The following is excerpted from the 1 November 2010 edition of "montrealgazette.com".

If an astute investor asked a Canadian forest industry executive just five years ago about lumber sales to China, the answer would probably have been: “China? China doesn’t buy our lumber.”

How times have changed.

China has become a bright spot on the balance sheets of companies still waiting for a recovery of the U.S. housing sector, its mainstay market for decades.

It’s so bright, a trade mission that set off to China on Thursday included the chief executives of West Fraser Timber Co., Canfor Corp., Tolko Industries, International Forest Products, Conifex Timber, along with other top industry and union officials...

A report this month by British Columbia, Canada’s largest lumber exporting province, estimated its producers had sold $342 million in lumber to China in the first eight months of the year, up 71 per cent from a year ago.

Canada has benefited both from China’s surging demand for lumber and Russia’s 2007 decision to sharply raise duties on logs exported to Chinese sawmills, said Gerry Van Leeuwen, a vice-president of International Wood Markets Group.

The research firm forecasts Canada will overtake Russia this year as the largest lumber exporter to China.

The United States remains Canada’s largest lumber export customer, but U.S. demand soured with the collapse of its housing market. Few Canadian industry executives predict it will make a significant recovery soon...

A stark example of China’s new role can be seen in Canfor’s decision in May to restart its Quesnel, B.C., sawmill. The mill had been idled because of slack U.S. demand, and its production now goes exclusively to China.

Nearly all the lumber exports to China come from sawmills in Western Canada. But analysts say that still benefits eastern sawmills by diverting wood that might otherwise be shipped to the United States.

Because much of the China-bound lumber is used for purposes such as concrete forms and pallets, it also has become a ready market for lower-grade lumber cut from trees killed off in Western Canada’s mountain pine beetle infestation...

Industry officials say, however, they are now getting more Chinese purchases of higher grade lumber, such as that used for wood-frame construction.

“It will be a market that will consume both the lower and upper grades, but over time I would expect the (higher grades) to continue to increase,” said Canfor chief financial officer Thomas Sitar.

Canadian producers began courting China, in part, to reduce the damage of the U.S. housing downturn. But equity analysts are warming to the industry’s message that it is a market with long-term potential.

“It’s a story that has legs,” said Pierre Lacroix, an analyst with Desjardins Securities.

Still, Canadian forestry companies may face competitive challenges as they target China. Higher prices could lure European producers into the market, as well as more log and lumber shipments from the United States and New Zealand.

Some Chinese companies unable to get raw Russian logs have now set up sawmills in Russia, staffed with Chinese workers, to rough-cut lumber that can then be shipped over the border without the duties that logs carry, Van Leeuwen said.

But he thinks China’s surging wood demand, jumping from about 250 million cubic meters this year to as much as 350 million in 2015, should absorb the increasing production.

The presence of top industry executives on the latest trade mission should show Chinese buyers that Canada will not forget them when the U.S. housing market recovers, said Pat Bell, British Columbia’s forest minister...

Bell also believes China could have a role in future trade fights with the United States, which has warned it may launch a trade complaint over the pricing of lumber from beetle-killed trees.

Bell added he hopes the province will be shipping as much wood to Asia as it does to the United States when the U.S.-Canada softwood trade agreement comes up for renegotiation in 2013. “That would make for quite a different discussion,” he said.

U.S. industry officials downplay the impact the growing Chinese market might have on the long-running trade dispute, but say they would be happy if it meant less low-cost Canadian lumber was going into their market.