Selective Cuttings

Selective Cuttings

The competitiveness of Canadian softwood lumber in China

July 24, 2014

There are pros and cons to rising lumber prices. On the positive side, rising prices created a special year in 2013 for Canadian softwood lumber exporters. The total value of exports surged, up 30% compared to 2012, reaching $7.4 billion. Exports to the two largest markets, the U.S. and China, were up 33% and 30% respectively. Growth in export volume, however, was much less strong; total export volume rose 11%, mainly thanks to the 15% rebound to the U.S. as a result of recovering housing markets, the export volume to China only rose 6%.

This represented a loss in market share, since China’s total softwood lumber imports by volume increased 19%. Many countries increased their market share at Canada’s expense, including Chile (+64% in import volume), Finland (+157%), Sweden (226%), and Germany (304%). It was Russia who contributed most of the increase (almost 1 million m3 total accounting for 34% of new Chinese imports). Since 2011 China’s imports of Canadian softwood lumber have been stagnant, while Russia’s have been rapidly increasing: from 2011 to 2013, Russia’s market share in China rose to 38% from 36%, while Canada’s fell to 40% from 46%. If this trend continues, it is likely that Russia will surpass Canada to become the number one softwood lumber exporter to China as early as 2014.

China’s softwood lumber imports

This chart shows the annual softwood imports in China, including imports from Canada and Russia from 2006 to 2013. China’s imports from Russia approached Canada’s level in 2013.

Canada’s relatively unchanged export volume to China is primarily due to price increases generated by recovering North American markets; the implied import price from Canada was up 19% in 2013 (from $193 to $229/m3), while it declined 1% for imports from Russia (from $190 to $187/ m3). While rising prices are certainly a good thing for Canadian softwood lumber exporters, they can make it difficult for Canadian exporters to diversify their markets, and to maintain the market shares they have developed in recent years. To ensure continued benefit from the growing China market, it is important for Canadian lumber exporters to continue to invest in means to improve their competitiveness.  This argues in favor of on-going investments in innovation and efficiency, in addition to developing deeper partnerships with importers given the Chinese market’s strategic importance for Canada’s softwood lumber.