The mountain pine beetle epidemic will be both a boon and a bane for British Columbia, however, there is more good news than bad in the lumber sector's future, forest industry consultant Russ Taylor told a Prince George audience Wednesday.
While the beetle epidemic will eventually reduce the timber supply in north and central BC., it is also one of the elements that will add to supply-side timber constraints leading to increasing pressure on prices, Taylor said at a Business Development Bank of Canada-hosted session at the Ramada Hotel.
Taylor expects the U.S. housing sector to rebound slowly, with a more serious uptick taking place next year. But China has added a new element with its rapidly increasing demand and the massive scale of its market, he stressed.
The imbalance in demand and supply -- with the beetle epidemic playing a key role -- will lead to significantly higher pricing in the middle of this decade, said Taylor, one of the leading forest-industry analysts in British Columbia.
"We've come through a really tough time the last three of four years, but there's a lot of good news ahead - some sort of super cycle is coming," said Taylor, the president of the International Wood Markets Group Inc.
Taylor pegged the beetle epidemic reduction at 20 to 25 per cent of the timber supply in British Columbia, which will be felt in the next decade.
Work carried out by a trio of consultants, including the Wood Markets group, estimated that reduction would result in the closure of 16 sawmills.
But the smaller lumber sector would benefit from higher prices as the U.S. housing sector, still B.C.'s No. 1 market, rebounds slowly.
The U.S housing sector reached a peak of 2 million starts in 2005, but the bubble burst in the midst of the sub-prime mortgage crisis, which also had a devastating ripple effect in the global financial markets.
Housing starts in the U.S. remain under 600,000, and not until they reach one million would you see significant upward pressure on prices, noted Taylor.
But prices are higher than they would normally be in the U.S. now because of increased demand in China, explained Taylor.
B.C. lumber producers, including those from north-central B.C., shipped a record amount of lumber to China in 2010. The B.C. government, which has been promoting the use of lumber in construction in China, hopes to increase shipments to 4 billion board feet this year from 2.8 billion in 2010.
Taylor, whose company maintains an office in China, said it is hard to grasp the scale and growth of the forest products sector in the country.
For example, China is the No. 1 producer in plywood, medium density fibreboard and furniture, and the third largest softwood lumber producer behind the U.S. and Canada.
China has a growing wood fibre deficit, which stands at 100 million cubic metres today. "Only more wood is going to go into China," stated Taylor.
During a question and answer session, John Brink, who heads up Brink Forest Products in Prince George, said there is a downside to exporting low-grade lumber to China. It reduces the supply available to local producers like himself, said Brink, noting many remanufacturers in B.C. have shut down.
Central Interior Logging Association official Roy Nagel also added that if demand increases it will by hard to ramp up logging levels because investment dollars and labour are in short supply.
