially the case with the shear wall vertical diaphragm which is relatively straightforward and economical method to provide resistance against earthquakes and typhoons. 

Market Research Points to Need for Building OSB Awareness

by Shawn Lawlor

In March 2009, a survey was conducted at a Tokyo trade show to gauge industry awareness of OSB. Sixty four architects and builders participated in the survey. The results revealed that 30% of specifiers were unaware of OSB even though the product was first introduced in Japan over twenty years ago. Twenty three percent of specifiers were hesitant to try OSB due to concerns over thickness swell. Though, likely not representative of overall usage, it is also interesting to note OSB is recognized for its design features as 23% of respondents use OSB for interior finishing whereas 24% use it in structural applications. Although the survey sample size was limited, the results point to the need of building further market awareness of OSB through promotional programs such as trade shows and seminars.

Trade Show Survey of Architects & Builders

Korea Market Update

by Tai Jeong

Economy

GDP Growth: Korea alone posted first-quarter growth in OECD (Organization for Economic Cooperation and Development) member countries. The Korean economy, which contracted 5.1% in the fourth quarter in 2008, expanded 0.1% in the first quarter of 2009, while OECD member countries saw an average 2.1% contraction in the first quarter from the previous three months.

Trade Surplus: According to the Ministry of Knowledge Economy, Korea’s trade surplus reached $5.15 billion in May mainly due to a sharp drop in imports. Korea’s exports came to $28.2 billion in May, falling 28.3% on-year, with imports plummeting 40.4% to around $23.1 billion.

Interest Rate: The Bank of Korea decided to leave the benchmark seven-day repo rate unchanged at a record low of 2% for the second straight month from April to leave room to brace for a deeper economic downturn. It made six consecutive rate cuts totalling 3.25 percentage points between October 2008 and February 2009.

Unemployment Rate: According to the National Statistical Office, the unemployment rate fell to 3.8% in April from 4% in March.

(Source: The Bank of Korea / The National Statistical Office)

Housing

Korean Housing Starts Summary: Due to the prolonged depressed property market caused by the global economic crisis, Korea’s housing starts for the first four months in 2009 dropped 16.8% to 16,845 buildings from a year earlier 20,256 buildings. This figure is the lowest since 1998 when the country suffered the Asian financial crisis.

However, the construction sector shows signs of recovery from May 2009. The number of builders that went bankrupt drastically decreased in May 2009, partly thanks to state-led public projects and restructuring efforts of the sector. Apartment prices have stopped declining with an increasing number of transactions to the pre-financial crisis level. The number of unsold houses has also declined.

Korean Wood Building Starts Summary: The number of wood building permits and starts for the first four months in 2009 continuously increased 10.1% and 8.8% to 3,237 buildings and 2,546 buildings, respectively, compared with the same period in 2008.

Source: Ministry of Land, Transportation and Maritime Affairs (as a percent compared to previous year same month and period)

New Government Policy
The “Green New Deal” – Korea’s new growth engine:
The Korean government unveiled an ambitious 50 trillion won ($40 billion) “Green New Deal” package earlier this year hoping the plan would not only prevent the Korean economy from falling into recession but would also provide a new method of growth. This package consists of 9 main and 27 accompanying projects to build bike paths, re-develop four big rivers and recycle waste and other environment-friendly projects to create as many as 960,000 new jobs over the next four years.

This green growth strategy offers new opportunities for builders to the area of eco-friendly and energy efficient homes.

Korean government strategy for achieving the green building vision is to strengthen regulations and offer more incentives.
Strengthened regulations:

(1) Korea has been reinforcing insulation standards for building. In 2008, the insulation code for windows and doors was toughened and for walls will be upgraded soon.
(2) In 2008, the government launched a pilot program to assess the energy performance of a newly constructed building in terms of its total energy consumption. This new regulatory approach will be applied to all buildings by 2010.
(3) The energy labelling system is currently applied to houses and its application will be expanded to include all types of buildings by 2011.

Government incentives:
(1) A property owner will be allowed to construct a higher building on his plot than legally allowed if he builds a green building

Wood

Korean Log Imports: Imports for the first four months of 2009 compared with the same period in 2008 decreased 65.2% to 1,428,260 m³. Of this total, Canadian log imports also decreased 36.7% to 72,060 m³ accounting for a 5.05% share in the total Korean log import market. New Zealand continued to mark as the number one log export country to Korea with a 52.67% share followed by the United States (16.56% share), Russia (9.96% share) and Australia (8.42% share).

Korean softwood lumber imports: Imports for the first four months of 2009 compared with the same period in 2008 decreased 19.6% to 170,380 m³. Of this total, Canadian softwood lumber imports decreased 16.6% to 41,790 m³ accounting for a 24.53% share followed by Russia (21.28% share), Chile (18.71% share) and New Zealand (16.09% share).

Table: Softwood lumber Imported Volume by country

Source Korea Forest Service – Statistics of Forest Project’s Trade

Lumber Shipments Korea (MFBM)

The Official Signing of an MOU between Canada Wood Korea and KWCA

by Jae Chol Choi