After years of woe, things could finally be looking up for the forest industry.
Analysts like Russ Taylor and Paul Quinn are using the term "supercycle" to describe to what may lie ahead for the once-beleaguered sector.
With lumber exports into China now making up for most of the loss into the U.S., something of a launching pad has emerged that could see demand for lumber hit unprecedented levels once the housing market south of the border is back on its feet.
"It's all about coming out of a horrific recession and the lowest housing starts since the Great Depression," said Taylor, president of the consulting firm International Wood Markets Group. "We're looking at the exact opposite into the future, because as we rebound and as the housing market in the U.S. comes off [its struggles] and as the economy improves over time, at some point there's not going to be enough lumber to meet North American demand.
"And so, we believe it'll kick off a supercycle of strong prices, strong demand, tight supplies, that sort of thing."
Taylor predicts that by 2015 the price per 1,000 board feet of two-by-fours could roughly double to $450 as an annual average and spike to as high as $600. Lumber is currently trading at about $250.
But don't hold your breath - the turnaround is a while off.
"What I've been saying to my clients is, 'It's not 2011, it's not 2012 and it might not be 2013,'" said Quinn, who works for RBC Capital Markets. "The U.S. market is going to take a long time to come out of this, there are some serious issues there."
New home construction in the U.S. is hovering around 600,000 starts per year, compared to 1.6 million at its pre-recession peak.
All that said, there are mixed signals on how well the trend will translate into more jobs.
Both Taylor and Quinn raised the spectre of a fall down in timber supply just as demand ramps up as the last of the beetle-killed pine gets logged out.
Taylor went so far as to say sawmills in B.C.'s Interior will start to close by 2015 due to lack of timber supply.
SOME AREAS WILL SEE A BOOM
B.C. jobs, tourism and innovation minister Pat Bell acknowledged that could be a problem in one region in particular - the Quesnel Forest District where roughly 70 per cent of the stand was pine and virtually all of it was killed by the mountain pine beetle.
But he said stands in other districts hold significantly lower volumes of pine - "20 per cent, 30 per cent, 40 per cent would be a higher level" - and harvesting of the other species, like spruce, balsam and fir have been generally held back.
"We've been saving that for future," said Bell, the Liberal MLA for Prince George-Mackenzie.
The guiding hand of the market should also come into play.
In the Prince George Timber Supply Area, if there there aren't at least 185 cubic metres of timber per hectare, Bell said it's currently not considered to be a viable stand because the price is too low. Similarly, the "cycle time" for distance from the harvest site to the mill can be increased from the going rate of about eight hours as the price rises.
"As the crunch comes, lumber prices will go up, and as lumber prices go up, more of that wood will become economic," Bell said.
According to analyses he's seen, Bell said most of the province will be in good shape.
"In fact, the coast will probably thrive," Bell said. "The Terrace, Prince Rupert, Kitimat region will probably really see a significant turnaround because their timber will become really economic and they'll be harvesting more timber than they are today.
"Prince George will be OK, Mackenzie will do very well, Fort St. James will do very well.
"Quesnel is one of the biggest challenges and we have a bunch of staff doing a lot of work on that, trying to figure out how to help there."
RUSSIANS NOT A FACTOR
Taylor, Quinn and Bell all dismissed the possibility of the Russians making serious inroads into the Chinese market. The country is reportedly planning to cut its export tax on raw logs - put in place to encourage sawmilling on its home soil - to about 15 per cent from 25 per to gain entry into the World Trade Organization (WTO).
Not only did the tariff fail to spark much in the way of sawmill development but logging dropped precipitously such that access roads and bridges have fallen into significant disrepair. Loggers are also behold to the two major rail lines to ship their product and they're facing capacity issues.
"We're sponsoring a conference in China next month and we just got the paper from our Russian colleague who will talk about the Russian industry and what's going on and it's just dismal," said Taylor, who added the Russians could quickly jack the export tariff back up once in the WTO.
"There's is probably a one-to-two-year window, if the tariff was dropped, to see in any significant way an increase in their log exports."
Bell said almost every major sawmilling company in B.C. has gone over to have a look at opportunities in Russia and everyone has concluded the country is not ready for an organized system of governance that provides enough certainty to make an investment worthwhile.
"I think people underestimate the complexity of a large scale forest industry like we have in B.C.," Bell said. "A new sawmill today is well in excess of $150 million to build. The technology is very complex in these mills, the equipment to harvest is advanced."
Bell said South American countries in particular are developing their forest assets but predicted that competition will come in the form of product substitutes such as steel studs and vinyl siding as the price of lumber rises.
"I think you have to be cognizant of your competition but you really need to focus on your own game and make sure you're executing effectively," Bell said. "If you do that, you're going to win. If you spend too much time worrying about things that are outside your sphere of influence or control, then I think it can be far more challenging to be successful."
There is still some suffering to endure. Even though the Chinese are paying a premium for B.C. lumber over the going rate for the U.S., sawmills are still struggling.
"Canfor and West Fraser both lost money last quarter because prices were not very good on lumber," said Taylor. "The B.C. Interior is the lowest-cost producing region in the world right now and everyone's taking advantage of that. but it's a bit of a slippery slope.
"The more they produce, the more they provide for the market, the market's oversupplied and if we're not having any growth in demand, which we're not, then the market gets kind of flooded and the prices stay low, so that's kind of the cycle we're in right now."
