Repap BC Collapse
Japanese Housing Starts Critical for BC Exporters
BC's waterborne lumber
exports are now heavily concentrated in Japan. Does this pose excessive long-term risk?
By Reg Barclay
Japan has drawn the attention of BC lumber exporters since the early days. It was not until the early 1960s, however, that BC started shipping regularly to Japan.
Since that time, shipments have gradually increased, as Coastal mills found that 4x4 hemlock squares could be produced profitably, and BC
Interior mills developed a market for J-Grade CLS in 2X4 housing. Today, Japan is BC's second largest export lumber market, after the US, and BC's largest offshore market. With production over the past decade relatively level, this means that BC's lumber exports are concentrated in these two markets, and shipments to Europe and other markets have become negligible. About 75 to 80 per cent of BC offshore shipments now go to Japan.
The rule for exporters has always been to maintain a broad base of markets to reduce risk in this volatile business, but BC seems to be going the other way. It raises the question, considering the longer term, is BC at risk?
Not much information is available on the future outlook for Japan. It was reassuring therefore, to hear two speakers at Charles Widman's recent Pacific Rim Conference in April in Vancouver recount some positive signs. But it's fair to say that they noted some uncertainties as well.
It is generally not well known just how large lumber consumption is in Japan. David Cohen of UBC Faculty of Forestry provided some background, based on his research report on Japan published in 1996. He noted that Japan is the world's largest building market at $US 676 billion, compared to the United States at $406 billion.
Furthermore, Japan's housing starts have exceeded US starts every year since 1987 and have ranged between 1.4 and 1.7 million per year. This despite the fact that Japan's population is about one-third that of the US. Housing starts per 1,000 population in Japan are the highest in the world at 12.8, whereas in the US it is 5.7 per 1000.
Softwood lumber consumption in Japan is the third largest in the world after the US and Russia. Wooden housing represents about half of total housing starts. Cohen noted that the population in Japan is growing at a slow rate of 0.5 per cent per year, and that beyond the year 2000, population growth will slow further. Unlike the US, where family formations are a key indicator of housing demand, Japan's housing demand is based on replacement of its outdated housing stock. Much of Japan's housing was constructed after World War II and was not intended to be permanent.
With Japan's growth in per-capita wealth and awareness of housing quality elsewhere in the world, new housing is built to a much higher quality and comfort standard. For example, new homes are 15 per cent larger than a decade ago. Allied with the Japanese love of wood, the future for lumber consumption seems secure.
In spite of the strength in demand, housing starts are nevertheless expected to decline to a range of 1.2 to 1.4 million over the next decade, according to Edward Matsuyama, of COFI's Tokyo office. However, he expects that wooden housing will not be affected much by the decline, due to the strong demand for single residences near urban centres, and the government's willingness to continue to support new housing.
The decline in housing is more related to Japan's economic climate. Japan has experienced a recession in the past five years. A tighter monetary policy in 1990 burst the bubble of the previous five years, a period of high speculation sponsored by a rapidly strengthening yen. Land and other asset values skyrocketed. With tighter money, the economy turned cautious. Land and other asset values plummeted, and rapid GDP growth dropped to zero. This resulted in a contraction of personal and corporate wealth, which depressed retail sales.
As for the outlook for lumber exports, while housing starts are a factor, more important is the log supply for domestic sawmills. Japan has a well-established industry of small sawmills which, historically, supplied the bulk of domestic lumber needs. These sawmills have been relying on imports for much of their log supply for many years.
Now this is changing. Softwood logs from the US Pacific Northwest, for example, a principal supply source, have declined 40 per cent since 1990. Other sources such as Russia, New Zealand and Chile have partially filled the gap in quantity, but not in quality. That's good news for Canadian lumber producers looking to the Japanese market.
Lumber imports now account for 10 million m3 or 27 per cent of domestic lumber consumption. The trend is to less, not more, logs available for import, and time seems to be on the side of increasing lumber imports.
Both Cohen and Matsuyama stress that Japan is a lumber market in transition. For example, the government, concerned about the high cost of housing, has opened the way for more efficient building. The craftsman builder of the traditional home is giving way to factory precutting for assembly on site to shorten construction time. Panel products and engineered wood products are rapidly gaining acceptance.
The 2x4 platform frame system is steadily gaining in popularity. In 1996, 98,000 units were built in Japan, roughly equal to single starts in all of Canada. The Japanese market once was the preserve of BC coast sawmills who could produce quality 4x4 baby squares. Now, with growing acceptance of dimension lumber, glulam, and engineered wood, other lumber-producing regions are taking dead aim at this market. Lumber imports from Europe will reach 2 million m3 in 1997. Eastern Canadian shippers are active in the market, along with Alberta. New Zealand and Chile now have reman capability to produce clear radiata pine and glulam.
While the potential to expand exports to Japan is viable for the longer term, Canadian sawmills, with a comfortable 58 per-cent share of Japanese softwood lumber imports, are certainly facing more competition.
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