Matching market signals
to the Canadian wood
products value chain
a disaggregated trade-flow
analysis
Chris Gaston
Wei-Yew Chang
Mahsa Mojahednia
Department of Wood Science, UBC
FPInnovations
February 20, 2014
Some context: wood-use in the U.S.
Source: RISI, Boston, Massachusetts
Gaston Feb. 2014
Page 2 of 13
US housing starts
Source: US Census Bureau
Gaston Feb. 2014
Page 3 of 13
‘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)
Gaston Feb. 2014
Page 4 of 13
Pre-fabricated / modular construction
Gaston Feb. 2014
Page 5 of 13
Move to 6-story multi-family
Library Square, Kamloops, BC, 2010
Source: WoodWorks
Gaston Feb. 2014
Page 6 of 13
Move to 6-story multi-family
Residential, University of BC, 2013
Source: Adera, Vancouver
Gaston Feb. 2014
Page 7 of 13
Six story hybrid wood-concrete
Office building, Quebec, 2010
Source: FPInnovations
Gaston Feb. 2014
Page 8 of 13
Six story hybrid wood-concrete
Concrete cores / walls to
resist lateral loads
Glulam post & beam
Source: FPInnovations
Gaston Feb. 2014
Page 9 of 13
Five story hybrid wood-concrete
Earth Sciences Building, UBC
Source: Perkins + Will
Gaston Feb. 2014
Page 10 of 13
Five story hybrid wood-concrete
Earth Sciences Building, UBC
Source: Perkins + Will
Gaston Feb. 2014
Page 11 of 13
‘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
Gaston Feb. 2014
Page 12 of 13
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)
Gaston Feb. 2014
Page 13 of 13
Questions?
Chris Gaston, Ph.D.
[email protected]
[email protected]
604 827 1417
Matching Market Signals
to Canadian VCO: A
Disaggregated TradeFlow Analysis
Wei-Yew Chang & Chris Gaston
Department of Wood Science, UBC
VCO Webinar Winter Session
March 05, 2014
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?
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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)
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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.
$
$
$
1
F
ES
A
Pa
Z
D
X
I
H
P*
Px
Pi
E**
P*
K
P*
Y
J
E
B
C
W
𝑛
Pb
G
ED
2
𝑞𝑖
𝑚𝑎𝑥
𝑚
𝐷𝑖 𝑞𝑖 𝑑𝑞𝑖 −
𝑖 0
Q
R egion B
Q **
Q*
Wor ld Mar ket
Q
Q
R egion A
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
𝑛
𝑞𝑗
𝑚
𝑆𝑗 𝑞𝑗 𝑑𝑞𝑗 −
𝑗
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𝑡𝑖𝑗 𝑞𝑖𝑗
𝑖
𝑗
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.
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Results
 Aggregated vs. disaggregated trade flows (2011)
 Calibrated base case results (2011)
 Predicted trade flows for the 2011-2021 period
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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.
The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Calibrated base case results (2011)
Region
Production
Million m3
Softwood lumber #1
Canada
17.51
US_EX
11.99
EU_EX
61.55
Russia
15.72
NZ
3.89
Chile
1.64
ROW_EX
17.28
US_IM
8.66
Japan
9.22
Korea
2.95
China
3.97
EU_IM
33.22
ROW_IM
33.83
Softwood lumber #2
Canada
34.53
US_EX
15.05
EU_EX
0.0
Russia
13.03
NZ
0.0
Chile
4.78
ROW_EX
0.00
US_IM
26.06
Japan
0.0
Korea
0.66
China
13.79
EU_IM
0.0
ROW_IM
1.80
Consumption
Price
% of Actual
Million m3
98.1%
98.6%
98.8%
98.8%
98.9%
98.7%
98.3%
98.7%
99.2%
98.8%
98.7%
98.7%
98.8%
6.70
6.34
33.39
7.72
2.04
0.72
9.44
16.56
15.93
4.11
7.43
58.44
52.62
100.6%
100.7%
100.6%
100.6%
100.5%
100.5%
100.7%
100.7%
100.4%
100.6%
100.7%
100.7%
100.6%
234
219
263
243
330
289
223
226
359
248
224
229
259
99.4%
99.3%
99.4%
99.4%
99.5%
99.5%
99.3%
99.3%
99.6%
99.4%
99.3%
99.3%
99.4%
99.0%
98.7%
n/a
99.2%
n/a
98.7%
99.0%
98.9%
n/a
99.0%
99.3%
n/a
98.9%
13.23
8.07
0.0
6.46
0.0
2.12
0.00
50.27
0.0
0.92
25.78
0.0
2.83
101.7%
102.2%
n/a
102.1%
n/a
102.2%
101.7%
101.8%
n/a
101.6%
101.2%
n/a
101.8%
139
110
0.0
114
0.0
109
144
131
0.0
148
194
0.0
132
99.7%
99.6%
n/a
99.6%
n/a
99.6%
99.7%
99.6%
n/a
99.7%
99.8%
n/a
99.6%
% of Actual
$/m3
% of Actual
The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Calibrated base case results (2011)
Canada Exports SWL #2-2011
Canada Exports SWL #1-2011
Projected
Actual
Million M3
Projected
Actual
15.0515.56
5.17
5.48
1.07 2.73
0.32
0.19
1.07
0.56
1.80
0.26
1.71
6.11 6.33
1.64
0.00 0.00
Import Regions
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
0.05 0.00
Import Regions
0.00 0.00
0.09 0.00
Assumed annual supply and demand changes
(%) (2012-2021)
Regions
•
•
•
•
•
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
2012-2016
Supply
Demand
2017-2021
Supply
Demand
Softwood lumber #1
Canada
US_EX
EU_EX
Russia
NZ
Chile
ROW_EX
US_IM
Japan
Korea
China
EU_IM
ROW_IM
-1.9
0.0
1.0
1.0
2.0
2.0
1.5
0.0
2.0
0.0
0.0
0.0
0.0
0
2.0
0.0
0.0
0.0
2.0
1.4
2.0
0.0
0.0
0.0
0.0
1.4
-1.9
0.0
1.0
1.0
2.0
2.0
1.5
0.0
2.0
0.0
1.0
0.0
0.0
0
2.0
0.0
0.0
0.0
2.0
1.4
2.0
0.0
0.0
1.0
0.0
1.4
-2.9
0.5
n/a
1.0
n/a
2.0
0.0
0.0
n/a
0.0
0.0
n/a
0.0
0.0
3.0
n/a
0.0
n/a
2.0
0.0
3.0
n/a
0.0
4.0
n/a
1.4
-3.3
0.5
n/a
1.0
n/a
2.0
0.0
0.0
n/a
0.0
0.0
n/a
0.0
0.0
3.0
n/a
0.0
n/a
2.0
0.0
5.0
n/a
0.0
4.0
n/a
1.4
Softwood lumber #2
Sources: FAO (2009), Wood Markets
(2011,2013), British Columbia Ministry of
Forests and Range (2007), Sedjo (1999)
Canada
US_EX
EU_EX
Russia
NZ
Chile
ROW_EX
US_IM
Japan
Korea
China
EU_IM
ROW_IM
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Predicted trade flows for the 2011-2021 period
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Predicted trade flows for the 2011-2021 period
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Predicted trade flows for the 2011-2021 period
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Predicted trade flows for the 2011-2021 period
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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.
ompetitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
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.
The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis
Questions & Discussion
The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis