Forest industry watchers are praising Canfor’s (TSX:CFP) plans to invest in a Chinese sawmill as an astute move to get closer to customers and reduce production costs.
For Canfor’s partner in the joint venture, Tangshan Caofeidian Wood Industry Co. Ltd., the deal represents a steady supply of B.C. wood from a trusted supplier.
“Canfor in particular has tried to develop a relationship with some of the [higher quality] Chinese manufacturers … and the Chinese are looking for long-term supply,” said David Cohen, a University of British Columbia forestry professor.
On November 26, Canfor announced plans to form a 50/50 joint venture partnership with Tangshan Caofeidian to build a wood manufacturing plant near Caofeidian Port, a new deepwater port in Hebei province.
The venture would see lumber from B.C. shipped to the Chinese facility to be recut into metric sizes for the Chinese construction market. In a speech in Beijing on November 26, Canfor CEO Don Kayne said the plant would be an eight-figure investment and would process 150 million to 200 million board feet of lumber, according to the Globe and Mail.
Tangshan Caofeidian Wood Industry is a subsidiary of the Hebei Wenfeng Industrial Group Ltd., a large steel and coal company. Canfor has connections with Vancouver-based LJ Resources, a private company a spokesman described as being “associated” with Hebei Wenfeng.
LJ Resources president Jim Jia once worked for Canfor as a senior account executive based in China. Jia is a director of another B.C. forestry company, Conifex, as is John Bae, the corporate development manager for LJ Resources.
Cohen and Russ Taylor, president of Vancouver-based Wood Markets Group, say Canfor’s strategy with this deal is similar to its move in the mid-1990s to deal directly with Home Depot instead of through wholesale suppliers.
“This is a springboard – once they have a facility they can make anything they want in China and can grow the market and can do it to their standard,” said Taylor.
On November 27, Business in Vancouver reported that like the planned Chinese mill, Canfor’s Quesnel sawmill, slated to close in March, makes metric-sized wood products for the Chinese market. (See “Canfor plans new wood manufacturing facility in China”– BIV issue 1258; December 3-9.)
In a statement sent to BIV on December 4, Canfor said there was no connection between the two decisions. The company said its Quesnel mill, which produces around 200 million board feet of lumber annually, is profitable but must be closed because the mountain pine beetle infestation has depleted the area’s timber supply. The sawmill in China “will custom cut our lumber into specific dimensions for individual customers on an on-demand basis,” wrote the company. “This is work that must be done in-market.”
Producing custom-cut wood products for the Chinese market is possible with a manufacturing facility located in the country, said Cohen.
“The wood costs the same,” Cohen said. “Everything else is cheaper there.”
So far, most of the wood Chinese buyers have imported has been the two cheapest and lowest grades. Canfor hopes to break into higher quality markets. Taylor was skeptical that Chinese wood buyers would be interested in more expensive higher quality wood, noting that during a recent price spike for North American lumber, Chinese buyers looked to cheaper European wood.
While that is true for about “80%” of the wood buyers, said Cohen, there is a group of well-informed buyers “who companies like Canfor would never tell you their name, that they are developing relationships with.”
One of those knowledgeable buyers, said Cohen, is Jia.
