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B.C.'s forest sector turns to Asia as U.S. market cools

One year after leading the province's largest-ever forestry-sector delegation to Asia, B.C.

One year after leading the province's largest-ever forestry-sector delegation to Asia, B.C. Forests Minister Doug Donaldson is taking an even larger group to three key Asian countries this winter in a push to expand exports beyond the suddenly slowing U.S. market.

Donaldson, whose portfolio also includes lands, natural resource operations and rural development, will visit South Korea, Japan and China December 5-15 with officials from more than 40 companies, research institutions, unions and trade associations. The number of entities represented by the delegation in last year's trade mission to China and Japan was around 30.The key difference, Donaldson said, is that this year's edition will include a large First Nations component. He noted that he realized during last year's trade visit that it would help for the province to put First Nations communities in direct contact with potential customers in East Asia, since most of these communities' lumber businesses lack the scale to reach Asia by themselves.

"We've consistently had conversations with First Nations communities around tenure and processing more wood locally, so it just makes sense for those First Nations who are interested in growing their economies to have representation on this trip," Donaldson said. "The major licensees can often establish their own connections - although they do find it worth their while to come along on this trade mission, as well - but there's a significant contingent of people who represent licensees that aren't as large, and this trip helps open doors and make the connections."

B.C. enjoyed a lumber-export bull market until this summer, when a sudden drop in U.S. lumber prices removed the insulation between the province's forestry industry and the softwood lumber duties imposed by the United States. Prices in the U.S. market for lumber fell to US$300 per 1,000 board feet this month from US$600.

There are additional factors contributing to a slowdown, including a shrinking timber supply in B.C. due partially to wildfires. The downturn has resulted in West Fraser Timber Co. (TSX:WFT) cutting shifts at sawmills in Quesnel and Fraser Lake and laying off 135 workers. West Fraser estimates the adjustment will take 13 per cent out of the company's B.C. production.

"There are certain things that government can do to ensure we have jobs in rural communities that depend on forestry, and there are areas where it's difficult to exert influence as a government - global markets on lumber prices, for instance," Donaldson said. "But this trade mission is one example of something where the B.C. government has a very legitimate and important role, and we are acting on it to make sure that there will continue to be rural jobs in forestry."

That official government presence is especially important in China, Donaldson said, noting last year's trade mission showed the importance of Chinese manufacturers seeing the connection between B.C.'s lumber industry and the provincial government, since the Chinese often link government involvement with legitimacy. Donaldson noted this could give B.C. a leg up on competitors like the United States, where the political representatives often do not accompany the business representatives on trade missions.

China, Japan and South Korea are B.C.'s second-, third- and fifth-largest wood-product export markets, respectively. The three markets combine to make up about 29 per cent of B.C.'s current wood-product exports, although each presents a distinct opportunity for local companies, officials said.

Japan, for example, has a rich tradition of wood-built homes and a savvy consumer base willing to pay for B.C. lumber's higher prices, said BC Wood's Asia-Pacific region director, Jim Ivanoff.

Japan builds 500,000 wood homes every year, and Ivanoff said South Korea has a similar demographic and market profile - although the market itself remains much smaller despite rapid growth.

"The Japanese market - the importers and the companies - they are paying the higher prices," Ivanoff said. "And Korea is the same to a smaller extent for structural lumber, so we are seeing a lot of potential there because the two-by-four lumber market is taking off. And people are looking for better-quality homes, both in terms of insulation, seismic considerations and just higher-quality products. So we think we can continue to grow that market."

The seismic safety issue is especially on the forefront in Korea, Donaldson said, after earthquakes that hit the city of Gyeongju in 2016 and the port of Pohang in 2017 raised public and government awareness of quake-resistant construction. The B.C. delegation this year will include researchers who are experts in that field, Donaldson noted.

China, meanwhile, is a more price-sensitive market where wood-frame construction is relatively rare in the housing industry, Ivanoff said. He noted the Chinese market uses some lower-grade B.C. wood for concrete forming and in-house items like furniture pieces, and the government discourages single-family homes to limit urban sprawl.

But Ivanoff noted there is increasing Chinese interest in mid-rise wood buildings for applications like resorts and apartment buildings, and that will need to be the direction B.C. lumber takes in marketing itself to China.

Donaldson said seniors' housing is also another emerging market opportunity in China for B.C. lumber.

"In China, due to the one-child policy, there just isn't the social structure where parents can move in with their kids when they get older," he said. "So China is now building more seniors' home complexes - they have to build them no matter what - and they are considering building them using B.C. wood. So it's that type of market expansion that we are looking at."

The lumber sector trade mission is part of a larger strategy being put in place by the provincial government. In addition to a joint federal-provincial program that will see B.C. representatives attend 15 agricultural trade shows in Asia in the next year, B.C. just concluded its participation in China's massive International Import Expo earlier this month; the 18 B.C. companies present made up roughly one-third of the entire Canadian delegation.

B.C. Minister of Jobs, Trade and Technology Bruce Ralston noted that, although there is rising protectionism south of the border, markets like China are motivated to develop trade relationships outside of the United States, which may present B.C. with an opening.

"Particularly at a time where U.S. protectionism is rising, it's important we take the opportunities where we can find them," Ralston said. "I think the USMCA [United States-Mexico-Canada Agreement] is actually an incentive to do more with other markets. Whether it's the opportunity presented by the CPTPP [the new 11-member Trans-Pacific Partnership trade bloc] that's slated to come into force at the end of the year, there's huge opportunity for us in countries like Vietnam or others. We are encouraging small businesses to think about growing beyond local."