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Matching market signals to the Canadian wood products value chain

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.

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Matching market signals to the Canadian wood products value chain

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  1. 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

  2. Gaston Feb. 2014 Some context: wood-use in the U.S. Source: RISI, Boston, Massachusetts Page 2 of 13

  3. Gaston Feb. 2014 US housing starts Source: US Census Bureau Page 3 of 13

  4. Gaston Feb. 2014 ‘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) Page 4 of 13

  5. Gaston Feb. 2014 Pre-fabricated / modular construction Page 5 of 13

  6. Gaston Feb. 2014 Move to 6-story multi-family Library Square, Kamloops, BC, 2010 Source: WoodWorks Page 6 of 13

  7. Gaston Feb. 2014 Move to 6-story multi-family Residential, University of BC, 2013 Source: Adera, Vancouver Page 7 of 13

  8. Gaston Feb. 2014 Six story hybrid wood-concrete Office building, Quebec, 2010 Source: FPInnovations Page 8 of 13

  9. Gaston Feb. 2014 Six story hybrid wood-concrete Concrete cores / walls to resist lateral loads Glulam post & beam Source: FPInnovations Page 9 of 13

  10. Gaston Feb. 2014 Five story hybrid wood-concrete Earth Sciences Building, UBC Source: Perkins + Will Page 10 of 13

  11. Gaston Feb. 2014 Five story hybrid wood-concrete Earth Sciences Building, UBC Source: Perkins + Will Page 11 of 13

  12. Gaston Feb. 2014 ‘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 Page 12 of 13

  13. Gaston Feb. 2014 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) Page 13 of 13

  14. Questions? Chris Gaston, Ph.D. chris.gaston@fpinnovations.ca chris.gaston@ubc.ca 604 827 1417

  15. Matching Market Signals to Canadian VCO: A Disaggregated Trade-Flow Analysis Wei-Yew Chang & Chris Gaston Department of Wood Science, UBC VCO Webinar Winter Session March 05, 2014

  16. 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?

  17. The Competitiveness 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)

  18. The Competitiveness 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.

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

  20. The Competitiveness 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) Lessthan 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

  21. The Competitiveness 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

  22. The Competitiveness 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.

  23. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Calibrated base case results (2011)

  24. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Calibrated base case results (2011)

  25. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Assumed annual supply and demand changes (%) (2012-2021) • 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 Sources: FAO (2009), Wood Markets (2011,2013), British Columbia Ministry of Forests and Range (2007), Sedjo (1999)

  26. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Predicted trade flows for the 2011-2021 period

  27. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Predicted trade flows for the 2011-2021 period

  28. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Predicted trade flows for the 2011-2021 period

  29. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Predicted trade flows for the 2011-2021 period

  30. The Competitiveness 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. • Forintekmodel displayed great flexibility for different scenarios analysis. -e.g. exchange rates, trade barriers, transportation costs, price elasticities, etc.

  31. 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

  32. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis Questions & Discussion

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