Matching market signals to the Canadian wood products value chain

Matching market signals to the Canadian wood products value chaina disaggregated trade-flow analysis

Chris GastonWei-Yew Chang

Mahsa MojahedniaDepartment of Wood Science, UBC

FPInnovations

February 20, 2014

Some context: wood-use in the U.S.

Gaston Feb. 2014 Page 2 of 13

Source: RISI, Boston, Massachusetts

US housing starts


Source: US Census Bureau

‘Stick-built’ platform frame construction

The average cost of rough framing, sheathing, soffit, and door / window installation is as low as $8 per sq. ft.($16,000 for a 2,000 sq. ft. home)


Pre-fabricated / modular construction


Move to 6-story multi-family Library Square, Kamloops, BC, 2010

Source: WoodWorks


Move to 6-story multi-family Residential, University of BC, 2013

Source: Adera, Vancouver


Six story hybrid wood-concreteOffice building, Quebec, 2010

Source: FPInnovations


Six story hybrid wood-concrete

Source: FPInnovations

Concrete cores / walls to resist lateral loads

Glulam post & beam


Five story hybrid wood-concrete

Source: Perkins + Will

Earth Sciences Building, UBC


Five story hybrid wood-concrete

Source: Perkins + Will

Earth Sciences Building, UBC


‘Tall Buildings’

“We are in a unique moment in architectural and building engineering history when shifting world needs has asked us to question some of the fundamentals of how we have built for the last century and how we will build in the next.”

Michael Green

Source: Michael Green Architecture


Disaggregated trade-flow analysis

Based on the Forintek Global Trade model (Gaston & Delcourt 1998, Gaston & Marinescu 2006)

Demonstrates the value of disaggregating production, consumption, and trade data into a “like” softwood lumber products.

2013/14 A comprehensive trade forecasting tool for two categories of lumber:

‐ US construction / US industrial and China ‐ US home centre +, Japan, Europe

2014/15 Add new categories of lumber, pellets, and logs (saw logs, pulp logs and fuel wood).

Who wins the fibre auction? VCO implications (strategic and policy)


Questions?Chris Gaston, Ph.D.

[email protected] [email protected] 827 1417

Matching Market Signals to Canadian VCO: A Disaggregated Trade-Flow Analysis

Wei-Yew Chang & Chris GastonDepartment of Wood Science, UBC

VCO Webinar Winter SessionMarch 05, 2014

The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Introduction¨ Spatial equilibrium models have been frequently used by

researchers to analyze trade flow changes in forest products markets.

¨ Studies tended to use aggregated product groups (e.g. lumber, plywood etc.) and assumed various products are homogeneous.

Research Questions:¨ How to address the issue of forest products homogeneity?¨ What are the implications of ignoring homogeneity in strategic

value chain optimization and policy planning?

Research Objectives (achieved)1. Disaggregate global softwood lumber into two product groups: Higher grade lumber (SWL #1) (appearance, select structural, and Japanese-J grade).

Lower grade lumber (SWL #2) (U.S. dimension used in construction and utility/economy grade).

2. Utilize & develop a spatial equilibrium model to project future disaggregated softwood lumber trade flows (2011-2021)


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Research Methods Forintek Global Trade model (Gaston & Delcourt 1998, Gaston & Marinescu 2006)

-Demonstrates the value of disaggregating production, consumption, and trade data into “like” softwood lumber products.

-Considers n regions spatially apart and transportation costs are considered when determining prices and quantities that maximize total economic welfare (surplus) in the market.

𝑚𝑎𝑥∑𝑖

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Research Methods 13 Countries/regions 7 Net supply (export) regions: Canada, U.S. Export (mainly from

U.S. West), Europe Export (i.e. Germany, Austria, Finland, Sweden, Estonia, Latvia, and Lithuania), Russia Federation, New Zealand, Chile, and Rest of World Export.

6 Net demand (import)regions: U.S. Import (mainly from U.S. South and North), Japan, Korea, China, Europe Import (i.e. Norway, Switzerland, and EU-27 countries other than the Europe Export countries mentioned above), and Rest of World Import.


Research Methods Data sources (2011 as base year) 1. Trade flow data - Global Trade Atlas® (HS Code-4407)

2. Two Price categories to separate two product groups - Net export regions: (i) US$150/m3 & up (~$350/MBF) SWL#1 (ii) Less than US$150/m3 SWL#2 - Net import regions: price categories above + transportation costs

3. Production, consumption, transportation costs, and price elasticity data

- FAO, Statistics Canada, government reports, and other studies


Results Aggregated vs. disaggregated trade flows (2011) Calibrated base case results (2011) Predicted trade flows for the 2011-2021 period


Aggregated Softwood lumber Export to import region

US Imports

Japan Korea China Europe Importc

Rest of World

Total Exports

Canada 20,735.5 2,730.4 322.3 7,395.7 261.0 1,645.3 33,090.2 US Export 9,075.5 413.3 37.4 1,023.0 62.9 2,603.4 13,215.5

Europe Exportb 258.9 2,066.6 110.4 409.1 18,846.2 7,375.3 29,066.5 Russia

Federation 0.0 1,077.8 285.5 6,856.7 1,521.0 5,313.2 15,054.2

New Zealand 167.9 142.6 150.4 386.2 19.6 1,035.0 1901.7 Chile 696.0 342.1 279.4 880.9 62.3 1,458.1 3,718.8

Rest of World 538.4 802.6 105.1 163.7 4,740.4 1,859.2 8,209.4 Total Imports 31,472.2 7,575.4 1,290.5 17,115.3 25,513.4 21,289.5 104,256.3

Disaggregated softwood lumber # 1

Export to import region

US Imports

Japan Korea China Europe Importc

Rest of World

Total Exports

Canada 5,172.5 2,730.4 321.9 1,070.7 261.0 1,644.2 11,200.7 US Export 1,815.1 413.3 35.7 933.3 62.9 2,602.3 5,862.6

Europe Exportb 258.9 2,066.6 110.4 409.1 18,846.2 7,375.3 29,066.5 Russia

Federation 0.0 1,077.8 285.5 49.8 1,521.0 5,313.2 8,247.3

New Zealand 167.9 142.6 150.4 386.2 19.6 1,035.0 1,901.7 Chile 187.5 342.1 279.4 51.6 62.3 27.0 949.9

Rest of World 538.4 802.6 105.1 163.7 4,740.4 1,858.2 8,208.4 Total Imports 8,140.3 7,575.4 1,288.4 3,064.4 25,513.4 19,855.2 65,437.1

Disaggregated softwood lumber # 2

Export to import region

US Imports

Japan Korea China Europe Import

Rest of World

Total Exports

Canada 15,563.0 0.0 0.4 6,325.0 0.0 1.1 21,889.5 US Export 7,260.4 0.0 1.7 89.7 0.0 1.1 7,352.9

Europe Export 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Russia

Federation 0.0 0.0 0.0 6,806.9 0.0 0.0 6,806.9

New Zealand 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Chile 508.5 0.0 0.0 829.3 0.0 1,431.1 2,768.9

Rest of World 0.0 0.0 0.0 0.0 0.0 1.0 1.0 Total Imports 23,331.9 0.0 2.1 14,050.9 0.0 1,434.3 38,819.2

Results- Aggregated vs. disaggregated SWL Trade flows in 2011(‘000 m3)

• 25% and 75% of Canadian SWL exports to US are SWL#1 and SWL #2, respectively.

• 100% of Canadian SWL exports to Japan is SWL #1.

• 85% of SWL exports to China is SWL #2.


Calibrated base case results (2011)


Region Production Consumption Price Million m3 % of Actual Million m3 % of Actual $/m3 % of Actual Softwood lumber #1 Canada 17.51 98.1% 6.70 100.6% 234 99.4% US_EX 11.99 98.6% 6.34 100.7% 219 99.3% EU_EX 61.55 98.8% 33.39 100.6% 263 99.4% Russia 15.72 98.8% 7.72 100.6% 243 99.4% NZ 3.89 98.9% 2.04 100.5% 330 99.5% Chile 1.64 98.7% 0.72 100.5% 289 99.5% ROW_EX 17.28 98.3% 9.44 100.7% 223 99.3% US_IM 8.66 98.7% 16.56 100.7% 226 99.3% Japan 9.22 99.2% 15.93 100.4% 359 99.6% Korea 2.95 98.8% 4.11 100.6% 248 99.4% China 3.97 98.7% 7.43 100.7% 224 99.3% EU_IM 33.22 98.7% 58.44 100.7% 229 99.3% ROW_IM 33.83 98.8% 52.62 100.6% 259 99.4% Softwood lumber #2 Canada 34.53 99.0% 13.23 101.7% 139 99.7% US_EX 15.05 98.7% 8.07 102.2% 110 99.6% EU_EX 0.0 n/a 0.0 n/a 0.0 n/a Russia 13.03 99.2% 6.46 102.1% 114 99.6% NZ 0.0 n/a 0.0 n/a 0.0 n/a Chile 4.78 98.7% 2.12 102.2% 109 99.6% ROW_EX 0.00 99.0% 0.00 101.7% 144 99.7% US_IM 26.06 98.9% 50.27 101.8% 131 99.6% Japan 0.0 n/a 0.0 n/a 0.0 n/a Korea 0.66 99.0% 0.92 101.6% 148 99.7% China 13.79 99.3% 25.78 101.2% 194 99.8% EU_IM 0.0 n/a 0.0 n/a 0.0 n/a ROW_IM 1.80 98.9% 2.83 101.8% 132 99.6%

Calibrated base case results (2011)

US_IM Japan Korea China Europe_IM ROW

5.48

1.070.19

0.56

1.80 1.71

5.17

2.73 0.32 1.07 0.26 1.64

Canada Exports SWL #1-2011

Projected Actual

Import Regions

Mill

ion

M3

US_IM Japan Korea China Europe_IM ROW

15.05

0.00

0.05

6.11

0.00 0.09

15.56

0.00

0.00

6.33

0.000.00

Canada Exports SWL #2-2011Projected Actual

Import Regions


Assumed annual supply and demand changes (%) (2012-2021)

Regions 2012-2016 2017-2021 Supply Demand Supply DemandSoftwood lumber #1 Canada -1.9 0 -1.9 0US_EX 0.0 2.0 0.0 2.0EU_EX 1.0 0.0 1.0 0.0Russia 1.0 0.0 1.0 0.0NZ 2.0 0.0 2.0 0.0Chile 2.0 2.0 2.0 2.0ROW_EX 1.5 1.4 1.5 1.4US_IM 0.0 2.0 0.0 2.0Japan 2.0 0.0 2.0 0.0Korea 0.0 0.0 0.0 0.0China 0.0 0.0 1.0 1.0EU_IM 0.0 0.0 0.0 0.0ROW_IM 0.0 1.4 0.0 1.4Softwood lumber #2 Canada -2.9 0.0 -3.3 0.0US_EX 0.5 3.0 0.5 3.0EU_EX n/a n/a n/a n/aRussia 1.0 0.0 1.0 0.0NZ n/a n/a n/a n/aChile 2.0 2.0 2.0 2.0ROW_EX 0.0 0.0 0.0 0.0US_IM 0.0 3.0 0.0 5.0Japan n/a n/a n/a n/aKorea 0.0 0.0 0.0 0.0China 0.0 4.0 0.0 4.0EU_IM n/a n/a n/a n/aROW_IM 0.0 1.4 0.0 1.4

Sources: FAO (2009), Wood Markets (2011,2013), British Columbia Ministry of Forests and Range (2007), Sedjo (1999)

• Mountain pine beetle infestations in Canada• Recovery in US housing starts• Supply growth in Russia, NZ, Chile, & ROW• Wood self-sufficiency policy in Japan• High Lumber demand in China


Predicted trade flows for the 2011-2021 period








Conclusions Forintek Global Trade Model predicted well for the 2011

trade of SWL#1 and SWL#2. Results provided strong market signals to link back to

upstream supply chain. Forintek model displayed great flexibility for different

scenarios analysis.-e.g. exchange rates, trade barriers, transportation costs, price elasticities, etc.


Next Step Further disaggregate lumber (high/construction/low). Add logs (saw and pulp) and biomass (e.g. chips, wood

pellets, etc.). Project logs, lumber, and biomass trade flows. Link logs, lumber, and biomass into trade model. Link global market signals to lumber production

decisions, and ultimately log allocation. Integrate results with other VCO projects.


Questions & Discussion


Documents

Matching market signals to the Canadian wood products value chain