Wood products - 1991 U.S. Industrial Outlook

C. Michael Hicks

Wood Products

The wood products industry (SIC 24) is, for the most part, a relatively labor intensive industry dispersed throughout the United States, with primary concentrations in the Pacific Northwest and the South and secondary concentrations in the Midwest, Northeast and Appalachia. Approximately 80 percent of its establishments employ less than 20 employees. Over one-half of these are logger and logging camps and miscellaneous wood products manufacturers which do not significantly benefit from economies of scale. The preponderance of the industry's output is from large-scale, modern establishments, as evidenced by the fact that the smaller establishments accounted for less than 20 percent of industry shipments in 1987.

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting the trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapter 5 (Construction), 7 (Construction Materials), and 10 (Paper and Allied Products).

There are a total of 15 manufacturing sectors within SIC 24 (Lumber and Wood Products), excluding mobile homes and prefabricated wood buildings which are covered elsewhere. Establishments classified in SIC 24 are engaged in the cutting and processing of timber into poles, pilings, lumber, plywood, and more highly processed wood products. According to the Census Bureau, there were 33,982 establishments classified in SIC 24 in 1987; employment totaled close to 633 thousand and shipments were valued at $63.1 billion. The wood products industry ranked 13th among all manufacturing industries in both value of shipments and employment and 14th in terms of new capital expenditures.

Current dollar shipments for selected segments of SIC 24 were $57.9 billion in 1990. Shipments when measured in constant dollars were down approximately 1.5 percent from their 1989 level, and almost 10 percent from 1987. Demand for wood products is closely linked to domestic construction-related activities, such as new housing, remodelling and renovation and commercial construction. Approximately 80 percent of softwood lumber production and structural panel production goes into construction-related activities. Over the last three years, the value of new construction has declined by almost 10 percent.

The largest share of the industry's construction-related demand comes from the new private residential construction sector. Private housing starts have been on the decline since 1986, falling to 1.22 million units in 1990. Rising home prices along with the maturing of the baby boom generation have been the major causal factors. Rising home prices have contributed to the growth of the repair and remodeling sector of the construction industry and this sector is becoming increasingly important to the wood products industry.

Industry profits were generally lower in 1990. Weak demand led to generally lower prices while raw material and labor costs continued to climb. Stumpage costs were up substantially in many areas of the United States, most notably the Pacific Northwest. Anxiety over future harvest levels in that region, brought on by renewed efforts to have the northern spotted owl named as threatened specie under the Endangered Species Act, and near-record log exports have caused some stumpage prices to more than double over the past two years. Plywood and lumber mills dependent upon federal and state timber as a source of raw materials have been particularly hard hit and, according to industry sources, this led to the closure of more mills in the first half of 1990 than in any full year since 1982.

It would appear that the industry's concerns regarding the northern spotted owl were well founded since the U.S. Fish and Wildlife Service added the owl to the endangered species list in late June. Forest management-related activities on upward of 8 million acres of forestland could be curtailed and up to 20,000 jobs in the Pacific Northwest could be lost by the listing, according to some industry estimates.

The listing of the northern spotted owl proved to be the catalyst for passage of provisions in the Customs and Trade Act of 1990 (Act) that, beginning in 1991, will restrict the export of most logs harvested from public land in the western United States. The Act, signed by the President on August 20, makes permanent the current temporary prohibition on log exports from federal lands in that region and places a similar restriction on state lands except for the state of Washington which may continue exporting up to 25 percent of its harvest. It is estimated that as a result of the restrictions imposed by the Act, an estimated 500-600 million board feet (2.3 to 2.7 million cubic meters) of logs (mostly softwood logs) will no longer be available for export. This amounts to about 11-13 percent of U.S. softwood log exports.

INTERNATIONAL COMPETITIVENESS

Exports by the wood products industry, aided by a comparatively weak dollar, were up for the fifth year in a row in 1990. This proved to be one of the few bright spots for the industry. Exports for selected segments of SIC 24 were an estimated $6.2 billion in 1990, compared to $5.7 billion in 1989. Japan and Canada continued as the industry's leading overseas markets, accounting for 45 percent and 15 percent of total export sales. Other significant export markets were South Korea, United Kingdom, Mexico, and Germany which together accounted for another 16 percent of export sales. Softwood logs, followed by softwood lumber, were the leading export commodities, accounting for 33 percent and 21 percent, respectively of total exports on a value basis. Other important export commodities included hardwood logs and lumber, wood chips, and softwood plywood.

In recent years, overseas demand for U.S. temperate hardwood, and even to some extent softwood, logs and finished products, has been aided by consumer concern over the rapid deforestation of tropical hardwood forests. Bans on the export of tropical hardwood logs by West Malaysia, Indonesia and Philippines and export taxes on hardwood lumber by Indonesia and Malaysia have also contributed to greater demand for U.S. wood products.

The Government's 1989 investigation of Japanese policies and practices that restricts imports of U.S. forest products into Japan was suspended in mid-June of 1990 shortly after the United States and Japan reached an agreement on wood products trade. The wide-ranging agreement covers building codes, product certification and standards, tariff misclassification, and tariffs. The agreement should expand U.S. access to the Japanese solid wood products market and result in increased U.S. exports of value-added wood products. In addition, to ensure smooth implementation of the agreement and further expand the use of wood for construction in Japan, the agreement also calls for regularly scheduled meetings between the two countries. [Tabular Data Omitted]

Imports were valued at $4.4 billion in 1990, representing a 3 percent decline from the 1989 level. Canada was our major foreign supplier, accounting for 70 percent of U.S. imports of wood products. Almost half of our imports from Canada were softwood lumber. About 27 percent of softwood lumber consumed in the United States is imported from Canada. This percentage has been on the decline in recent years due, in large part, to the 1986 Memorandum of Understanding between the United States and Canada which resulted in a 15 percent export tax on softwood lumber coming into the United States from Canada. Changes in Canadian forest management practices which pass on more costs to timber purchasers (higher stumpage prices, etc.) have led to the elimination or modification of the export tax in several provinces. The Canadian have informally requested that the negotiations be reopened due to recent changes in the exchange rate between the two countries and downturn in the Canadian wood products industry.

Other principal suppliers to the U.S. market include Indonesia (hardwood plywood), Taiwan (hardwood plywood and miscellaneous wood products) and Mexico (millwork).

Outlook for 1991

Shipments for selected segments of SIC 24 are projected to decline by about 3.5 percent, measured in constant dollars, in 1991. Most domestic end-use markets are expected to continue to soften. Private housing starts are projected to slip below 1.2 million units in 1991. Continued growth of the remodelling and renovation market and the trend toward larger houses with more amenities is expected to partially offset the expected decline in housing starts.

The biggest issue confronting the industry in 1991 will be continued action by environmentalist and preservationists trying to curtail or modify forest-related activities in the Pacific Northwest and elsewhere. Logs will continue to be in tight supply in the Pacific Northwest; the volume of federal timber offered for sale in that region is projected to drop by 20 percent in 1991. This could lead to more mill closures.

Exports will continue to be one of the industry's few bright spots in 1991. However, exports of some types of softwood lumber could drop substantially if the United States and the European Community are unable to reach an agreement that will delay the implementation of a January 1, 1991 EC ban on the import of green softwood lumber from pinewood nematode infested areas. The pinewood nematode is indigenous to both the United States and Canada. The EC is concerned that the nematode could be "imported" into the EC and damage native forest there.

Long-Term Prospects

The period to 1995 will be somewhat reminiscent of the early 1980s. Rising production costs will lead to a shake-out of the industry, and an increase in consolidations and mergers. Profits levels will change very little over the next five years as price increases will be offset by higher raw material and labor costs. Private housing starts will fluctuate around 1.2 million units for the period. The remodelling and renovation market will become increasingly important in the years ahead.

The wood products industry will continue to expand its market development activities overseas. There will be continued pressure to further restrict log exports if our major trading partners do not take steps to open up their markets to value-added wood products. Exports to Japan should continue to increase. - C. Michael Hicks, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

LOGGING OPERATORS

The U.S. logging industry harvested an estimated $10.4 billion worth of sawlogs, veneer logs, pulpwood and related wood products in 1990. Shipments were down 3.8 percent measured in constant dollars, from their 1989 level due to continued softening of domestic end-use markets. Tight log supplies prevailed in some regions of the country, giving rise to substantially higher stumpage prices. Exports were up approximately 2 percent on value basis. [Tabular Data Omitted]

Softwood logs accounted for approximately 40 percent of the value of the industry's shipments in 1990. Softwood log production was estimated at 44.0 billion board feet (199.3 million cubic meters), down approximately 4.5 percent from the 1989 level on lower production. However, continued tight log supplies in many parts of the country and concern over future availability of supplies led to generally higher stumpage prices for softwood logs.

Stumpage prices for softwood sawtimber in the Pacific Northwest (Douglas-fir, National Forest-West Side) were up substantially, averaging $526 per thousand board feet ($116 per cubic meter) in the first quarter of 1990, compared to $360 ($79) for the same period in 1989. Coupled with strong (near record) overseas market for softwood logs and the listing of northern spotted owl as a threatened species under the Endangered Species Act, this precipitated the passage of legislation by Congress that beginning in 1991 will restrict the export of most logs harvested from public lands west of the 100th Meridian which cuts the United States roughly in half from east to west.

Stumpage prices for southern yellow pine sawtimber (Southwide) were also on the upswing in 1990 as the South gradually recovered from the worst southern pine beetle outbreak on record which had caused accelerated harvesting and lower stumpage prices in many areas. Southwide, yellow pine sawtimber averaged $132 per thousand board feet ($29 per cubic meter) in the second quarter of 1990, compared to 4118 ($26) for the same period in 1989.

Hardwood log production was estimated an 9.4 billion board feet (44.6 million cubic meters) in 1990, down approximately 5 percent from the 1989 level. This decline can be attributed to sluggish foreign and domestic demand by hardwood lumber and veneer users, most notably furniture producers. However, stumpage prices which tend to lag production continued to climb, averaging $118 and $76 per thousand board feet ($26 and $17 per cubic meter) for oak and mixed hardwoods, respectively, for the second quarter of 1990, compared to $102 ($23) and $71 ($16) for the same period in 1989.

After four consecutive years of record sales, domestic producers of market pulp (SIC 2611) experienced a slight decline in shipments in 1990. Nevertheless, pulpwood (round-wood and chip) production increase to 99.3 million cords (253.2 million cubic meters)in 1990, driven by near record chip exports. Hardwood pulpwood's share of the market continued to increase, accounting for approximately 40 percent of total pulpwood production. Hardwood pulpwood is utilized in the manufacture of uncoated groundwood paper used in newspapers, magazine or other even-grained smooth paper. The demand for hardwood pulpwood has been growing worldwide. Prices for both softwood and hardwood pulpwood were up substantially in 1990. Southern yellow pine pulpwood prices (Southwide) averaged $16.32 per cord ($6.40 per cubic meter) for the second quarter of 1990, compared to $14.11 per cord ($5.53 per cubic meter) for the same period in 1989. Hardwood pulpwood prices (Southwide) averaged $6.95 per cord ($2.73 per cubic meter) for the second quarter of 1990, compared to $5.90 per cord ($2.31 per cubic meter) for the same period in 1989.

The United States exported an estimated 4.0 billion board feet (18.1 million cubic meters) of sawlogs, veneer logs and related wood products in 1990, valuated at $2.5 billion. Softwood log exports, valued at $2.3 billion, accounted for approximately 90 percent of total log exports on a value basis. Softwood log exports in 1990 were up approximately 3 percent on a value basis and down approximately 7 percent on a volume basis. A saturated market in Japan, coupled with substantially higher softwood logs prices, led to the drop in volume.

Douglas-fir was the leading export specie, accounting for 50 percent of total softwood log exports on a volume basis. Western hemlock and spruce were the second and third leading export species, comprising 32 percent and 11 percent, respectively of total softwood log exports. Japan continued to be the top U.S. export market for softwood logs, accounting for an estimated 70 percent of total softwood log exports on a volume basis. The other significant export market was South Korea, accounting for 15 percent of total softwood log exports.

Hardwood log exports were an estimated 169 million board feet (801,000 cubic meters) in 1990, down 19 percent from their 1989 level. However, growing concern over defoliation of tropical hardwood forest and bans on the export of tropical hardwood log exports by some supplier countries (Indonesia, Philippines, and peninsular Malaysia) caused the value of hardwood log exports to increase by almost 6 percent. Canada was the industry's leading hardwood log export market, accounting for approximately 24 percent of total exports on a volume basis. Hardwood log exports to Canada doubled in 1990. Many of these logs were manufactured into higher value-added products for the Canadian market or for export overseas. Other leading export markets for hardwood logs were Japan, West Germany, Italy, South Korea, and Taiwan, accounting for 20 percent, 15 percent, 8 percent, and 7 percent, respectively, of the total volume of exports. White and red oak logs were the two leading export species, accounting for 19 percent and 18 percent, respectively, of total exports on a volume basis.

Imports of logs and related wood products, mostly from Canada, were valued at approximately $43 million in 1990, down 9 percent from the 1989 level. Western lumber producers, looking for a way to bolster rapidly shrinking timber supplies, imported several small shipments of Soviets logs to determine whether lumber manufactured from these logs can be substituted for lumber produced from domestic species.

Outlook for 1991

Constant-dollar shipments by the logging industry are projected to decline by 3 percent in 1991. Domestic end-use markets are expected to continue to soften; private housing starts are projected to decline about 1.15 million units in 1991, compared to 1.22 million units in 1990. The volume of federal timber offered for sale in the Pacific Northwest (Oregon, Washington, and northern California) will drop by about 20 percent due to the listing of the northern spotted owl as a threatened species. Exports are expected to remain at or near their present level.

Long-Term Prospects

Log shipments could decline another 5 percent by the end of the period. However, much will depend upon what happens in the Pacific Northwest. According to industry sources, harvest levels (federal timber) in the region could drop by as much as 50 percent unless some means is found to balance the conservation of the northern spotted owl and the economic well-being of families who are dependent upon the forests for their livelihood. Domestic end use markets should stabilize; private housing starts are expected to average around 1.2 million units for the period. Exports, at least over the near term, will remain at or near their present level. Indications are that the private sector will be able to make up most of the volume that the new legislation restricts from export. However, exports could drop substantially near the end of the period. - C. Michael Hicks, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

LUMBER

The sawmills and planing mills industry (SIC 2421) produces lumber, wood chips, softwood flooring and furniture stock, and other general sawmill products, including railway ties and fence lath. In 1990, softwood lumber accounted for about 58 percent of this industry's total value of shipments, while hardwood lumber made up about 12 percent and woodchips approximately 10 percent, with the remaining 20 percent accounted for by other general sawmill products.

In 1989 lumber production was 48.5 billion board feet (114.5 million cubic meters); 37.5 billion board feet (88.5 million cubic meters) in softwood lumber and 11 billion board feet (26 million cubic meters) in hardwood lumber. Total lumber production declined almost 1 percent in 1990 to about 48 billion board feet (113 million cubic meters). Softwood lumber has historically made up approximately 78 percent of total production.

The South accounts for over 35 percent of U.S. softwood lumber production (Southern yellow pine), the West accounts for approximately 31 percent of production (spruce, Douglas-fir, hemlock, and redwood) while the inland area (Rocky Mountain states) produces about 38 percent in mostly lodge-pole pine and fir. Hardwood lumber mostly comes from the Appalachian region, including the states of Kentucky, Virginia, West Virginia, Maryland and North Carolina; the southern states of Louisiana, Arkansas, Mississippi, and Tennessee; and the northern states of Wisconsin, Michigan, Illinois and Minnesota. Major hardwood species produced are oak, maple, poplar, ash, and basswood.

The constant dollar value of the sawmills and planning industry shipments, based on 1987 dollars, rose about 2.4 percentage in 1988 (from $17,357 million to $17,767 million), was relatively flat in 1989, and is expected to decrease approximately 2.5 percent in 1990.

The principal end-use market for softwood lumber is single family housing, which dropped by more than 7 percent in 1989, and thus contributed to the decline in softwood lumber production. Although there was a 4 percent decline in 1989 production of hardwood lumber, there was just over a 1 percent increase in shipments. This was due to a more than adequate inventory and a strong home improvement industry. Primary markets for hardwood lumber are pallets and skids, furniture, flooring, and decorative moldings. [Tabular Data Omitted]

Residential construction has been relatively strong over the past decade. However, since 1987 it has been experiencing a steady decline. In 1986 new housing starts were 1.8 million, they declined to 1.6 million in 1987, to 1.5 million in 1988 and to 1.4 million units in 1989. This trend continued through 1990 when starts were just over 1.2 million. In 1991 starts are projected to slip below 1.2 million.

Residential repair and remodelling is a major factor in the demand for lumber, and this market is expected to grow at a 3 to 4 percent rate through 1990, and into 1991. In many cases families are choosing to upgrade current homes rather than investing in new ones. Home improvements currently account for approximately 33 percent of the overall domestic demand for lumber. Both softwood and hardwood lumber benefit from this industry. Softwood lumber is used in decks and additions, while hardwood lumber is used in flooring, cabinetry, and decorative molding.

Employment in the sawmill and planing industry decreased approximately one percent in 1989 to about 150 thousand. This number is expected to decline another 2 percent in 1990, in large part due to the lower demand for lumber and temporary shortages of raw materials resulting in mill closures.

The spotted owl was listed as threatened under the Endangered Species Act in late June 1990. Logging restrictions implemented as a result of this listing could affect approximately 8.4 million acres of federal state, and private timberland in states of California, Oregon, and Washington. However, 40 percent of this acreage has already been set aside legislatively as wilderness and parks.

The anticipated shortly supplied of logs as a result of the spotted owl controversy in the Pacific Northwest during 1990 was not as severe as expected due to several factors. The Hatfield-Adams amendment to the 1990 Interior Appropriations bill mandated the Bureau of Land Management and the Forest Service sell enough timber to partially offset any shortages. Also, the ability of small private timber owns to fill in the gap of lost federal timber, the 2 to 3 year timber volume under contract to which many mills had access, and a slump in demand helped alleviate major log shortages in 1990. Most northwest mills were able to function with only temporary shutdowns and curtailments.

Log shortages are expected to increase significantly over the next few years, starting in 1991, as contracts are fulfilled and spotted owl habitat is more accurately defined. It is estimated that as many as 9 percent of the 638 sawmills in the northwest could shutdown on a longterm basis by 1992 due to log shortages and a sluggish market.

Lumber prices, which increased slightly in 1989, are expected to decrease by about 5 percent in 1990. The softwood lumber composite price at the end of the third quarter of 1989 was $260 per thousand board feet (mbf); by the end of the 1990 third quarter it had dropped to $247 per mbf. Composite hardwood lumber prices were also down in 1990 by about 2 percent.

INTERNATIONAL COMPETITIVENESS

The value of exports of this industry was up about 8 percent in 1990 over 1989 while the quantity of exports dropped by approximately the same percentage. The increase in value is not as substantial as experienced in 1987 and 1988, but those unusual years with 37 percent and 16 percent increases, respectively.

The value of softwood lumber exports for 1989, almost $1.4 billion, is expected to increase by about 6 percent in 1990, although quantity will decrease by almost 8.8 percent from 3.4 billion board feet to 3.1 billion board feet (8.0 to 7.3 million cubic meters). The value of hardwood lumber exports in 1989 was a little over $152 million and is expected to increase by 25 percent in 1990, but with a decrease of almost 6 percent in quantity, from approximately 850 million to 800 million board feet (2.0 to 1.9 million cubic meters). The 1990 value of sawmill produced wood chip exports should be up about 10 percent over the 1989 value of $349 million with a decrease in quantity of about 1 percent from the 3.6 million metric tons exported in 1989. Certain general sawmill products are experiencing significant increases in exports values, such as railways ties, which increased in 1990 by approximately 500 percent, with Canada as the major purchaser. Exports of general sawmill products, including railways ties, fence lath, sawdust, and resawed lumber depend mostly on individual country needs. In most cases these needs prove temporary, without long-term obligations. Rising prices for raw materials is the major cause for the increase in values over quantities.

Japan and Canada continue to be the major importers of U.S. produced lumber and sawmill products. In 1989, Japan imported 40 percent of the value of U.S. exported softwood lumber and 21 percent of the hardwood lumber. Canada imported 12 percent and 21 percent, respectively. Lumber exports in Canada in 1990 show significant increases while Japanese imports of U.S. lumber have remained flat.

The major species of softwood lumber exported in 1989 were Douglas-fir, of which Japan imported 21 percent and Australia 18 percent; hemlock, of which Japan imported 92 percent; and southern yellow pine, of which Spain imported 24 percent and Iraq imported 15 percent. Other significant importers of softwood lumber include Italy and Mexico. Major hardwood export species were red oak, of which Canada imported 29 percent and Taiwan imported 18 percent; white oak, of which the United Kingdom and West Germany imported 16 and 15 percent, respectively. Belgium also imported significant amounts of hardwood.

Japan is the major importer of U.S. woodchips, accounting for almost 90 percent of U.S. exports. In 1989 the U.S. exported about 3.6 million metric tons of sawmill produced chips; 2 million metric tons were coniferous and 1.6 million metric tons are nonconiferous. Japan imported 95 percent of the softwood chips and 82 percent of the U.S. hardwood chips exported. Taiwan imported 8 percent and Mexico and South Korea both imported about 5 percent of the U.S. hardwood chips exported in 1989.

Approximately 95 percent of U.S. imports for this industry come from Canada. Softwood lumber accounts for approximately 85 percent of all imports. Softwood lumber imports declined in 1990 by almost 10 percent from the 1989 value of $2.84 billion due to a drop in domestic housing starts and the U.S. industry's ability to better compete with Canadian lumber producers.

In 1990 Canadian softwood lumber accounted for about 27 percent of domestic consumption. This percentage has gradually dropped since 185, when Canadian softwood lumber was 33 percent of domestic consumption. This drop is in large part due to the 1986 Memorandum of Understanding (MOU) between Canada and United States which resulted in a 15 percent export tax on softwood lumber coming from Canada. In British Columbia, the main supplier of softwood lumber to the United States, the export tax has been eliminated because of higher stumpage prices and new forest management and practices which pass through most of the reforestation costs to purchasers. The province of Alberta continues with the 15 percent exports tax, and Quebec is paying a reduced tax of 8 percent. The Maritime Provinces have been exempted from the MOU. The MOU is open-ended and the Government of Canada, has informally called for new negotiations. No such talks have been scheduled.

The domestic industry continues to pursue markets within the Pacific Rim, the Peoples of Republic of China, and Europe. Housing shortage in some of these areas, coupled with log exports restrictions in Malaysia, Indonesia and the United States, along with exports taxes recently implemented on hardwood lumber in Indonesia and Malaysia, could lead to new or increased markets for U.S. lumber producers.

Outlook for 1991

Total lumber production is expected to decline again in 1991 by about 5 percent. Wood chip production should remain strong due to the growing fiber demand from pulp and paper industries, both domestic and in Southeast Asia.

The decline in the sawmills and planning mills industry is directly related to the construction industry, particularly the residential housing sector. The number of single-family and multi-family units will decline by about 5 and 8 percent respectively in 1991, according to projections. However, growth in the repair and remodelling industry as well as in exports markets will help offset some of the impact of this slump in new housing starts.

Exports of softwood lumber from the Pacific Northwest to the European Community (EC) could drop substantially in 1991 due to the scheduled EC ban on imports of green softwood lumber from pinewood nematode infested areas. The United Kingdom is expected to grant the U.S. a one year extension from the ban, and was done with the Canada. This will lessen the impact and give the Pacific Northwest time to install the kin-drying facilities necessary to meet the criteria of the phyto-sanitary standard.

Long-Term Prospects

The U.S. sawmills and planning industry is faced with some serious problems over the next years. Tight log supplies, a decreasing housing starts, and a sluggish economy will contribute to a slowing down in the industry over the next five years, as will continued environmental pressures.

Between 1985 and 1990 the industry grew at an average annual rate of about 4 percent. Over the next five years, 1991 through 1995, it is expected to grow at an average annual rate of 1 percent.

Concessions gained as par of the U.S.-Japan Wood Products Agreement should export sales to Japan. The Uruguay Round of the General Agreement on Tariffs and Trade (GATT) could, depending upon its outcome, also contribute to increased exports of many of this industry's products. - Barbara Wise, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

HARDWOOD DIMENSION AND FLOORING

The hardwood dimension and flooring industry (SIC 2426) produces lumber used in furniture, flooring, and specialty items such as skis, golf clubs and tool handles. Furniture parts accounts for about 44 percent of the industry's volume of output, while hardwood flooring claims about 36 percent, and miscellaneous items make up the remaining 20 percent.

Constant-dollar value (1987 dollars) of shipments by this industry fell more than four percent in 1990. For most consumers, furniture is a long-term financial commitment and, due to the uncertain during much of 1990, many consumers delayed such purchases, thus contributing to the downturn industry shipments.

The industry produces four major types of flooring: strip, parquet, plank, and laminated. Strip flooring consumes the most wood per area covered. In 1989, strip and plank flooring accounted for an estimated 65 percent of the lumber used in flooring, while parquet panels and specialty flooring accounted for the remainder.

Commercially available hardwood forests are mostly located in the eastern third of the United States. Oak and maple are the most common hardwood species used in the production of furniture and flooring. Other popular species used include ash, birch, cherry poplar, and walnut. Almost 300 species of nonconiferous (hardwood) trees grow in the United States, including almost 100 tropical species found mostly in Florida. The tropical species are generally not available for lumber production because of state and federal restrictions in logging in environmentally sensitive areas. [Tabular Data Omitted]

Apparent domestic consumption of hardwood dimension used in furniture and flooring increased by more than 6 percent in 1989 over 1988, but decreased by about 7 percent in 1990 when compared to 1989. This decrease was due in large part to a downturn in housing starts. Although the home repair and remodelling business, a major market for this industry, grew by 4 percent in 1990, it was not enough to offset the decrease in demand brought by the 11 percent decline in housing starts.

Exports of hardwood dimensions and flooring traditionally make up between 8 and 10 percent of the total value of hardwood lumber exports. Exports of hardwood lumber increased by about 30 percent in 1990 on a value basis, while the volume decrease by almost 10 percent. Higher prices and increased foreign demand for higher valued hardwood dimensions lumber accounted for this. Bans on the export of logs and exports taxes on hardwood lumber implemented by Malaysia and Indonesia, have increased demand for U.S. hardwood lumber.

The major importers of U.S. hardwood flooring and dimensions are Canada, Japan and Taiwan. Canada, Taiwan, and Yugoslavia are the major suppliers of these products to the U.S., and over the past several years they have supplied about 12 percent of domestic consumption.

Almost half of those employed in this industry are located in Northern Carolina, Tennessee, Mississippi, and Arkansas. In 1987 this industry employed 29,900 people, almost a 10 percent increase over 1986. During 1988 and 1989 employment fell to about 29,000 and employment is expected to decrease again in 1990 to approximately 28,300.

Outlook for 1991

New order levels and declining housing starts indicate that this industry will experience about a 5 percent decline in 1991. The furniture industry is experiencing a slowdown in new orders which begun in mid 1990 and is expected to continue through 1991. This will have a negative impact on these hardwood-dimension manufacturers who ship heavily to furniture manufacturers. Demand for U.S. exports will increase, however, providing some cushion for decreasing domestic demand. Long-term contracts with foreign markets will be more costly due to economic uncertainties. However, sufficient raw material availability and recent technology advances give the U.S. industry stronger position internationally.

Long-Term Prospects

Public pressures, both foreign and domestic, are expected to have an impact on the hardwood industry in the future. Consumers in the United Kingdom have initiated a boycott on the use of tropical timber that is not certified as coming from "sustainable tropical resources." Similar boycotts are being discussed in the United States and elsewhere in Europe. Just how this might affect world markets is not yet clear, but certainly prices will increase due to supply interruptions and increased government regulation of trade.

Many people in this industry fell the 90s will be "the decade of the animals and plants" which may lead to tougher regulations on logging and land management, and stricter air pollution laws. These changes are bound to increase costs and the question will be whether the consumer is willing to pay higher prices for these lumber commodities.

Over the next five years the hardwood dimensions and flooring industry is expected to grow by about 1.7 percent annually while residential housing starts are expected to remain stagnant. The home improvement business should experience an annual 2 percent growth. Availability of hardwood timber is currently adequate to produce the needed lumber for this industry. - Barbara Wise, Office of Forest Product and Domestic Construction, (202) 377-0375, October 1990

MILLWORK

Millwork industry (SIC 2431) shipments totalled $9.5 billion in 1990, down 1 percent (1987 dollars) from the previous year. After undergoing rapid growth since 1982, the U.S. millwork industry suffered through its third consecutive year of a slowdown.

The stagnant domestic market facing most producers stems from two main factors: The decline in U.S. housing starts from 1.8 million units in 1986 to 1.22 million in 1990 and the drop in the growth of the repair/remodelling expenditures during 1988 and 1989. Despite the erosion in the millwork industry's primary markets in 1990, constant dollar shipments remained over 90 percent above what they were in 1982. U.S. millwork producers are particularly susceptible to developments in housing and repair/remodelling since they look to these two sectors for most of their sales. Since 1986 when the level of new construction began to decline, the repair/remodeling market has become an increasingly important component of total U.S. millwork demand.

The largest industry commodity grouping was wooden doors, which accounted for an estimated 30 percent of industry shipments (value basis). Wooden windows (including vinyl and aluminum-clad windows) comprised 26 percent, while wood moldings accounted for 14 percent of shipments. The remaining millwork industry shipments included wooden stairs and components, wood blind and shutters, and exterior millwork, including porch columns, porch rails, newels, and other related products.

Of the total U.S. door shipment level of about 38 million units, 26 million went into new construction while the remaining 12 million were used in repair/remodeling. In 1988, 32 percent of all doors went into repair/remodeling applications, up from 26 percent in 1984. U.S. window shipments totaled 56.2 million units in 1988, of which 74 percent were used in residential construction while the remaining 26 percent went into non-residential construction and repair/remodeling. Since 1986, growing demand from repair/remodeling markets has been the major driving force behind the sustained growth in U.S. wood window shipments. Approximately 60 percent of all wood molding shipments go into repair/remodeling while the remaining 40 percent are used in new construction.

Door material have been changing since the 1970s, and millwork producers have been adjusting their product lines accordingly. Solid wood doors account for proportionally fewer doors, mostly because of the cited lower costs, greater energy efficiency and lower maintenance requirements of products made from alternative materials. Steel doors are now the most commonly used exterior door in new construction, accounting for about 63 percent, up from 43 percent in 1984. Manufacturers of exterior steel doors also have captured about 43 percent of the repair/ remodeling market. Steel doors have become very popular throughout every region of the country, with the exception of the West, where wooden doors are more common. In the interior door market, molded hardboard doors that resemble traditional panel doors have become very popular in recent years. Between 1984 and 1988, their share of the interior door market in new construction went up from 19 to 35 percent. Another type of door making large market inroads is a compression-molded fiberglass faced pressed over a foam plastic core, which can be easily worked and stained to provide a "natural wood" appearance.

Since the early 1980s there have also been substantial changes in U.S. window markets. Wooden window manufacturers have begun to regain many of their markets lost to metal window manufacturers during the 1970s. However, most of the recent increase in demand has been for vinyl or aluminum-clad wooden windows, which combine the natural strength of wood in the unit's framing with the insulating and low maintenance benefits of vinyl and aluminum. Wood-framed windows currently account for 45 percent of all windows used in new construction and 34 percent of those going into repair/remodeling applications. Another major development in window materials has been the rapid growth in solid vinyl windows. Vinyl window manufacturers, who had just 1 percent of the window market in 1981 increased their share to 18 percent by 1988. Most of the growth in vinyl window shipments has been in the repair/remodeling market, where they account for 31 percent of all windows sold; their market share in new construction is still just 1 percent. Until quite recently, vinyl window producers had been focusing most of their marketing efforts toward contractors and do-it-yourself centers serving the repair/remodeling markets. Now, they are beginning to target new home builders.

Millwork industry employment totaled estimated 88,800 in 1990, down 1 percent from 1989 while the number of industry establishment totaled 2,770. Traditionally, the U.S. millwork industry has consisted mostly of smaller producers; in 1989, an estimated 72 percent of the millwork establishment employed fewer than 20 people while less than 5 percent employed more than 100 people. This proportion of large and small establishments is basically unchanged from 1972. The millwork industry is characterized by its easy market entry and exit. Most millwork operations primarily serve local markets, although some of the larger establishment also ship nationwide as well as overseas.

INTERNATIONAL COMPETITIVENESS

U.S. millwork exports increased 35 percent in 1990 over 1989 to $113 million. The export mixed was comprised of wood moldings (51 percent), wooden doors (30 percent), wooden windows (17 percent),and wood blinds and shutters (2 percent). Wood molding exports went primarily to Canada, which accounted for about 95 percent of the total, followed by Japan and Mexico which were important secondary markets. Canada was the leading foreign market for U.S. wooden door producers, accounting for an estimated 28 percent of the total, followed by the United Kingdom (19 percent), Japan (16 percent), and Mexico (10 percent). The largest foreign market for U.S. wood window manufacturers was Canada, which accounted for 56 percent, followed by Taiwan, which purchased an estimated 9 percent.

Mexico was the leading molding supplier, accounting for about 50 percent of total molding imports and 70 percent of U.S. imports of softwood moldings. Non-standard wood moldings comprised over 50 percent of the molding import mix. This type of moldings, which frequently require a greater amount of labor in their manufacture, have become increasingly common in the import trade since 1982, when they accounted for 33 percent of U.S. molding imports.

U.S. wooden door imports accounted for an estimated 24 percent of total millwork imports. Canada and Mexico were the leading suppliers, each accounting for an estimated 17 percent of the total, followed by Taiwan (14 percent) and Brazil (12 percent). About 85 percent of the imported doors are panel doors while the remainder are flush doors. U.S. window imports (about 7 percent of the millwork total) were mostly from Canada (34 percent), Denmark (25 percent) and Mexico (18 percent). Wood blinds and shutters were primarily imported from Mexico, Taiwan and China, which shipped 28, 26 and 22 percent, respectively.

Outlook for 1991

The U.S. millwork industry is expected to register a 2 percent decline in shipments (1987 dollars) in 1991. This forecast is made with the expectation of continued weak U.S. residential and non-residential construction markets. Repair/ remodeling, the industry's other leading market, is also expected to show slower real growth in 1991. The recent trend toward larger houses with more amenities (including more millwork) is expected to continue, however. This should partially offset the lackluster performance of major markets.

U.S. exports of millwork are projected to continue their trend of strong growth registered in last few years, increasing an additional 15 percent. A continued weak U.S. dollar and modest economic growth overseas is assumed in this forecast. Canada will remain the industry's leading overseas market. As noted earlier, Japan also shows great promise as a growth market, and more millwork exporters are expected to look to that market for additional sales. Imports are expected to drop by 5 percent. Most of the registered millwork imports will continue to be wood moldings, mostly from Mexico.

Long-Term Outlook

The U.S. millwork industry is expected to grow by 1 to 2 percent annually over next 5 years. This industry will remain highly dependent on the domestic level of new construction and repair/remodeling activities, and accordingly this forecast assumes a modest upturn in new construction and repair/remodeling. Homebuilders are also expected to continue constructing larger, more luxurious houses, which typically will demand more millwork per unit. The millwork industry's repair/remodeling market is expected to show steady long-term growth because of the increasing size and age of the nation's housing stock and because, as new house prices rise, many homeowners will choose to improve their existing residence.

U.S. wood window shipments are expected to increase, although producers will continue facing strong competition from vinyl window manufacturers. While most of the competition will still be in the repair sector, vinyl window producers will focus on the new construction market. Wood window manufacturers also will experience increased market demand for their products in new construction, since most new residences are typically being built with more costly and ornate windows.

U.S. wood door manufacturers will faced continued competition, especially in the middle class housing and repair/ remodeling markets, from steel and compression-molded fiberglass door producers. Solid wood doors will increasingly be used, however, in upscale new homes and repair/ remodeling applications. On balance, wood door shipments will show slow but steady growth over the next 5 years.

Domestic shipments of wood moldings are forecast to grow very slowly during the next 5 years because of the already mentioned developments in the industry's leading markets and rising imports. Over the next 5 years, total U.S. demand for wood moldings is expected to grow modestly. However, increased molding imports, especially from Mexico and the Pacific Rim region, will capture most of the increase in domestic demand. U.S. imports of wood moldings from Mexico's U.S. border region are expected to further increase as some U.S. producers expand their facilities there because of lower production costs. Indonesian and Malaysian molding exports to the United States are projected to increase substantially during the next 5 years, as those countries move further toward restricting overseas shipments of minimally-processed items, while encouraging the export of value-added commodities. [Tabular Data Omitted]

Millwork exports are forecast to continue growing over the next few years as U.S. exporters become increasingly sophisticated in overseas market and because of U.S. lumber and plywood industries' overseas marketing activities promoting wood housing that will also benefit U.S. millwork producers. Again, this forecast assumes continued economic growth for most U.S. trading partners and a weak U.S. dollar. Although Canada will remain the leading export market, U.S. millwork exporters will increasingly be looking for Pacific Rim for additional sales. Growing repair/remodeling markets in Japan and the resultant demand for imported wood also bode well for U.S. millwork exporters. - Mitchell I. Auerbach, Office of Forest Products and Domestic Construction (202) 377-0375, October 1990.

PALLETS AND SKIDS

The pallets and skids industry (SIC 2448) produces wooden pallets and skids and wooden cargo containers/ pallets used in the storage and transportation of manufactured goods. Shipments by the pallets and skids industry were valued at $1.9 billion in 1990, measured in constant dollars, up approximately 1.4 percent over the 1989 level.

The pallets and skids industry is the largest domestic user of hardwood lumber, logs and cants, consuming an estimated 5.1 billion board feet (17.6 million cubic meters) in 1990. Oak was the most commonly used hardwood board feet (4.0 million cubic meters) of softwood lumber and 2.3 billion square feet (2.0 million cubic meters) of softwood plywood and oriented strand board/waferboard in 1990.

The pallets and skids industry produced an estimated 510 million wooden pallets and skids in 1990, compared to 500 million in 1989. Production continued to be fairly evenly divided between higher valued reusable pallets, constructed for warehouse use or extended shipping applications and expendable pallets, constructed for limited use. Pallets come in a wide variety of types and sizes. However, the 48-inch by 40-inch double-faced, non-reversible, four-way entry pallet was the most frequently produced pallet.

Pallet prices held steady for most of 1990, but showed some upward movement during the fall on account of rising transportation costs brought on by the Mideast crisis. Some producers were reluctant to pass on higher productions costs, given the competitive nature of the industry and the recent downturn in the economy. Most pallet producers were only operating at 80 percent of capacity.

Pallet manufacturers made increasing use of the Pallet Design System (PDS) in 1990. PDS, a computer program that allows pallet manufacturers to design stringer and block pallets for specific performance requirements, enables pallet manufacturers to produce the best pallet for the job at the lowest cost. Pallet designs used to evolve through trial and error, and while most pallets have provided satisfactory service, they were seldom optimal.

Research intiated in 1988 to counter increased competition from plastic and metal pallets and changing market requirements resulted in the "enhanced wood" pallet in 1990. Researchers at Virginia Polytechnic Institute and State University (VPI) and the U.S. Forest Service Forest Product Laboratory were able to identify several commercially available products that when applied to pallets will (1) improve their ability to be sanitized, decontaminated, and cleaned; (2) improve their fire and flame resistance; (3) improve their decay-and-rot resistance; and (4) be non-toxic to pallet users. These products have, for the most part, been approved for use by the Food and Drug Administration, the Department of Agriculture, and Underwriters Laboratory.

Two large-scale pallet exchange (rental) programs, targeted at the grocery industry, began operations in 1990. The grocery industry - the largest user of pallets - was chosen, because of its material handling problems. First, failed pallets are reportedly contributing to excessive product damage and secondly, the grocery industry does not know what to do with pallets that are no longer serviceable. More and more municipal land fills, nationwide, will no longer take spent pallets. Pallet exchange programs appear to address both of theseconcerns. They offer the grocery industry an exceptionally high quality pallet which should reduce product damage, without a disposal problem since it is a rental.

Exports by the pallet and skids industry increased from $13.1 million in 1989 to an estimated $17 million in 1990. Canada and Mexico continued as the industry's leading export markets, accounting for 38 percent and 37 percent, respectively, of total export sales. Export sales to Japan also increased in 1990.

Imports of pallets and skids were valued at an estimated $7.0 million in 1990, compared to $4.0 million in 1989. Canada and Mexico were our leading foreign suppliers.

Outlook for 1991

Industry shipments are projected to increase by 1.3 percent in 1991, measured in constant dollars. This projection is based upon continued economic growth, albeit at a slow rate, and 12 percent growth in exports. The repair sector of the industry will continue to expand in 1991. New national pallet standards are on the horizon for 1991.

Long-Term Outlook

The long-term outlook for the pallet and skids industry is for 2 percent annual growth, measured in constant dollars. Exports will remain low relative to production, but they should continue to grow. Continued solid waste disposal problems will result in an increased proportion of reusable pallets relative total production and continued growth of pallet exchange programs. - C. Michael Hicks, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

HARDWOOD VENEER AND PLYWOOD

U.S. hardwood plywood and veneer shipments totaled $2.2 billion in 1990. This industry (SIC 2435) manufactures panel products used in new construction, repair/remodeling applications, mobile homes, kitchen cabinets and furniture. With most of these markets registering flat sales - repair/remodeling being the exception - or showing modest declines in 1990, hardwood industry shipments were down 3 percent (1987 dollars). This decline follows a 2 percent drop in shipments registered in 1989. U.S. hardwood plywood production was an estimated 1.2 billion square feet surfacse measure (111.5 million square meters) in 1990, 3 percent off the 1989 figure and almost 50 percent below the industry's production peak reached in 1972.

Three main types of hardwood plywood are produced in the United States; stock panels, prefinished plywood and architectural and special cut to size panels. Stock panels, which comprise an estimated 62 percent of total production, are typically cut in standardized four feet by six-to-ten foot sizes and sold mostly to the plywood industry's major end-use markets and to do-it-yourself home repair centers. Architectural and specialty panels represent approximately 24 percent of total industry production. They are mostly used in furniture, cabinetry and special applications such as high-end decorative panels and furniture. Prefinished wall paneling, 14 percent of U.S. hardwood plywood production, is made from unfinished panels which are sanded, varnished and embossed before being shipped.

The number of industry establishments and employment has fallen since the 1970s as a result of steadily declining domestic markets and company consolidations, closures of older plants and modernization. The number of establishments is down from 366 in 1972 to an estimated 195 in 1989, while employment has declined from 25,100 to 20,200.

INTERNATIONAL COMPETITIVENESS

U.S. hardwood plywood and veneer exports totaled an estimated $236 million in 1990, up 30 percent over 1989 and a cumulative 85 percent above their 1987 level. Hardwood veneers accounted for an estimated 87 percent of the export mix, while the remainder consisted of hardwood plywood. U.S. hardwood veneer and plywood exports have trended upward recently because of the weaker U.S. dollar, increased industry sophistication in foreign markets, and greater uncertainty the supply of tropical hardwood products. The latter has resulted in increased consumer interest, especially in Europe, in plywood made from temperate hardwoods.

West Germany remains the leading U.S. hardwood veneer export market, accounting for 36 percent of total industry exports. Other major veneer markets were Canada which took 14 percent, followed by the United Kingdom (8 percent), and Japan (7 percent). Canada was the leading U.S. hardwood plywood export market, accounting for 39 percent of the export total while Mexico was the second leading foreign market, taking 29 percent. Hardwood plywood exports constituted about 3 percent of total plywood industry shipments while the veneer producers exported about 35 percent of their output.

Despite the increase in industry exports, U.S. hardwood plywood trade remains largely one-side with imports exceeding exports by almost three to one. The estimated 1990 import level of $698 million, a 2 percent increase over 1989, seemed to indicate a reversal of the previous two year trend of declining imports. However, most of the registered increase in the dollar value of U.S. hardwood plywood imports apparently resulted from large price hikes on plywood from Indonesia, the major U.S. foreign supplier.

On a volume basis, U.S. imports of hardwood plywood were down 15 percent from 1989. So far, because of its dominant position as a supplier, and its strength in the U.S. distribution channels, Indonesia has been able to maintain a series of price hikes on plywood exports to the United States. In 1990, Indonesia accounted for an estimated 59 percent (value basis) of U.S. hardwood plywood imports. Indonesian producers have developed a modern, low-cost plywood industry that enjoys ready access to low-cost labor and raw materials and which exports about 90 percent of its production.

Because of the sheer volume of their trade, Indonesian exporters have generally been able to extract higher product prices from their foreign buyers; their products account for about 70 percent of the total world plywood export market, with the United States, Japan and China as the leading customers. Taiwan (16 percent), Canada (7 percent), and Brazil (6 percent), were important secondary suppliers of the total U.S. hardwood plywood imports. U.S. hardwood veneer imports were shipped primarily from Canada (59 percent) and Brazil (12 percent).

Most of the U.S. hardwood plywood imports are in the form of unfinished hardwood panels, made mostly from lauan and other tropical species. An increasing proportion of the imports, however, consists of prefinished panels since Indonesian exporters are beginning to move actively into that market. About 15 percent of total imports consists of door skins used by wooden door manufacturers. Most of the imported door skins are manufactured from birch, meranti, lauan, or seraya plywood.

Outlook for 1991

Hardwood plywood industry shipments are forecast to decline by 3 percent in 1991 (in 1987 dollars) from their 1990 level. Continued weak performance by the industry's major end-use markets is expected to minimize the probability of any resurgence in plywood demand. However, U.S. imports of Indonesian plywood are forecast to continue falling on a volume basis, and to begin declining on a value basis as well because of expected weak U.S. markets and the resultant inability of Indonesian plywood exporters to continue raising prices.

Foreign markets will stand out as this industry's most significant growth area in 1991. U.S. hardwood veneer and plywood and veneer exports are forecast to grow by an additional 10 percent. Most of the increased plywood exports will be result of Additional sales to Canada and Mexico, while veneer exports, mostly to West Germany and Canada, will also increase.

Long-Term Prospects

The long-term outlook for the hardwood plywood industry will depend on developments in key markets such as construction, repair/remodeling and furniture, and policy measures by plywood producing countries in Southeast Asian and South America. The forecast is for a 2 percent annual decline in shipments during the next 5 years. Following a sluggish 1991-1993 period, an upturn in U.S. construction and repair/remodeling activities is expected by the mid-1990s. However, U.S. hardwood plywood producers are not expected to benefit substantially as this industry is expected to lose additional market share in interior wall paneling and mobile home markets to gypsum board manufacturers. Producers will also face increased competition from producers of particleboard, medium-density fiberboard, and hardboard in low cost furniture and cabinet markets.

While U.S. imports of hardwood plywood have leveled off, U.S. producers will face heightened competition from Indonesian exporters for its prefinished markets. Increased plywood imports from Malaysia and Brazil also are likely as those countries move toward value-added wood products exports. However, U.S. hardwood plywood exports are projected to continue expanding as the U.S. industry becomes more adept at marketing. The U.S. industry is also expected to assume a growing share of the world market traditionally held by producers of tropical hardwood plywood; spurred on by environmental concerns over tropical forest losses, consumer preferences in plywood importing countries will continue shifting away from tropical hardwood species. U.S. exporters of temperate hardwood plywood will, thus, be boosted by the increasingly uncertain supply situation facing importers of tropical plywood, many of whom are expected to turn to temperate hardwood plywood in place of tropical plywood. Moreover, if some of the various environmentalists-led proposals for consumer boycotts of tropical hardwood plywood occur, U.S. hardwood plywood exporters fortunes could be enhanced even more. - Mitchel Auerbach, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

SOFTWOOD VENEER AND PLYWOOD

Softwood veneer and plywood industry shipments (SIC 2436) totaled $4.9 billion in 1990. Shipments were up 1 percent (1987 dollars) during that year, after falling 5 percent in 1989. The U.S. softwood veneer and plywood industry continued to face generally stagnant domestic markets for most of its products and increased competition from producers of composite panel products. The plywood industry also faced increasingly tighter (and more expensive) timber supplies. Despite weak domestic markets, industry shipments actually posted a slight increase, since much of its productive capacity idled during sporadic labor strikes in 1989, was brought back on line and plywood producers were again able to resume shipments.

The June 1990 listing by the U.S. Fish and Wildlife Service (FWS) of the northern spotted owl marks a milestone in the confrontation between industry and environmentalists over how much old-growth Federal timber will be withdrawn from future cutting. The likely result will be about a 50 percent reduction in the annual allowable timber harvest off Federal lands in Region 6 (Oregon and Washington). With the location of many plywood mills in small towns adjacent to Federal timber lands, much of the industry in Oregon and Washington is very sensitive to changes in the Forest Service and Bureau of Land Management allowable cut. Although the effects of the FWS decision were not directly felt in 1990, most observers feel that it will lead to a 15-20 percent reduction in softwood plywood production in the Pacific Northwest region.

U.S. softwood plywood production totaled an estimated 21.6 billion square feet (3/8-inch) (19.1 million cubic meters) in 1990, compared to 21.4 billion square feet (18.9 million cubic meters) in 1989. The South was the leading U.S. softwood plywood-producing region in 1990, supplying an estimated 55 percent of the country's total output, followed by the Pacific Northwest, which accounted for 34 percent. Production began in the South in the mid-1960's, following the development of manufacturing techniques to handle the uneven growth characteristics and high natural resin content of Southern Species. Since the mid 1970s, the Pacific Northwest has declined in importance as a plywood producing region, while the South has continued to grow. Much of the recent decline in the Pacific Northwest also has been due to the rapidly rising cost and decreased availability of timber.

American Plywood Association (APA) data indicate that in 1990, new residential construction was the largest single market for the softwood plywood and veneer industry, accounting for 42 percent of domestic industry shipments. Industrial applications, such as transportation equipment and materials handling was second with 20 percent of industry shipments. Repair/remodeling was the third leading market, with 19 percent. Repair/remodeling has slowed its previously rapid growth; still, it has become increasingly important with the decline in U.S. residential construction since 1986. Non-residential construction markets accounted for 16 percent of shipments, while miscellaneous markets, such as civilian government and military purchases, accounted for the remainder.

In 1990, there were 126 softwood plywood establishments in operation, down from 132 in 1989 and 142 and in 1988. While some plywood mills have succumbed to poor market conditions, others have closed because of high timber prices (especially in the Pacific Northwest) and log availability problems. Industry employment was down 3 percent in 1990, to 36,100, reflecting mill closures in the Pacific Northwest, as well as production cutback in operating plywood plants.

U.S. softwood plywood prices were up 3 percent during the first 8 months of 1990 compared with the same period in 1989. However, they finished the summer about 10 percent off those of summer 1989, reflecting the generally poor domestic market conditions facing most U.S. producers. Plywood prices exhibited great volatility as they did in 1989, especially relating to reports on the spotted owl in the Pacific Northwest. Plywood producers also continued to face rising raw material costs. For example, in the Pacific Northwest, U.S. Forest Service Douglas-fir timber prices (Westside Washington and Oregon) jumped almost 50 percent between the first quarter of 1989 and the same period in 1990; since 1985, they have increased a cumulative 345 percent.

U.S. softwood plywood producers continue making technological advances and productivity improvements in order to control costs and remain competitive. Raw material consumption per unit of product has declined through the use of spindless lathes that can handle smaller diameter logs and that enable mills to peel down to about a 3-inch core. Computerized clipper scanners that can spot defects in veneer panels on a continuous basis have become fairly common throughout the plywood industry. Also, gluing and drying times for softwood plywood have been pared through the development of new glues. While continued technological advances and productivity improvements have enabled the plywood industry to remain generally profitable, rising raw material costs are straining many producers.

INTERNATIONAL COMPETITIVENESS

U.S. softwood plywood and veneer exports totaled an estimated $365 million in 1990, up 25 percent over 1989. The weaker dollar, a sustained industry-sponsored foreign market development program and continued economic growth in most U.S. trading partners have been the main factors driving the strong expansion in foreign sales, which have more than tripled in value since 1985. Softwood plywood comprised 95 percent of the export mix (value basis) while softwood veneer accounted for the remainder. Exports comprised about 7 percent of the total value of industry shipments.

The European Community (EC) was the largest regional market for U.S. plywood exporters taking an estimated 80 percent of the total. The United Kingdom, the largest single foreign market, purchased 25 percent of total industry exports. Next came Belgium (16 percent), Canada (13 percent), and the Netherlands (10 percent). Softwood veneer exports went primarily to Canada (52 percent), and Japan (23 percent).

An agreement has apparently been reached on the longstanding standards dispute with Canada concerning CDX plywood (the most common U.S. softwood plywood grade). As a result, Canada is expected to eventually permit the use of U.S.-produced CDX plywood in construction. The agreement could also have the way for the staged elimination of U.S. and Canada tariffs on softwoods plywood, OSB/waferboard and particleboard provided for as part of the U.S.-Canada Free Trade Agreement. In February, 1990, a binational technical committee made recommendations for the drafting of a common plywood standard in both countries. Final resolution of this issue is expected within a couple of years when the binational committee has drafted a common performance standard for plywood and the standard has been incorporated into building codes.

Softwood plywood and veneer imports totaled an estimated $25 million in 1990, down 8 percent from 1989. Canada supplied 38 percent, followed by Indonesia (19 percent) and Finland (19 percent). Brazil, Mexico, and the Philippines were important secondary suppliers, each accounting for about 5-10 percent of total U.S. imports. Canadian, Mexican and Finnish exporters ship primarily temperate softwood plywood species to U.S. markets, while the plywood imported from Indonesia, the Philippines and Brazil consists primarily of Agathis plywood and other tropical softwoods. Softwood veneer imports (80 percent from Canada) accounted for about 40 percent of the import total.

Outlook for 1991

The availability of timber in the Western United States will continue to be one of the biggest concerns for the U.S. softwood plywood industry in 1991. The conflict between environmentalists, the Federal Government and the timber industry over how much of the remaining old-growth forests in the West will be cut in no expected to be completely resolved anytime soon. The Federal Government's revised management plans for Forest Service and Bureau of Land Management lands will, however, result in less available timber in the Pacific Northwest. This, continued soft domestic market are expected to result in a 5 percent decline in industry shipments (constant dollars) in 1991.

Exports are forecast to increase by 15 percent in 1991 as plywood industry market development programs in the Pacific Rim region and Europe continue bearing fruit. The recent Japanese concessions on tariff and non-tariff barriers on finished wood products bodes well for expanded U.S. plywood exports to that country as well as other Pacific Rim countries. The going democratization and economic revitalization in Eastern Europe combined with increased U.S. industry promotional activities are expected to boost sales of U.S. softwood plywood sales to that region.

Long-Term Outlook

Following a 1 to 2 percent decline during the first couple of years in the 1990s, industry shipments are expected to increase slightly on the heels of an expected recovery in U.S. housing starts and repair/remodeling activities. This forecast is made assuming about a 10-15 percent reduction in total available timber in the Pacific Northwest but stable timber supplies elsewhere. If the environmental litigation currently focused in the Pacific Northwest spreads to other parts of the country, resulting in withdrawals of forest lands from timber management, then plywood producers would face even tighter raw material supplies.

Softwood plywood manufacturers are expected to lose additional market share to producers of oriented strandboard (OBS) and waferboard, especially as they are forced to pay higher prices for increasingly scarce veneer grade logs. The producers of OSB/waferboard who have been competing successfully against plywood on a price basis, have increased their production almost tenfold since 1982, and now account for 21 percent of structural panels production. Within 5 years OSB/waferboard producers are forecast to be supplying about 30 percent.

Overseas markets will continue to provide the best longterm growth potential for U.S. plywood producers. The industry's strong export promotion program and long tradition of exporting combined with the continued erosion of tariff and non-tariff barriers in many U.S. trading partners will encourage continued overseas market growth. Although the EC will remain the industry's largest regional market, U.S. plywood producers will be focusing on the Pacific Rim countries for expanded sales. Japan and South Korea offer the greatest potential, because of the inability of those countries' plywood industries to satisfy their markets. U.S. softwood plywood exports to Eastern Europe are also expected to increase as U.S. exporters work toward supplying construction markets in that region's newly democratized countries. - Mitchel I. Auerbach, Office of Forest Products and Domestic Construction. (202) 377-0375, October 1990.

WOOD PRESERVATION

The wood preservation industry (SIC 2491) produces treated lumber and timbers, crossties, poles, plywood, and related wood products. These products are treated with wood preservatives and fire retardants. Following a surprisingly sharp downturn in value of industry shipment in 1989, the wood preservation industry posted a 6.7 percent increase in 1990, measured in constant dollars. Industry shipments were valued at $2.4 billion in 1990.

There were an estimated 575 treating plants in the United States (including Puerto Rico) in 1990; the greatest concentration of plants was found in the South. It is estimated that the wood preservation industry treated over 550 million cubic feet (15.4 million cubic meters) of lumber and related wood products in 1990, much of it southern yellow pine lumber. The industry's products are used in a wide range of construction applications, with the repair and renovation market being its largest end-use market.

Two methods are commonly used to apply wood preservatives. Most treating plants (95 percent) utilize a pressure process, i.e. a change in pressure, to apply the preservative. This procedure expedites the movement of the wood preservative into the wood; it also effects deeper penetration. Tests have shown that pressure treated wood can last 35 years or longer (untreated wood lasts as little as three years), even when in contact with the ground. The remaining plants utilize a non-pressure process, i.e. the wood preservative is applied at normal atmospheric pressure. This procedure can also be very effective, depending upon the specie of wood being treated and the product's intended end-use.

Wood preservatives generally fall into one of three broad classes: creosote solutions, pentachlorophenols, and waterborne preservatives. Over 75 percent of the industry's output was treated with waterborne preservatives in 1990, primarily chromated copper arsenate (CCA). In addition to CCA, other EPA-approved wood preservatives include ammonical copper zinc arsenate, copper napthenate, zinc napthenate, and acid copper chromate.

Productivity in the wood preservation industry varies with, among other things, the equipment being used, the specie of wood being treated, the type of treatment, and the plant's product mix. Generally, output per employee is substantially higher at plants treating with waterborne preservatives than at plants treating with creosote solutions or pentachlorophenols, or a combination of wood preservatives. Similarly, output is generally higher at plants producing a single product than at plants producing a mix of products.

In addition to treating wood products with wood preservatives, the industry also treats wood products with fire retardants. Fire Retardant Treated (FRT) lumber and plywood is permitted to be used in lieu of noncombustible materials under several major building codes. FRT wood accounted for about 2 percent of the industry's output, on a volume basis, in 1990.

A major use of FRT plywood is roof sheathing at party-separation walls in multi-family residential construction such as townhouses. Over the last several years, there have been a number of reported structural failures of FRT plywood. It appears that some FRT plywood - especially FRT plywood treated with formulations containing monoammonium phosphate - undergoes a chemical reaction and loses its structural integrity when exposed to high heat and humidity. According to the National Association of Home Builders, up to 1 million multi-family residences in the eastern United States (most building codes in the West require fire walls) could be affected. There have also been reported failures in office buildings, prisons, and nursing homes. Responsibility for repairs may ultimately lie in the hands of the court, since there is a disagreement as to who is at fault.

As of early October 1990, the anticipated ruling by the Environmental Protection Agency as to how the industry's preservative wastes would be regulated had not materialized. The regulations which have been in the making for several years were due out in final form by July 1990, but now it appears that they will not be out until late November. In the past, EPA has implied that it might use the Resource Conservation and Recovery Act to the regulate these wastes. The industry continues to favor a multi-statute approach.

Exports of treated wood products, primarily poles/pilings and lumber, were valued at $49.7 million in 1990. Canada was the industry's leading export market, accounting for 35 percent of total export sales. Mexico was a distant second, with 4 percent of sales. The Caribbean was an important regional market, accounting for 20 percent of export sales.

Imports of treated wood products, primarily poles and pilings, were valued at $27.9 million in 1990. Canada was our major foreign supplier of treated wood products.

Outlook for 1991

Shipments of treated wood products are projected to increase by 1.2 percent, measured in constant dollars, in 1991. This projection is based, in large part, upon continued growth in the residential remodeling and renovation market, the industry's main end-use market. Exports should be up slightly in 1991 as the industry continues to place more emphasis on developing overseas markets.

Long-Term Prospects

The wood preservation industry had grown rapidly over the past decade. However, the industry is beginning to show signs of maturity. If the industry is to continue its rapid growth, it can only do so by introducing new products. Otherwise, shipments will tend to rise and fall with the residential construction market. However, continued growth in the remodeling and renovation market, will help moderate some of the fluctuation.

Exports will remain low relative to total production, but they should continue to grow. The industry will increasingly place more emphasis on overseas markets. Imports, primarily from Canada, will continue to increase. - C. Michael Hicks, Office of Forest Products and Domestic Construction, (202) 377-0375, October 1990.

RECONSTITUTED PANEL PRODUCTS

Shipments for this industry (SIC 2493) were valued at $2,948 million in 1990. Shipments were up 1 percent (1987 dollars) from 1989, making 1990 the eighth consecutive year of growth for this industry, (except for 1988 when it declined by 0.1) and which since 1982 has more than doubled its shipments. However, the value in shipments expressed in current dollars declined as a result of lower market prices for most of this industry's products. With the exception of OSB/waferboard producers, manufacturers experienced generally soft market demand in 1990 from their major markets; construction and furniture.

Particleboard and medium density fiberboard (MDF) were the two most important products in this industry, accounting for 39 percent of total product shipments, followed by hardboard (24 percent), OSB/waferboard (23 percent), and prefinished particleboard/MDF (7 percent), insulation board (6 percent), and miscellaneous product shipments (1 percent).

This industry grouping is a new classification created by the U.S. Bureau of the Census and first reported in its 1987 Census of Manufactures. It is comprised of six separate products: particleboard, medium density-fiberboard (MDF), hardboard, oriented strandboard and waferboard (OSB/waferboard), insulation board, and prefinished particleboard and MDF. Each of these employ different production techniques and serve generally different markets. A discussion of each product is presented and a brief narrative for the entire SIC 2493 group - with supporting statistics is also provided.

Producers of reconstituted panel products continued to feel the impact of complying with the government's new wood dust standards, implemented by the Occupational Safety and Health Administration (OSHA) early in 1989. Although exact compliance costs are not available, some of the more marginal producers of these products have undoubtedly been strained to comply.

Particleboard and MDF

Particleboard is a composite panel product made mostly from wood residues that are bonded under heat and pressure with a urea formaldehyde adhesive and then shaped into panels. Medium-density fiberboard (MDF) is also made from wood residues. MDF is manufactured by heating wood residues under pressurized steam (which breaks down the natural lignins binding the particles together), before being bonded into wood fibers. The fibers are later blended and matted in a panel formation process similar to that used in the production of particleboard.

There are 45 particleboard and 13 MDF establishments, located throughout the country. According to the National Particleboard Association (NPA), Oregon (30 percent), Mississippi (10 percent), and Virginia (19 percent), were the leading particleboard producing states in 1990. MDF production in 1990 was mostly in South Carolina (15 percent), North Carolina and California (each 13 percent), and Alabama and Arkansas (each 12 percent).

U.S. particleboard shipments totaled an estimated $886.7 million in 1990, virtually unchanged (1987 dollars) from the previous year. On a volume basis, particleboard production totaled an estimated (3/4-inch basis) 3,870 million square feet (6.8 billion cubic meters) in 1990, the second year without growth. This is in contrast to the 1982-88 period of steady growth when production increased by a cumulative 60 percent. U.S. market demand for particleboard has slowed considerably from the mid-1980s, because of a general moderation in demand from most particleboard markets and encroachment by MDF producers in many of its markets, particularly furniture. According to the NPA, U.S. particleboard productive capacity totaled 4,511 million square feet (8.0 billion cubic meters) in 1990, up 4 percent from 1989. About 57 percent of U.S. particleboard productive capacity is located in the eastern part of the country (including Texas). In 1990, industry capacity utilization was an estimated 86 percent.

U.S. MDF shipments were valued at $304.3 million in 1990, up a modest 1 percent (1987 dollars) from 1989. Since 1982, constant dollar MDF shipments have grown by 121 percent. U.S. MDF production was an estimated (3/4-inch basis) 985 million square feet (1.7 million cubic meters) in 1990, compared to 970 million square feet (1.7 million cubic meters) in 1989 and 446 million square feet (800,000 cubic meters) in 1982. Productive capacity stood at 1,035 million square feet (1.8 million cubic meters) in 1989, while capacity utilization was an estimated 95 percent.

Particleboard is used mostly in the manufacture of furniture, doors, cabinets, and fixtures, which accounted for about 86 percent of total shipments. Particleboard producers compete with manufacturers of hardwood plywood, hardboard, MDF, lumber, and metal products for these markets. Flooring underlayment was the second largest particleboard market taking an estimated 10 percent of total shipments. Particleboard producers have been losing their share in this market since the late 1970s to softwood plywood, OSB/waferboard, imported hardwood plywood, lumber, and hardboard. Most of the remaining particleboard shipments went into mobile decking (which has been declining since the 1970s) and structural panels. Over 95 percent of MDF goes into furniture production while most of the remainder is used in the manufacture of cabinets and fixtures.

U.S. particleboard exports were an estimated $61 million in 1990, while MDF shipments to overseas markets totaled $48 million. Exports, which have more than doubled since 1985, were up an additional 35 percent in 1990 over 1989. Growing demand from the Pacific Rim's export oriented furniture manufacturers has been largely responsible for the rapid growth in U.S. exports. Canada was the largest particleboard export market, purchasing 29 percent of the U.S. total, followed by South Korea (25 percent), Mexico (21 percent), and Taiwan (9 percent). U.S. exports of MDF went mostly to Taiwan (31 percent), South Korea (18 percent) and Canada (13 percent).

Particleboard and MDF imports were valued at an estimated $86 million in 1990, down 26 percent from 1989. Particleboard comprised 90 percent of the import product mix. Canada supplied about 85 percent of total U.S. particleboard imports while Mexico supplied most of the rest. Most U.S. imports of MDF were shipped from Canada (61 percent), Argentina (13 percent) and Mexico (10 percent).

OSB/wafeboard

Despite generally soft domestic construction, OSB/waferboard manufacturers expanded further in 1990 as they continued to capture market share from softwood plywood producers. In 1990, U.S. OSB/waferboard product shipments totaled $694.5 million, up 9 percent (1987 dollars) over 1989, and 35 percent over their 1987 level. U.S. production of OSB/waferboard has surged since 1980, when it totaled (3/8-inch basis) 196 million square feet (173,000 cubic meters) to an estimated 5,550 million square feet (4.9 million cubic meters) in 1990. The U.S. industry, which began in 1973 with a single mill in Minnesota has rapidly expanded, especially since 1980, to 29 establishments with a total productive capacity of 6,140 million square feet (5.4 million cubic meters). Canadian exports of OSB/waferboard to U.S. markets totaled an estimated 1,600 million square feet (1.4 million cubic meters) in 1990. Including imports from Canada, this composite panel accounts for about 26 percent of the total structural panels market (shared with softwood plywood), compared with 1 percent in 1980.

OSB/waferboard is a composite panel made from wafersized wood chips and strands, which are coated with a wax and resin (usually phenolic-based) before being bonded under heat and pressure. Producers of OSB/waferboard use roundwood as their basic raw material, unlike manufacturers of other reconstituted panel products, who rely mostly on mill wastes such as edgings, sawdust and trimmings. The increased scarcity and higher cost of large, veneer grade logs used in plywood production have been the major factors driving the wood products industry to develop panel products made from smaller, less expensive timber. The North Central region where U.S. OSB/waferboard. production began, is still the leading producing region, supplying an estimated 41 percent of the U.S. total. Other OSB/waferboard producing regions are the Southeast (25 percent), the Southwest (18 percent), the Northeast (9 percent), and the West (7 percent).

OSB/waferboard producers ship their products to most of the same domestic markets as manufacturers of softwood plywood, and the two panel products are generally manufactured to the same product grades and standards. New residential construction is the largest market taking an estimated 39 percent of shipments. The repair/remodeling market accounted for about 24 percent and non-residential construction 15 percent, while the remaining OSB/waferboard was used in miscellaneous applications such as transportation equipment and materials handling. OSB/waferboard has already gained wide acceptance in roof and wall sheathing and flooring applications. Producers have recently begun marketing an exterior siding made from OSB/waferboard, which is bonded with a more water resistant isocyanate-based resin and embossed with a resin-coated paper overlay.

U.S. exports of OSB/waferboard were estimated to total $16 million in 1990, mostly to the European Community. Imports of OSB/waferboard into the United States (virtually all from Canada) totaled $132 million in 1990, up approximately 55 percent over 1989. Canada exports about 60 percent of its OSB/waferboard production to the United States and as its industry has continued to expand, so have its shipments to U.S. markets. In 1990, Canada's OSB/ waferboard producers had a productive capacity of about 2,915 million square feet (2.6 million cubic meters), and consisted of 15 mills, up from 13 in 1988. Imported OSB/waferboard supplied about 16 percent of the U.S. market.

Hardboard

U.S. hardboard product shipments were valued at $729.5 million in 1990, down 1 percent (1987 dollars) from 1989. Except for a modest increase in 1989, U.S. hardboard demand has been on a downward trend since 1983 primarily because producers have been losing market share, especially in siding, to softwood plywood and OSB/waferboard. Interior paneling, traditionally an important market for hardboard producers, has also declined because of shifting consumer preference in favor of gypsum board. Builders have also moved away from using hardboard in flooring, to using thicker singlefloor systems made from softwood plywood or OSB/waferboard. U.S. hardboard production in 1990 (1/8-inch basis) was an estimated 5,150 million square feet (1.5 million cubic meters), compared to 1983, when it totaled 7,303 million square feet (2.2 million cubic meters). Industry productive capacity was an estimated 6,784 million square feet (2.0 million cubic meters) with a capacity utilization of about 76 percent in 1990, down from 91 percent in 1983. Since 1983, several U.S. hardboard mills have closed while others have scaled back operations.

Hardboard is made from wood fibers which have been consolidated under heat and pressure to form panels, using only a minimal amount of resin because of the relatively high heat and pressure under which it is produced. According to the American Hardboard Association (AHA), it is used mostly in residential construction applications, which consumed 35 percent of the industry's production. Industrial applications; including furniture, cabinets, etc., was the second largest market with 29 percent. The residential repair/remodeling market accounted for another 24 percent while hardboard used in non-residential construction comprised the remainder.

In 1990, the hardboard industry consisted of 21 mills; 8 in the West, 7 in the South, 5 in the Midwest, and 1 in the Northeast. The South was the leading hardboard producing region, supplying an estimated 52 percent of the country's total, followed by the West (23 percent), the Midwest (15 percent), and the Northeast (10 percent).

The hardboard producers registered additional growth in foreign sales, with exports increasing an estimated 17 percent in 1990, to $51.6 million. Since 1985, hardboard exporters have doubled their shipments to foreign markets. In 1990, exports comprised about 7 percent of total shipments. Canada was, by far, the leading foreign market, taking 66 percent of all U.S. exports, followed by Australia and Taiwan (each 5 percent). U.S. hardboard imports decreased an estimated 1 percent in 1990, to $48 million. Brazil was the leading foreign supplier of hardboard to the United States, accounting for about 44 percent of the import total, followed by Canada which accounted for 34 percent. Brazilian hardboard is widely used in the manufacture of extra-wide garage doors, flat interior flush doors and tileboard. Other, secondary, sources of imported hardboard included Mexico, which accounted for 10 percent of U.S. hardboard imports and the Soviet Union and Argentina, which each accounted for about 5 percent of the U.S. import total.

Other Reconstituted Panel Products

Product shipments of prefinished particleboard and MDF totaled $225.1 million in 1990, down 5 percent (1987 dollars) because of slack market demand from construction and furniture markets. The decline in shipments was the first reversal of the post-1982 period of steady growth for this industry, during which product shipments grew an estimated 60 percent. Prefinished products are manufactured by embossing, laminating or applying a pattern to the basic particleboard of MDF panel to simulate a wood grain or some other pattern. They are widely used in the production of furniture, cabinets and fixtures, while a limited quantity are also used in wall paneling.

Insulation board shipments, valued at $201.9 million in 1990, were down 3 percent from 1989. The decline in the construction market was the major factor in the reduced shipments. The decline in shipments also reflected the steady downward trend in demand for wood-based insulation panels that has been occurring since the 1970s. Substitute insulating products, most notably plastic foams, fiberglass and cellulose insulation materials have been cutting deeply into insulation board's traditional markets. Insulation board is made from fibers (usually wood) that have been felted, dried, cut, and trimmed. The panel's insulating properties are gained by entrapping large quantities of air pores between the individual wood fibers during the felting process. Insulation board is used primarily in building construction and repair/remodeling applications. About 90 percent goes into exterior uses, such as roof and wall sheathing, while the rest is used mostly in the production of ceiling tiles and ceiling panels.

Outlook for 1991

With the exception of OSB/waferboard, shipments for all of the individual products within this industry grouping are expected to be down in 1991. Constant dollar shipments for SIC 2493 are forecast to decline by 2 percent in 1991 from their 1990 level. Growth in market demand for OSB/waferboard will occur primarily as result of continued encroachment by its producers into softwood plywood markets since new construction is expected to decline in 1991. Particleboard and MDF shipments are forecast to decline by 2 percent because of continued weak demand from its major end-user markets; furniture and cabinets. For the same reason, prefinished particleboard and MDF shipments are also expected to be down by 3 percent in 1991. Hardboard shipments are forecast to decline by 4 percent as producers face further inroads into their siding markets by producers of softwood plywood, OSB/waferboard, vinyl, brick, and aluminum siding. Insulation board manufacturers will also experience a 3 percent drop in shipments because of the reduced construction activity and a continued market shift to alternative materials, especially foamed plastic boards.

Long-Term Prospects

Following a period of flat market demand in 1992-93, industry shipments for SIC 2493 are projected to grow slowly during the mid-1990s, based on an expected recovery in construction activity after 1992. Although reconstituted panel producers will remain closely tied to the level of new construction, they will continue looking to the repair/remodeling and furniture markets for most shipments growth.

Shipments by the particleboard and MDF industry are projected to show a slow growth pattern through the mid-1990s, with producers remaining closely linked to their furniture, cabinetry and fixtures markets. Producers will continue focusing most of their efforts on the higher-value industrial markets while shipments to the underlayment and manufactured housing markets are expected to further decline. Particleboard and MDF exports are expected to register steady expansion over the next few years, especially if the U.S. dollar remains weak and the economies of the leading U.S. trading partners remain healthy. Exports to Japan, South Korea and Taiwan, can be expected to show substantial growth if the expected raw material supply shortfall in that region materializes. Continued growth in these markets could be a double-edged sword, however, since domestic furniture manufacturers, another important industry market, could be adversely affected by increased U.S. imports of furniture.

U.S. OSB/waferboard shipments are forecast to expand by 5 to 10 percent annually over the next several years, with virtually all of the growth occurring at the expense of softwood plywood. As veneer grade logs become increasingly scarce, OSB/waferboard producers will find themselves at a competitive advantage, since they are able to utilize the smaller-diameter trees which will still be relatively abundant. American Plywood Association data indicate the possibility of as many as 8 new mills will be constructed over the next 5 years, which would result in nearly a 40 percent increase in productive capacity. Within 5 years, OSB/waferboard shipments are expected to account for about 30 percent of the structural panel total. International markets also offer great potential for U.S. producers. U.S. companies can be expected to expand further on their initial marketing efforts in Europe and Japan, begun in the late 1980s. Exporters will be focusing most of their efforts in these region's sheathing, flooring, and siding markets. Japan, especially, holds great potential as a major OSB/waferboard export market with the recent approval by the Japanese Ministry of Construction for its use in residential construction.

Hardboard shipments are expected to continue declining, because of soft markets and further inroads into the hardboard siding markets by producers of other panel products. Most of the hardboard industry's domestic shipments will

continue going to the new construction and repair/remodeling sectors. Industry exports are projected to increase, counteracting some of the decline in domestic markets. Canada will remain the leading foreign market for U.S. hardboard exporters, although exports to the Pacific Rim are expected to show the greatest percentage growth.

Despite some growth in demand from some of its markets, such as roof decking in homes under renovation, U.S. wood fiber insulation board shipments will remain in a state of contraction, mostly because of further decline in panels used in sheathing applications. Wood fiber insulation board manufacturers will continue to lose market share to manufacturers of plastic foam insulating materials, suppliers of about 60 percent of the commercial and residential sheathing markets. Exports - mostly to Canada - will continue to increase, especially as the U.S.-Canada Free Trade Agreement leads to a reduction in both countries' tariffs. U.S. insulation board exports to the Pacific Rim are also forecast to continue expanding. However, foreign sales will still comprise a small proportion of total shipments. - Mitchel I. Auerbach, Office of Forest Products and Domestic Construction (202) 377-0375, October 1990.

PHOTO : Exports for U.S. wood products have increased for the fifth year in a row.

PHOTO : U.S. exports of millwork are expected to increase an additional 15 percent over the next few years.

PHOTO : A technician measures the deflection of a piece of plywood to simulate heavey floor loading.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Wood Products, Annual Survey of Manufactures, Bureau of Census, U.S.

Department of Commerce, Washington, DC 20233. Telephone: (301)

763-2510. Wood Products, Census of Manufactures, 1987, Bureau of Census, U.S.

Department of Commerce, Washington, DC 20233. Telephone: (301)

763-2510. Crow's Weekly Letter, C.C Crow Publication, Inc. P.O. Box 25749,

Portland, OR 97225. Telephone: (503) 646-8075. Lumber Production and Mill Stocks, Current Industrial Report, Bureau

of Census, U.S. Department of Commerce, Washington, DC 20233.

Telephone: (301) 763-5911. Forest Industries, Miller Freeman Publications, 500 Howard Street, San

Francisco, CA 94105. Telephone: (415) 397-1881. U.S. Foreign Trade Reports, U.S. Exports, EC 532, FT-410; U.S. Imports,

IM 141, FT-246, 1972-86, Bureau of the Census, U.S. Department of

Commerce, Washington, DC 20233. Telephone: (303) 763-5140. A Study of Lumber Use in Pallets Manufactured in the United States,

1982 and 1985, Department of Forestry, School of Agriculture, Southern

Illinois University, Carbondale, IL 62903. Telephone: (618) 453-3341. Random Lengths, A Bi-weekly Report on World Markets for Forest

Products, Random Lengths Publications, Inc. P.O. Box 867, Eugene,

OR 9744-0467. Telephone: (503) 686-9925. Weekly Hardwood Review, P.O. Box 221469, Charlotte, NC 2822-1469.

Telephone: (704) 543-4408. Wood Preservation Statistics, 1988,. American Wood Preservers Institute,

Tyson's International Building, 1945 Old Gallows Road, Vienna, VA

22180. Telephone: (703) 893-4005. End-use Marketing Profiles for Structural Panels 1989-1991, American

Plywood Association, P.O. Box 11700, 7011 South 19th Street,

Tacoma, WA 98411. Telephone: (206) 565-6600. 1989 Statistical Yearbook of the Western Lumber Industry, Western Wood

Products Association, Yeon Building, 522 S.W. Fifth Avenue, Portland,

OR 97204. Telephone: (504) 224-3930.

COPYRIGHT 1991 U.S. Department of Commerce
COPYRIGHT 2004 Gale Group