Selective Cuttings

Unit price of Canadian lumber exports to China continue to rise.

January 25, 2013

The Random Lengths Framing Lumber Composite price had an amazing run of price increases 14 weeks in a row before reaching US$400 on January 18, 2013. The combination of rising prices and growing demand from the recovering U.S. housing markets, (total housing starts in December jumped to 954,000, up 37% y/y), has pushed the value of Canadian lumber exports to the U.S. between January and November to be 22% higher than for the same period in 2011. Lumber export volume was up only 9%, showing the export unit price was responsible for the increase much more than increased volumes.

Surprisingly, lumber exports to China show a totally different scenario. Through January to November 2012, export volume also changed very little but, unlike exports to the U.S., the value of Canadian lumber exports to China actually fell 6%. Why is this? Basically, the unit export prices to China were low for most of the first half of 2012 (see figure)1. For instance the implied price of lumber exports to China in January 2012 was down almost 20% compared to January 2011. The lower price was likely reflecting a slowdown of lumber demand from using up inventories at the same time as the housing market in China was slowing: the restrictions on the purchase of investment property (early 2011) caused a slump in home sales which led to a decline in housing activity six months later. While housing prices have stabilized, household incomes have continued to rise and have been accompanied by strong urbanization, pushing up demand for housing in cities from mid-2012. Renewed construction activities (even if more moderately paced) combined with the continuation of expected completions have sustained the lumber price rally since June 2012 (see figure). Average export price to China is now higher than the average price of export to the U.S. (see figure).

Average Canadian lumber export implied prices

This chart shows the trend of average prices of the Canadian lumber exports to the U.S. and China from May 2007 to November 2012.  The average export prices to China remained depressed in the first half of 2012 before rising sharply in the second half. The average price of lumber exports to China in January 2012 was down almost 20% compared to same period of 2011 but surpassed the average price of exports to the U.S. by November.

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Going forward, a steady demand and rising lumber prices should help the value of lumber exports to China to increase in 2013.

1 Implied prices are calculated from export volume statistics and export value statistics. They are generally considered less informative than explicitly measured prices, due to higher uncertainties in the data and a lack of information on how quality impacts the prices. However, they are a useful measure when considering the importance of exports at a national scale.