Lumber production down (Canada), but set for growth in 2013

Lumber production down, but set for growth in 2013.

Lumber production at B.C. sawmills dipped in September as soft global demand continued to hamper a rebound in the province’s forestry sector.

Total softwood lumber production fell 3.9 per cent to a seasonally adjusted 2.38 million cubic metres from August, continuing a pattern from the end of the first quarter. Despite the weakening trend, lumber production this year has still outpaced the same period in 2011 by 2.6 per cent.

Weaker lumber exports to Asia-Pacific markets, particularly China, Japan and Taiwan, have contributed to recent production declines.

B.C. lumber shipments to China dropped sharply in recent months due to slowing economic growth, balanced lumber inventories and soft property markets.

Meanwhile, lumber exports to the U.S. also eased over the past two months following a brief period of rising shipments.

The lull in lumber production and exports is expected to be temporary as rising new home construction in the U.S. and economic growth in China increase lumber shipments.

While economic growth in China slipped to a year-over-year pace of 7.4 per cent in the third quarter, marking the third lowest pace since 2009, the economy improved heading into the fourth quarter.

China’s manufacturing purchasing managers index (PMI) rose above 50 points in October, suggesting an expansion in the country’s manufacturing sector, following two months of contraction.

Meanwhile, growth also picked up in industrial production and retail activity. Government plans to stabilize growth through infrastructure spending and construction of low-cost homes is positive for lumber demand.

The recovery in the U.S. housing market continues. Housing starts increased to an annualized rate of 894,000 units in October, extending the uptrend observed since early2011. While new home construction remains well below pre-recession levels, October starts were the highest since July 2008 and up more than 40 per cent from same-month in 2011.

Despite inconsistent economic growth, stable home prices and pent-up housing demand will continue to generate positive momentum for housing construction. Consensus forecasts peg U.S housing starts at 910,000 units in 2013, up from an expected 750,000 units this year. B.C. lumber exports are still highly dependent on U.S. demand, and further gains in U.S. new home demand will boost B.C. lumber exports and production.

Bryan Yu is an economist with Central 1 Credit Union.

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