China Market Update

Economy

Unemployment up - Exports down.

• GDP - 6.8% growth in Q4 2008 - down from 9.0% in Q3.
• Unemployment - 20 million new jobless migrants to add to the 4.5% official rate.
• Exports - 14 % decline (year on year) January 2009.

While these numbers are not positive, the bad news is balanced by the good news from China's powerful monetary measures. According to Dragonomics China issued 1.2 trillion RMB in new loans in January, which is about triple the monthly amount issued in 2008. This new liquidity not only provided a boost to the Shanghai Stock Exchange (the composite index is up 20% in 2009), but it's also building confidence that the government will be able to sustain a 7% - 8% growth rate this year.

Exchange Rates

After a year of steady appreciation, the Chinese Yuan (RMB) has tapered to the point where trading is fluctuating around 5.5 to the Canadian dollar. Twelve months ago one Canadian dollar was worth 7.2 RMB; a change resulting in Canadian goods becoming 24% more affordable in China.

The direction of the RMB in the coming year is uncertain. There are good arguments supporting both a currency appreciation and depreciation. Reasons to strengthen the Yuan include increasing China's buying power of imported commodities and improving relations with the United States, who have long complained that China's currency is under-valued. On the other hand, weakening the Yuan would aid China's slumping exports and help to restore the Yuan's relative position with other Asian currencies.

China's central bank is proceeding quietly. Governor Zhou Xiaochuan is prone to making vague comments that conceal his intentions, like this recent statement about the Yuan; "...it will be kept stable at an appropriate balanced level".

Housing Market

House prices are expected to decline 10% nationwide in the first quarter of 2009 with falls as large as 20 - 35% in some cities. [Chinese Academy of Science] This can be interpreted as a healthy correction as house prices in the most expensive markets accelerated over the last decade to 6 -12 times annual income. While housing supply currently outweighs demand, demand in the mid-term is expected to pick-up late in the year in response to loosening credit and other stimulus measures.

Based on a Dragonomics estimate, there were more than 20 million units of housing under construction in 2008. Housing starts began to slow noticeably in the end of 2008, but are expected to recover late in 2009 and regain a growth rate of 10 - 15% through 2011.

SPF Imports

(Source: Statistics Canada Computer Data)

Much of the SPF consumed in this growth trend continues to be used in 'utility' applications rather than structural applications in China's vast housing market. Although there are over 5 million housing units built per year, concrete, brick and steel are the primary structural materials. Although difficult to determine, likely less than 10% of the exports are utilized in wood-frame construction. A confidential survey of COFI members revealed that on-grade 2 & Btr shipments climbed to 75 mmfm in 2008 versus 25 mmfbm the year prior: an encouraging trend. Canada Wood is addressing the challenge of improving the grade mix of SPF exports to China with several programs aimed at increasing the capacity to use, structural lumber, landscaping lumber and some specialty lumber. 2009 focus on reroofing, infill walls and Sichuan reconstruction should increase the percentage use in wood-frame construction.

SPF Shipments (MFBM) - period to Nov'08 inclusive

After a slow down in exports in July and August, SPF shipments to China in September, October and November. November'08 recorded the highest monthly shipment of SPF to date.

Focus Areas in 2009

Canada Wood's China focus for 2009 to increase SPF exports for wood frame construction is in three areas:

1. re-roofing for multi-family units, especially in Shanghai as part of the government's 600-day program leading up to Expo 2010 where several thousand buildings will be re-roofed;
2. Sichuan reconstruction, especially targeting low-cost "farmers" houses; and
3. infill & partition walls.

Wood Frame Homes for Rural Sichuan

by Brad Spencer

At an MOU signing between the government of QingChuan County and Canada Wood Mr. Li Kaiming, the First Deputy Mayor of QingChuan County told BC's Forestry Minster Pat Bell about the urgent need to provide quick and economical housing for the residents of his and neighbouring counties. He also expressed gratitude for Canada's commitment to provide wood frame building technology to their reconstruction effort.

The mayor's office is determined to move everyone out of the temporary housing camps by the end of September 2009. Families whose homes were destroyed in the quake will each receive a government grant and a loan to help purchase a new home. The combined sum of the government funds with people's modest life savings amounts to a budget of $10,000 to $15,000 CAD per house.

Steve Ross, Canada Wood's Deputy Director of Training, spent most of this winter in Sichuan sourcing materials, recruiting workers, and developing very low-cost house solutions. Three model houses, under construction now, will provide displaced residents with different lay-outs from which to choose. In the meantime, Mayco Lou, Canfor's President-Asia Region, initiator of the relationship with the QC government, has been busy organizing the logistics of transporting the first twenty containers of lumber to Sichuan. The SPF in this shipment was sourced from the mills of West Fraser, Tolko, Interfor, Interex, and of course, Canfor. Mayco refers to this array as the "United Nations brand SPF".

Model houses vary from 80 to 220 m² with one and two floor layouts. Keeping with the local vernacular , there is minimal wiring and plumbing as typical farm houses use outhouses and a shed-kitchen. One key approach to managing the costs is to offer unfinished homes that will be completed by the owners themselves in the coming years.

While the display homes are under construction, another crucial task being tackled is to organize the capability to build these homes in the small mountainside villages of QC County. Local Sichuan masonry builders are being approached as are post and beam firms, and wood frame builders from Eastern cities like Shanghai. A special Sichuan session of Canada Wood College is scheduled for March to train workers specifically for the rebuilding of QC.

A hoped-for outcome would see local builders apply experience gained in QC by securing additional contracts elsewhere in Sichuan and rural China.

WFC model house built by Canada Wood in QingChuan County. February 6 2009. (Steve Ross)

A young Sichuan child stands in one of several temporary housing camps in QingChuan.

WFC model house built by Canada Wood in QingChuan County. February 6 2009. (Steve Ross)

A young Sichuan child stands in one of several temporary housing camps in QingChuan.

Shanghai Mayor Han Zheng Gives Thumbs Up to Canadian Built School

by Paul Newman

Mayor Han, ranked in China's Top 50 most powerful people, first met COFI in 2002 when he was Shanghai's Vice Mayor of Construction.

On February 9th Shanghai Mayor Han Zheng - senior in the Chinese government hierarchy and ranked as one of China's 50 most powerful people- visited the construction site of Xiang'e school in Dujiangyan, a renowned beauty spot in Sichuan. The original school building was devastated by the May 12th Wenchuan earthquake resulting in great loss of life of students and teachers.

Last June, Premier Gordon Campbell and NRCan Minister Gary Lunn, committed $8 million to assist with reconstruction of much needed facilities in Sichuan. The first phase includes the school, a disabled persons care center and a home for the aged; all in the afflicted region. Canada Wood is supporting FII China by providing quality assurance personnel as needed.

The visit of Shanghai's Mayor is significant due to Mr. Han's long association with Canada's wood initiatives in China. In 2002, he first met former COFI president Ron McDonald and industry CEO's in his capacity as Shanghai's Vice Mayor of Construction. He also conferred with Premier Campbell in 2003 and 2006. An enthusiastic supporter of the wood-frame concept, Han advised Canada Wood to develop wood building codes, undertake cooperative work with Tongji University and educate builders. All of this and more has been put in practice.

In the 'quake aftermath, Shanghai was assigned by the State Council to assist Dujiangyan recover from the catastrophe. Shanghai tasked Tongji's in-house design institute to handle design of the new seismically safe school. Wood-frame construction was thus a logical choice for both Tongji and Mayor Han and an illustration of how long-term engagement can yield surprising results.

Mayor Han (middle) Surveys the Construction of Sichuan's Xiang'e school - built with Canadian lumber.

Chinese Vocational College Embraces Canada Wood to Provide Carpentry Training

by Steve Ross

BC Forest Minister Pat Bell meets participants of Canada Wood College in Sichuan.

Sichuan CW College participants building small scale house.

Graduates of Canada Wood College in Sichuan. Term 1.

Sichuan's May 12, 2008 earthquake, the nineteenth deadliest of all time, killed at least 69,000 and destroyed about $146.5 billion of infrastructure & buildings. Today, cities, towns, and villages remain in a state of crisis as the government struggles to rebuild and provide housing for displaced millions. The Chinese word for "crisis" 危机 is composed of two characters, one representing "danger" and the other representing "opportunity. As dangerous and tragic as the earthquake was, it has provided an opportunity for better building solutions. Although the opportunity for wood frame is significant, equally significant is the daunting challenge to train and develop a skilled workforce quickly enough to meet the growing demand for wood frame construction.

As part of the Sichuan initiative, staff of the Sichuan College of Architectural Technology (SCAT) and the CW team are preparing for the second session of CW College - Builder Training (Level 1), being held March 2nd - 20th, 2009. Recruitment, will focus on companies already working in the earthquake reconstruction area to provide them with the skills they need to build wood frame houses.

The first rendition of Canada Wood College - Sichuan was held in November 2008 and trained 22 enthusiastic students. Forests Minister Pat Bell and CEO's of Canfor and West Fraser Timber stopped by to observe CW College in action and encourage the students.

Mr. Liu Changkun, director of SCAT, highly praised the first session of CW College and has supported the notion of collaborative training at SCAT from day one. "Canada Wood has shown us their commitment to training and to introducing wood frame construction to the Sichuan region. The visit by Minister Bell and the industry delegation gave me a feeling of confidence. SCAT is honoured to have an opportunity to work together with Canada Wood. This is a suitable system for Sichuan and I believe it can be developed into a mainstream building method for the Sichuan area." He also expressed hope for erecting and finishing a wood frame structure, built on campus by the students, illustrating the building system and its advantages.

CW College - Builder Training at SCAT not only quickstarts rebuilding in devastated Sichuan, it creates a platform to develop the young people who will become tomorrow's leaders in China's construction industry.

Report Concludes "Wood is Safer"

by Haiyan Zhang

A post-quake survey report by FP Innovations entitled "Earthquake Reconstruction & Safe Buildings" reveals that wood frame construction suffered significantly less damage during the May 12th 'quake than structures built with other materials. Studied were two 2-storey wood-frame houses are located at the outskirts of Dujiangyan, 21 km from the epicentre of the Wenshuan Earthquake. Located adjacent to each other and built in 2007 they are situated alongside concrete houses of similar style. House A is a two-storey single-family dwelling with floor area of 315 m² and House C is a two-storey duplex with approximately the same floor area.

No apparent damage could be seen in both houses. Upon close examination, however, several narrow cracks were observed at the corners of the doors and windows and in the corners in the bathrooms and the kitchen on the interior of the building.

In the immediate vicinity were new two-storey concrete single family and duplex residences. These buildings can be expected to have been subjected to the same ground motions.

The concrete house 1 which is located next to the two wood frame houses suffered a 2 - 3cm wide gap at the joint of the stone walk-up steps and the building foundation. On the inside there was extensive damage to the wall finishes and the brick infill of the concrete frame.

House Type A

House Type C

Concrete house 1, Houses Types A and C in background.

Separation damage to front entrance steps.

Damage to interior infill walls.

Damage to interior infill walls.

Minor cracking in the two wood-frame houses is easily repaired. These cracks will not compromise the structural integrity of the buildings. The neighbouring concrete buildings of comparable size showed significant cracking and failure of the infill walls representing a potential danger to the occupants and to the integrity of the building demonstrating that WFC houses suffered significantly less damage than concrete houses of comparable size.

SPF in roofing application a focus in 2009

by Lance Tao

Several months ago, Shanghai government issued a call to upgrade the City's six-storey walk-up apartments by 2010 to beautify the Shanghai World Expo. According to the so-called "600-day plan", an estimated 10,000 older buildings (44 million sq. m.) will be roofed representing a market for 95 million board feet of SPF lumber. Canada Wood and FII China are collaborating to expand the use of wood trusses into this enormous market.

A recent milestone is the issuance of The Light Wood Roof Costing Protocol by the Shanghai government. Proclamation of a construction cost protocol signals the Shanghai government's formal approval and acceptance of truss technology and will greatly enhance entry of wood truss into local projects. Similarly The Wood Truss Standard Drawing Manual to be issued later this month in Shanghai will facilitate expanded usage.

The construction cost protocol is a construction cost guideline for government-funded projects aimed at optimizing the tendering process. It establishes the price for labour, materials and also sets timelines for construction with different construction materials. "Its issuance has made wood truss roof system equal to the traditional light steel roof system, which currently dominates the re-roofing sector. It will be a helpful decision tool for builders." said Mr. Zhou Yi, General Manager of Xu Fang Group, a local builder responsible for the Xuhui reroofing project.

During 2008, a series of FII facilitated wood-truss re-roofing projects occurred in districts of Shanghai including, Zhabei, Hongkou, Putuo, and Luwan. Discussions are also undergoing with Yangpu and Huangpu districts for another two commercial wood truss re-roofing projects.

After success in Shanghai and Qingdao, Nanjing, capital of Jiangsu Province became the third city in China to embrace the wood trusses. Eight apartment buildings of 1460 sqm were roofed and received extensive media coverage. According to the Nanjing Housing Bureau, the city will use considerably more wood truss re-roofing systems in 2009.

It is estimated that the five new commercial wood truss re-roofing projects are using a total of 192 thousand board feet of on grade SFP lumber from B.C.

Hongkou Re-roofing jobsite

Zhabei Re-roofing jobsite

Design Training Results in 100 New Homes

by Kerry Haggkvist

"Buy, buy, buy" is one message Canada Wood is sending to Chinese builders when talking to them about structural lumber. One group of professionals who can send the same message is designers.

Designers wield a significant amount of influence in determining whether houses are built of steel, concrete or wood. Consequently, reaching out to this group to encourage wood use can result directly in an increased volume of sales.

Recently CW offered a two-week training course for designers. Operated similar to a university, the course included full-day classes with lectures, practice exercises and tests. Applications were accepted from nearly 100 interested participants and then screened to ensure attendees would make a commercial impact after graduation. Thirty designers from construction companies and design firms throughout China were chosen to be participants in the program.

Marketing structural lumber requires that designers understand its properties and how to properly use it via prescriptive span tables or engineered calculations. But they also need to know how the components fit together. During two week course, each person assembled a small model house, all pieces being 1:15 scale of actual boards. Feedback included:

"This is a great course!" "We all got a systematic understanding of wood frame design through this training"

"My perceptions of wood frame design and construction have been changed forever."

"The hands-on construction of a small model home was brilliant. We learned how each component fit together."

Results of the course were immediately evident. A month after graduation on December 19, Mr. Zhao Hui sent a letter to Canada Wood stating that the training helped his company finalize project designs for 100 wood frame villas. Not to be outdone, Mr. Peter You, Design Manager Engineer from Fujian also wrote, saying that after the training, he decided to go ahead with plans for a number of wood frame buildings ranging from 60 to 400 square meters.

Who knew that so soon after saying our bye bye's to our participants that they would be saying "buy buy" to their clients.

Participants building 1:15 scale 2X4 model house.

Kerry Haggkvist of CW teaching lumber properties.

Long time international design instructor Herb Otto reviewing students' design.

Graduation Class: Thirty designers hand-picked from more than 100 applicants.

Shanghai Local Code Mission

by Paul Newman

Interest in wood-frame construction (WFC) has been high amongst Shanghai builders and government regulators since Canada Wood first set up shop in 2001. To solidify the regulatory foundation off of which grow the sector, in 2006 Canada Wood and the Shanghai Municipal Construction and Management Commission (SMCMC) jointly committed to develop a provincial WFC building code for Shanghai.

The need for a local code was predicated on the unique climatic, loading and construction practice circumstances found in the Shanghai area. Moreover, the national wood design code GB50005 did not adequately address many critical areas of building guidance.

Led by Dr. Chun Ni of FP Innovations and supported by Shanghai-based Project Director Jennifer Yu, Canada Wood and a cast of Canadian building experts devoted countless hours to technical dialogue, clause drafting and review/revision. They worked closely with counterparts at Shanghai Modern Architectural Design (SMAD), China's largest design institute and the SCMC designated Chinese drafter.

In the fall of 2008, the milestone 'Draft for Comments' document was completed. A round of consultations and meetings with key Chinese experts followed. Finally, in December 2008 Canada Wood hosted a delegation to Vancouver comprised of key departmental officials assigned for the final review/approval of the code. The group included building inspectors, code administrators and fire officials with the Public Security Ministry. The intensive week included technical discussions concerning key aspects of the code plus exposure to residential building construction crowned off by a visit to the Olympic Oval in Richmond. The group left Vancouver much satisfied and assured with integrity of the code and its suitability for Shanghai.

It is anticipated that Shanghai local code will be approved and promulgated in the first half of 2009. Apart from providing detailed guidance to the Shanghai building industry, the code should form a useful template to deliver to other promising municipalities and regions across China.

Members of the Shanghai Code Approval Committee Visit Wood Frame Construction Site in Greater Vancouver

UK Market Update

by Patrick Cooper

The National Institute of Economic and Social Research projected that the UK economy will shrink by 2.5% in 2009, and concerns over the economy have led the Bank of England to cut UK interest rates to a new record low of just 1%. Most commentators do not forecast any recovery before the second half of 2009, but nevertheless the rate of contraction in the manufacturing sector appears to be slowing, and retail sales have recently performed more strongly than expected.

Official figures now show that total construction orders, adjusted for inflation, fell below 2bn in November 2008 for the first time since monthly records began in January 1983. It is apparent that 1.8bn of orders were placed in November, down 39% on the same month in 2007. The Construction Products Association's recent forecast suggests that construction output will fall by 8.5% in 2009, a further 4% in 2010, and then 0.1% in 2011 before increasing by 2.5% in 2112.

Demand is being stifled chiefly by uncertainty and limited access to credit. However, the government is committed to ambitious house building plans, in recognition of evident shortfall of supply in relation to need, and its support has helped lead to projects such as plans to build 4,000 homes, along with schools, nurseries and transport improvements in East London, and build around 2,500 homes in Sheffield in the next 10-15 years.

The National Softwood Division of the Timber Trade Federation has revised down its softwood import volume forecasts for 2009, following rapid deterioration in the economy. The revised forecast now predicts that softwood import volumes in 2009 will amount to 5,361,000m³. Some importers believe the figure could fall as low as 5 million m³, particularly as there is little sign of recovery in the housing market.

The downturn in sawn softwood sales, combined with adequate stock levels in the UK, has caused a virtual lack of interest in the forward market, cargo volumes have plummeted, and this has severely impacted those softwood agents who are not involved with selling from quayside. Traders are keeping inventories as low as possible, and where softwood dimensions become depleted, stocks are being topped-up by Swedish, Finnish and British suppliers. Prices have largely bottomed-out now that panic selling has largely ended as a means to release liquidity from overbought goods. Feedback from importers suggests that the current market price for KD carcassing (FOM) is £120/m³, and for CLS it is £100/m³, though cheaper deals are always possible under present conditions. There are indications now that mills in northern Russia, Sweden, Finland and Germany are cutting production as a counter to weak demand, declining sawn wood prices and higher manufacturing costs, and production must be controlled if price stability is to be maintained.

Some Baltic mills have responded to the current situation and achieved a level of success in the UK by offering tailored specifications in line with buyers' specific requirements, and have been able to supply long lengths at premium prices. Other smaller Baltic companies have been curtailing sawmilling activities and changed to start producing value-added products such as fencing panels, laminated sections, joinery components and timber buildings. This has resulted in better conversion yields and increased profit margins.

There are some expectations that the UK softwood market will rebound by the end of 2009, and that there will be a surge in prices. This could result from lost production capacity and reduced ability to finance purchases and stock, combined with an upturn in demand for sustainable building materials driven by public sector housing demand. In response, German suppliers are gearing up to supply the UK market, supported by a trade funded marketing initiative. Germany has one of the largest forest inventories in Europe, the majority of which is certified under either the FSC or PEFC schemes, and its sawmillers have invested in capacity that enables the industry to supply products that include high-quality dried and planed timber, solid structural timber and glulam.

The UK economy is currently in recession, finance is very restricted, the government is trying to establish new direction, and there is a mood of uncertainty. The situation has impacted negatively on house building and sales, and consequently on the demand for timber and wood product. There appears to be a current tendency amongst homeowners to improve rather than move and market opportunities lie with wood products suitable for home improvement, interiors and furniture. The government is expected to invest in sustainable housing, and it is just a matter of time before the demand for softwood lumber will return.

Canada Wood UK - 10 Feb 09

Will CLS Lumber Gain Market Share in EU?

by John Park

Its popularity was such that European and Scandinavian producers, realising the potential, started shipping graded lumber with similar dimensions and eased edges into the UK market. It was this material that sustained the 'CLS' market in the timber frame industry when Canadian volumes to the EU slumped in 1991. It has also found favour as a framing material in The Netherlands and Ireland. The superior handle-ability of the CLS profile has been further recognised more recently with the introduction of 47mm (finished!) thickness lumber, common throughout the EU, with eased edges.

47mm finished thickness is also increasingly popular for both wall framing and attic trusses within the EU and together with 35mm finished thickness has, for many years, been the staple of the UK trussed rafter industry which also enjoys a length specification in one-foot increments, invaluable in this particularly price-sensitive sector. The EU trussed rafter industry also consumes a large proportion of machine graded (msr) lumber. This makes especially interesting the recent reassessment of msr grades and resulting allocation to higher EN strength classes, potentially beneficial to both Canadian producers and EU consumers.

With a proposed set of span tables to include Canadian structural grades (including msr), species and dimensions most commonly exported to the EU, to complement new technical documentation necessary for when EU national timber design codes are withdrawn in 2010 to be replaced by Eurocode 5, the technical obstacles to the use of Canadian lumber within the EU will be effectively overcome. So, what about the commercial obstacles?

Companies willing to consider 47mm finished thickness in an enhanced range of widths could find some very lucrative opportunities within the EU. And you never know, 47mm might even catch on in North America!

This attic truss is a good example of 47mm timber (MSR) construction in the UK.