Wood products - Industry Overview

C. Michael Hicks

Fifteen manufacturing sectors make up SIC 24 (Lumber and Wood Products), excluding mobile homes and prefabricated wood buildings, which are covered elsewhere. Industry shipments in 1989 were valued at nearly $75 billion, of which $30 billion was value-added by manufacturing. The industry employed more than 685,000 people that year. Capital expenditures totaled almost $2 billion, the majority of which was invested in new machinery, and the equipment to increase product recovery and reduce labor.

Establishments classified in SIC 24 (33,982 in 1987) are engaged in the cutting and processing of timber into poles, pilings, lumber, plywood, and more highly processed wood products. About 80 percent of these establishments employed fewer than 20 people, although more than 80 percent of industry shipments came from large-scale, modern establishments.

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 trade data, forecasting methodology, the use of 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 37 (Household Consumer Durables).

Industry shipments for selected segments of SIC 24 declined about 0.5 percent in current dollars and 4.5 percent in constant dollars in 1991. Exports declined 5.5 percent and imports declined 18 percent.

Wood products have a wide range of applications, but the construction sector is the main end-use market for most of the industry's products. Other end-use markets are the furniture, cabinets and fixtures, and materials handling sectors. The furniture and cabinets and fixtures sectors are particularly important to producers of nonstructural panel products (particleboard, medium density fiberboard, hardboard, and hardwood plywood). All of the industry's end-use markets were extremely soft because of the recession.

More than 80 percent of the softwood lumber and 65 percent of structural panels (softwood plywood and oriented strand board), as well as much of the millwork produced in the United States, is used in construction-related activities. Residential construction is the largest consumer of wood products within the construction sector. Housing starts fell 12 percent in 1991, from 1.19 million units to 1.05 million units. Shipments of furniture, cabinets, and fixtures also were off.

Tight log supplies prevailed in some regions of the country in 1991, notably the Pacific Northwest. In May 1991, the U.S. Fish and Wildlife Service tentatively identified 190 critical habitat areas for the northern spotted owl in western Oregon and Washington and northern California. (The northern spotted owl was listed as a threatened species under the Endangered Species Act in June 1990.) The proposed critical habitat areas, which require special management, initially covered 11.6 million acres (4.7 million hectacres) of public and private forest land. Subsequently, 3.5 million acres (1.4 million hectacres) of private, state, and tribal forest land were taken out of the critical habitat areas, although landowners must still comply with applicable state wildlife regulations. Timber harvesting eventually is expected to be curtailed or severely restricted on all the forest land within the critical habitat areas. In a related development, the U.S. District Court in Seattle issued an injunction in May, 1991 on behalf of the Seattle Aububon Society that barred the U.S. Forest Service from offering timber sales on some 66,000 acres (26,400 hectares) of national forest pending the completion of a spotted-owl recovery plan.

According to industry sources, tight, and to some extent unstable, log supplies are the primary reason more than 50 lumber and panel mills were closed in the Pacific Northwest during the past two years. Particularly hard-hit were mills that depended on Federal timber. Forest Service and Bureau of Land Management sale volumes have fallen by more than 60 percent in the past two years. Several bills introduced in Congress during 1991 seek to stabilize Federal harvest levels in the region. Historically, about 40 percent of the timber harvested in Washington and Oregon comes from Federal land.

INTERNATIONAL COMPETITIVENESS

Slower economic conditions in many overseas markets led to a 5.5 percent decline in U.S. wood products exports, the first decline in 6 years. Exports in many sectors of the industry actually increased, but the magnitude of the increases were insufficient to offset lower exports of softwood plywood and logs, two of the industry's leading export commodities.

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Exports of selected segments of SIC 24 totaled an estimated $5.7 billion in 1991, compared with $6 billion in 1990. Japan and Canada were the industry's leading export markets, accounting for 42 percent and 15 percent, respectively. Other significant markets were South Korea (6 percent), Mexico (5 percent), Germany and Italy (4 percent each), and the United Kingdom (3 percent). Softwood logs and softwood lumber were the leading export commodities, accounting for 30 percent and 22 percent, respectively. Softwood log exports declined more than $300 million in 1991, mainly because of a downturn in the Japanese construction industry. Recent U.S. log export restrictions also may have played a minor part. The Customs and Trade Act of 1990 made permanent a temporary prohibition on log exports from Federal lands in the western United States, and placed a similar restriction on most state lands in the region. Exports of softwood logs from the West Coast declined by almost 15 percent during the first six months of 1991.

Overseas demand for hardwood products was quite strong in 1991, the result, in part, of growing concern over the rapid deforestation of tropical hardwood forests. More actions are being taken at the local level, both in the United States and abroad, to limit imports of tropical wood harvested from other than sustained-yield forests. Export bans and taxes by some Southeast Asian countries also have increased the demand for U.S. hardwood products.

Exports of value-added wood products to Japan, including softwood lumber and plywood, laminated veneer lumber (LVL), and glued laminated wood products (glulam) increased in 1991. Some of this increase, particularly of LVL and glulam, grew out of the U.S.-Japan Wood Products Agreement of 1990.

Wood products imports (selected segments of SIC 24) were valued at $3.4 billion in 1991, down 18 percent from 1990. Canada was the major foreign supplier, accounting for 65 percent of the total, much of it softwood lumber. Other principal suppliers were Indonesia (hardwood plywood), Taiwan (hardwood plywood and miscellaneous wood products), and Mexico (millwork).

About 27 percent of the softwood lumber consumed in the United States comes from Canada. This percentage has declined following a 1986 Memorandum of Understanding (MOU) under which Canada imposed a 15 percent export tax on softwood lumber. In exchange, the United States terminated its countervailing duty investigation of Canadian subsidies in the forest products industry. However, in September 1991, Canada informed the United States that it was terminating the MOU effective October 4 because it claimed that the provincial governments had eliminated their forestry subsidies. As of late September, this development was still under review.

Outlook for 1992

Shipments for selected segments of SIC 24 will rebound, based on better economic conditions expected both in the United States and abroad. In constant dollars, shipments should be up almost 3 percent. Only the hardwood plywood and veneer industry is not expected to take part in the recovery due to continued market erosion.

Most of the industry's end-use markets are projected to be stronger in 1992. Private housing starts are projected to increase by 11 percent, from 1.05 million units to 1.17 million units, assuming that mortgage rates remain at or near their present levels. Furniture shipments also are forecast to increase moderately. The repair and remodeling market should also remain moderately strong.

Environmentalists and preservationists are expected to continue their efforts to curtail or modify logging on national forest land in the Pacific Northwest and elsewhere. As a result, log supplies are expected to remain tight, particularly if demand picks up as projected.

Exports are projected to be up almost 4 percent, with Japan continuing as the industry's leading market. Exports of green softwood lumber to the European Community (EC) could drop substantially if the United States fails to get an extension of the derogation (temporary stay) it negotiated last year with the EC on imports of green coniferous lumber. The EC prohibited the import of green coniferous lumber on January 1, 1991 because of concerns over the pinewood nematode.

The combination of higher wood product consumption and only a moderate increase in domestic production will lead to an increase in imports of almost 15 percent in 1992. The bulk of this will be made up by a 12 percent increase in softwood lumber from Canada.

Long-Term Prospects

Industry shipments should experience moderate growth in the next 5 years. The fortunes of the industry will remain closely linked to the level of new residential construction. Annual housing starts are projected to average around 1.25 million units throughout the period. Wood products producers will increasingy focus their marketing on residential and commercial repair and remodeling to lessen their vulnerability to the housing industry's cyclical nature. Rising production costs and continued tight timber supplies will lead to an increase in consolidations and mergers. Federal harvests in the Pacific Northwest should stabilize at around 3.5 billion board feet (15.9 million cubic meters).

Exports should continue to grow. Industry market development programs under way overseas could influence future trade patterns. The proliferation of regional free trade agreements could also influence these trade patterns. Log exports will constitute an ever smaller percentage of total exports. Imports should remain relatively stable throughout the period.

LOGGING

Shipments of sawlogs, veneer logs, pulpwood, and related wood products declined in both current and constant dollars in 1991. Industry shipments were down 7 percent, measured in constant dollars. Most domestic end-use markets were extremely soft. Overseas markets were also off, but to a lesser extent. Log prices were generally lower in 1991.

Softwood logs were the industry's leading commodity, accounting for slightly more than one-third of total product shipments of SIC 2411. The industry harvested an estimated 40.2 billion board feet (182.3 million cubic meters) of softwood logs in 1991, down 6 percent from 1990, and down 13 percent from 4 years earlier. Demand for softwood logs was down in large part because of a drop in softwood lumber production. Production by the softwood lumber industry, which consumes more than two-thirds of total softwood log production, was off an estimated 5 percent in 1991. Lower harvests since the northern spotted owl was listed as a threatened species and recent log export restrictions also contributed to lower production.

Stumpage prices for softwood logs were generally lower in 1991. Stumpage prices for southern yellow pine logs in the South averaged $125 per thousand board feet ($28 per cubic meter) in the second quarter of 1991, compared with $132 ($29) for the same period in 1990. Stumpage prices for softwood logs in the Pacific Northwest (National Forests-West Side) averaged $347 per thousand board feet ($77 per cubic meter), based upon first-half 1991 data. Continuing litigation has prevented the U.S. Forest Service from offering the majority of its planned 1991 sale volume, hence these prices may not be accurate. Indications are that stumpage prices were slightly lower, however.

Pulpwood was the industry's second leading commodity, accounting for slightly less than 8 percent of product shipments. Pulpwood (roundwood and chips) production reached an estimated 99.5 million cords in 1991, compared with 99.2 million in 1990. Based upon second-quarter information, pulpwood prices were mixed in 1991. Softwood pulpwood prices were up slightly, while hardwood pulpwood prices were down significantly. Weak demand from traditional hardwood end-users appears to have prompted some landowners to sell low-grade hardwood sawlogs as pulpwood, creating an oversupply and lower prices.

The industry's other leading commodity was hardwood logs, which make up 3 percent of product shipments. Hardwood log production declined by almost 6 percent in 1991, to an estimated 9 billion board feet (41.3 million cubic meters), a reflection of diminished demand from most domestic hardwood end-users. The hardwood lumber, furniture, pallets and skids, and hardwood flooring industries, four of the primary hardwood users, all experienced lower shipments. Hardwood log production would have fallen even further had it not been for the overseas markets, where demand was quite strong in 1991.

Stumpage prices for hardwood logs were mixed in 1991. Stumpage prices for oak (Southwide) averaged $111 per thousand board feet ($23 per cubic meter) for the second quarter of 1991, down roughly 6 percent from the same period in 1990. Stumpage prices for mixed hardwoods were up slightly, averaging $77 per thousand board feet ($16 per cubic meter) for the second quarter.

INTERNATIONAL COMPETITIVENESS

Exports of sawlogs, veneer logs, and related wood products declined by almost 13 percent in value in 1991, led by a 15 percent decline in exports of softwood logs. These historically account for 80 percent to 85 percent of total exports. Exports of softwood logs, much of it Douglas fir and hemlock logs, were valued at $1.8 billion in 1991.

Japan was the leading market for softwood logs, accounting for an estimated 70 percent. Exports to Japan were down more than 20 percent in 1991 because of a downturn in the Japanese construction industry and recently implemented log export restrictions in the United States. Japanese housing starts, which have averaged around 1.7 million units in recent years, fell by more than 15 percent in 1991. South Korea and China were the other leading softwood log export markets, accounting for 14 and 9 percent, respectively. Softwood log exports to China were up substantially in 1991.

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Exports of hardwood logs declined by an estimated 7 percent in 1991, to $234 million. Japan, with 24 percent of the total, was the leading market. Canada was second with 16 percent. Indications are that a portion of the hardwood logs exported to Canada were re-exported to Europe. Germany was the other leading market for hardwood logs, primarily veneer-grade logs, accounting for just under 16 percent of total exports.

Imports of logs and related wood products, mostly from Canada, were valued at $26 million in 1991, down more than 15 percent from 1990.

Outlook for 1992

Shipments of sawlogs, veneer logs, pulpwood and related wood products are expected to increase by slightly more than 2.5 percent. This assumes an increase in demand for wood building products and no more than a 12 percent increase in softwood lumber imports. Exports are expected to remain at their present level, or drop slightly, assuming no further log export restrictions are imposed.

Long-Term Prospects

Industry shipments for SIC 2411 should remain near, or slightly above, the 1992 level over most of the period. This projection is based upon modest growth expected in most domestic end-use markets and Federal harvest levels of around 3.5 billion board feet (15.9 million cubic meters) in the Pacific Northwest. Housing starts are expected to average around 1.25 million units a year. Exports are expected to decline slightly.

LUMBER

As a result of the low level of housing starts in 1991, lumber production declined by more than 11 percent during the first half of the year. Production during the second half of 1991 was expected to increase, however, reducing the yearly decline to about 5 percent. Total lumber production in 1991 was expected to be about 44.2 billion board feet (104.3 million cubic meters).

Lumber is the major product of the sawmills and planing mills industry (SIC 2421), accounting for about 70 percent of the industry's total value of shipments. Softwood lumber makes up 58 percent and hardwood lumber 12 percent. The industry also produces wood chips, softwood flooring, furniture stock, and other general sawmill products, including railway ties and fence lath.

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Total lumber production in 1990 was 46.5 billion board feet (109.7 million cubic meters), 35.8 billion board feet (84.5 million cubic meters) of it softwood lumber, and 10.7 billion board feet (25.3 million cubic meters) hardwood lumber. This was a 4.1 percent decline from 1989 production of 48.5 billion board feet (114.5 million cubic meters), of which 4.6 percent was softwood lumber and 2.6 percent hardwood. Softwood lumber traditionally accounts for 75 percent to 80 percent of total production.

Measured in constant dollars, sawmills and planing industry shipments declined more than 3 percent in 1989 (from $17.7 billion to $17.2 billion), about 4 percent (to $16.4 billion) in 1990, and are projected to decline another 5 percent in 1991, to about $15.6 billion.

The price of framing lumber increased dramatically during the second quarter of 1991 to more than $300/per thousand board feet (mbf), but is expected to level off to a yearend average of $240/mbf, the same as in 1989.

Residential construction is the major market for softwood lumber, although commercial and industrial construction, repair and remodeling, and exports also play an important role. Hardwood lumber is used mostly in furniture, flooring, millwork, pallets, and in such specialty items as picture frames and decorative boxes.

Residential construction has been fairly strong through most of the past decade, although housing starts have declined since 1987. In 1990, private housing starts dropped significantly, to less than 1.2 million and continued to decline in 1991, to slightly more than 1 million.

The amount of lumber consumed by the repair and remodeling market has increased substantially since 1982. This market has become significantly more important over the past decade as the base of older houses has increased and homeowners have chosen remodeling over buying new houses. (Almost 39 percent of all single-family houses were built before 1940.) The repair and remodeling market accounted for an estimated one-third of the softwood and hardwood lumber consumed in the United States in 1991. Softwood lumber is used mostly for decks and additions; hardwood lumber is used for flooring, cabinets, decorative molding, and furniture.

Employment in the sawmill and planing industry has declined substantially since 1988, from 152,000 workers to 133,000 in 1991. The decline reflects the recession and the accompanying drop in new housing starts.

Significant shortages of logs are expected over the next few years as housing starts pick up and timber under contract is harvested. Southern lumber producers may benefit in the short term as a result of more restrictive logging policies in the national forests of the Northwest. But some analysts believe that the recent shift to Southern timber may not last.

INTERNATIONAL COMPETITIVENESS

The value of the industry's exports rose about 5 percent in 1990, from $2.4 billion in 1989 to $2.5 billion.

Softwood lumber exports in 1990 were valued at more than $1.3 billion, down 4.7 percent from 1989, while the quantity exported decreased 13 percent to 2.9 billion board feet, or almost 6.9 million cubic meters. During 1990, the value of hardwood lumber exports reached $0.8 billion, an increase of almost 25 percent from the previous year, while the quantity exported decreased less than 1 percent to 1.9 billion board feet (0.8 million cubic meters). Exports of chips reported under SIC 2421 increased more than 7 percent in 1990, to $361 million.

Japan and Canada are the major importers of U.S. lumber and sawmill products. In 1990, Japan imported 40 percent of the value of U.S exports of these commodities, while Canada imported about 15 percent. Important secondary importers were Mexico, Italy, Spain, Australia, the United Kingdom, and Germany.

In 1991, softwood lumber exports increased about 1 percent in value, while hardwood lumber exports increased 1.5 percent. Softwood lumber exports to Canada, which was in the midst of a recession, decreased about 25 percent, while exports to Japan rose slightly.

Douglas fir was the leading species of softwood lumber exported in 1990. Japan accounted for about 36 percent, Australia 20 percent, and Canada 16 percent. Hemlock was the second leading export species, with Japan again the major importer (92 percent). Southern yellow pine was third, with Spain the leading importer.

Red and white oak are the major hardwood lumber export species. The major markets are Canada, Taiwan, Spain, and the United Kingdom. Exports of hardwood chips increased 6 percent in 1990, of which about 88 percent went to Japan.

About 95 percent of the industry's imports come from Canada. Imports in 1990 were about $2.8 billion, compared with $3.2 billion in 1989, a decline of more than 12 percent. About 90 percent of the imports were softwood lumber.

Canadian softwood lumber accounted for about 27 percent of domestic consumption in 1990, having dropped gradually from a high of 33 percent in 1985. This decline continued through 1991. The 1986 Memorandum of Understanding (MOU) between Canada and the United States, which resulted in a 15 percent export tax on Canadian softwood lumber destined for the United States, is partly responsible for the decline. Despite the (MOU), controversy continues over the issue of Canadian subsidies of softwood lumber. In September 1991, Canada announced its intention to terminate the agreement on October 4. This was met with considerable opposition from the U.S. industry and Government.

Outlook for 1992

Total lumber production is expected to increase by about 9 percent. Woodchip production also is expected to rise slightly.

Production by the sawmills and planing mills industry is directly related to the construction industry, particularly the repair and remodeling and residential housing sectors. According to Government projections, private housing starts will increase 11 percent in 1992, to 1.17 million units. Growth in repair and remodeling should remain strong.

Softwood lumber imports are projected to rise substantially in 1992, based on expectations of a substantial increase in demand and only a moderate increase in U.S. production.

Softwood lumber exports from the Pacific Northwest to the European Community could be hurt by the EC's ban on imports of green softwood lumber from areas infested by the pinewood nematode. The United States and Canada were granted a one-year derogation (stay) from the ban, but indications are that the derogation may not be extended.

Long-Term Prospects

Industry shipments should grow slowly through the mid-1990's. Housing starts are projected to average about 1.25 million units annually throughout this period. Overseas markets should remain strong. However, recent world developments, including reconstruction in Kuwait, political changes in the Soviet Union, and a proliferation of regional free trade agreements could effect trade patterns.

Tight log supplies in the Pacific Northwest in the wake of the spotted owl decision and other environmental litigation will lead to increased softwood lumber imports from Canada, as well as higher prices if demand picks up.

MILLWORK

The constant-dollar value of product shipments of the millwork industry fell by 1.5 percent in 1991, the fourth consecutive yearly decline. Sales have been hampered by the sharp decline in housing starts that began in 1986. Growth in repair and remodeling have somewhat minimized the effects of the decline on millwork sales. Repair and remodeling has recently become a leading market for millwork products, one that manufacturers are pursuing aggressively. Nearly 90 percent of all millwork is used in new residential construction and repair and remodeling, which makes producers particularly susceptible to changes in these two sectors.

The industry manufactures a wide range of fabricated millwork, including wood millwork commodities with metal and plastic overlays. In 1991, the largest sector (based on value) was doors (30 percent of domestic shipments), followed by wooden windows (including alumimum, metal, and vinyl clad), sashes (25 percent), and moldings (12 percent). Also, included were blinds and shutters, stairwork, porch columns and rails, trellises, specialty moldings, carvings, ornaments, and other similar commodities.

Shipments of almost 40 million interior and exterior doors were valued at just over $2.78 billion in 1991. Nearly two-thirds of the shipments went into new construction projects and one-third were destined for repair and remodeling.

The industry produces two types of doors, flush and panel. Flush doors, which account for 60 to 65 percent of the total, are made by attaching sheets of wood or other materials (door skins) to an interior frame. The more expensive panel doors are made by attaching an exterior frame of vertical and horizontal pieces around a panel core. Sales of panel doors have decreased in recent years. The development of waterproof adhesives and seals has helped to increase the market share of flush doors. They are now the most common type of door, accounting for nearly 95 percent of all interior doors and 75 percent of all exterior doors produced in the United States.

Construction materials continue to change as manufacturers seek the lightest and best thermal-insulated doors for interior and exterior use. The market share of solid wood doors has dropped. The reason is that doors made from wood composite and other nonwood materials cost less to produce and offer higher energy efficiency and lower maintenance. Sale of wood flush exterior doors have fallen as the use of steel has increased. Insulated steel doors are now the most commonly used exterior door in new construction; they account for nearly two-thirds of the total, up from only 43 percent in 1984. While the wooden door is still the sales leader in the repair and remodeling sector, steel doors have increased their share (up to 43 percent) of that market as well. Nevertheless, wood flush doors still hold an advantage: they can be cut to fit existing door frames.

Interior doors have shown the least change in base materials. Wooden flush and molded hardboard doors make up nearly 60 percent of the market for interior doors. Sales of molded hardboard doors have experienced double-digit growth over the past 8 years. Another type of door that has made significant inroads is made from a compression-molded fiberglass face pressed over a foam plastic core. It can be worked and stained to simulate natural wood and trimmed to fit any opening. Wooden flush doors, such as those with a particleboard or hardboard core to which a veneered door skin is attached, are still in demand by consumers who prefer the look of real wood.

Wooden windows have experienced rapid growth in recent years. The largest increase in sales has been in double-hung cladded, casement claded, and certain single-hung window units. Since 1982, shipments of wooden window units have more than tripled, from $692.1 million to 2.32 billion in 1991. This is primarily because of the development of new end-use markets, a dramatic rise in the number of repair and remodeling projects, and an increase in the size of the average U.S. home.

Since the late 1970's, manufacturers of wooden windows have begun to regain some of the market share lost to windows made of plastics (especially vinyl), aluminum, and other metals. The energy crises of the period boosted the markets for aluminum and vinyl windows, which provide better insulation, but the drop in oil prices and the elimination of energy tax credits during the 1980's reduced the incentive for buying nonwood windows. Most new residential construction still relies on wooden windows, but nowadays they are primarily clad with aluminum or vinyl. This combines the strength of wood with the improved thermal properties and lower maintenance costs of nonwood windows. Wood-framed windows currently account for 45 percent of all windows used in new construction and 35 percent of those used in repair and remodeling applications.

Another new development is the rapid increase in demand for solid vinyl windows. Vinyl window producers had only about 1 percent of the market in 1981, but increased their share to nearly 20 percent in 1991. Most of this growth has been in the repair and remodeling sector, where vinyl windows account for nearly one-third of all windows sold. Their market share in new construction is still only 1 percent, however, because of the strong demand for wooden windows and aluminum- or vinyl-clad windows.

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INTERNATIONAL COMPETITIVENESS

What has been a traditional U.S. trade deficit in millwork products narrowed in 1991, as exports increased by 7.5 percent and imports declined by 20 percent. Leading export markets in 1991 were Canada (60 percent), Japan (11.5 percent), the United Kingdom (8.5 percent), and Mexico (7.5 percent). Sales to Canada have been strong over the past several years, in part because of the reduction of barriers to the Canadian market growing out of the 1988 U.S.-Canada Free Trade Agreement.

U.S. millwork exports in 1991 were made up of wooden doors (42 percent), softwood and hardwood moldings (40 percent), wooden windows (16 percent), and wood blinds and shutters (2 percent). Leading export markets for wooden doors were Canada (33 percent), the United Kingdom (17.5 percent), Mexico (14.5 percent), and Japan (14 percent). Similarly, Canada was the principal foreign market for U.S. molding, accounting for 91 percent of the total, followed by Japan (4.5 percent) and Mexico (2.5 percent). The United States exported various types of windows to more than 40 countries, but two imported more than 75 percent of the total, Canada (56 percent) and Japan (20.5 percent).

In 1991, U.S. millwork imports came mostly from Mexico (45 percent), Canada (13.5 percent), Taiwan (8 percent), Malaysia (7.5 percent), and Brazil (7.3 percent). Mexico and Canada have traditionally supplied the majority of these products because of their proximity, but in recent years a number of nontraditional suppliers such as Taiwan, Malaysia, and Brazil, have exported increasing quantities to the United States. These countries are low-cost producers, which enables them to ship their millwork products over fairly long distances.

Two commodities, moldings (61 percent) and wooden doors (27 percent), comprised about 88 percent of all U.S. millwork imports in 1991. Moldings imports are dominated by Mexico, with nearly two-thirds of the market. Other leading molding suppliers were Canada (10.5 percent), Malaysia (6 percent), and Brazil (4 percent). U.S. imports of wooden doors fell by about 12.5 percent in 1991, from $68.8 million to $60.2 million, a reflection of the drop in domestic housing starts. The doors were supplied mostly by Mexico (17 percent), Malaysia (16 percent), Brazil (15.5 percent), and Canada (14 percent).

Outlook for 1992

Product shipments by the domestic millwork industry should rebound as the economy recovers. In real terms, product shipments are forecast to increase 2.5 percent. The recent trend toward larger residential units with more fixtures (including millwork) should continue. Domestic millwork producers will again experience stronger growth in repair and remodeling expenditures than in new home construction.

International trade will increase in 1992 as imports climb about 7.5 percent and exports increase 5 percent. If the U.S. dollar remains stable (or drops slightly), U.S. millwork exports could experience even stronger growth. Because of recent trade concessions, millwork producers will look for strong increases in sales to Canada and Japan. U.S. millwork imports will continue to be dominated by Mexico, which has a large number of small millwork operations just south of the border. These facilities are capable of supplying low-cost millwork to the South, the region of the United States with the strongest growth in new housing. The majority of millwork imports will continue to be moldings, especially from Mexico. However, new Asian suppliers, especially Malaysia, Taiwan, and Indonesia, will compete head-to-head with Mexico for increased U.S. sales.

Long-Term Prospects

The U.S. millwork industry should experience higher sales over the next 5 years as product shipments (based on 1987 dollars) increase 1.5 percent to 2 percent annually. This forecast is contingent upon moderate growth in the U.S. economy, which will contribute to increased residential construction and an increase in renovation and remodeling. U.S. housing starts are not expected to reach levels high enough to support strong growth in domestic millwork. Nevertheless, millwork producers will continue to focus much of their marketing on residential and commercial repair and remodeling to minimize their vulnerability to the housing industry's cyclical nature.

U.S. wood window shipments should experience the strongest growth of any domestic millwork sector, as new uses are found for aluminum- and vinyl-clad windows. Vinyl windows will compete increasingly with wood windows, especially in repair and remodeling projects. Vinyl window manufacturers will focus more on the market for new housing, although wood windows will continue to dominate this sector. If the trend toward larger and more expensive houses continues, demand for millwork, especially wood windows, will increase. Windows clad in both aluminum and vinyl will continue to grow more popular as homebuilders and consumers look for the most energy-efficient and maintenance-free windows.

Demand for U.S. interior and exterior doors is also expected to increase over the next 5 years as housing starts rise, the number of renovations continues to grow, and new houses become bigger. Competition among wood, steel, and fiberglass will continue to increase as producers attempt to secure existing markets and develop new end-uses. Sales of wood doors are forecast to experience the fastest growth in renovations, remodelings, and upscale houses, whose owners demand the appearance of wood.

Foreign trade in millwork will continue to increase as domestic and foreign producers seek new end-users. The growth of exports will exceed that of imports if the dollar remains stable or drops in value over the forecast period, and as U.S. producers expand their overseas promotional efforts. Competition by foreign suppliers will increase as Latin American and Asia producers seek additional sales in the United States. Tropical hardwood moldings and doors from Asia will supplant a portion of the shipments from Latin American producers. However, both regions should experience higher sales in the U.S. market over the next 5 years if the economy expands, resulting in higher domestic housing starts and more repair and remodeling projects.

HARDWOOD VENEER AND PLYWOOD

Hardwood veneer and plywood shipments were valued at $2.3 billion in 1991, down 3.3 percent in constant dollars. Establishments classified in the hardwood veneer and plywood industry (SIC 2435) produce hardwood veneer (face and technical), hardwood plywood, and prefinished hardwood plywood. These products are used primarily in new construction, repair and remodeling, manufactured housing, furniture, and cabinets. Shipments declined in 1991 to all of these markets except to the repair and remodeling sector.

Bureau of Census data indicate that the industry produced upwards of 4.5 billion square feet (418 million square meters) of hardwood veneer in 1987, the last year for which figures are available. At that time, oak veneer accounted for about 38 percent of all hardwood veneer production. More recent industry data on face veneer production, which represents about one-third of total veneer production, indicates that oak veneers still account for much of the industry's production, inasmuch as white and red oak veneers combined account for substantially more than one-half of all face veneer production. Walnut and cherry veneers are the two other most commonly produced types.

Hardwood plywood shipments account for about 40 percent of total product shipments for SIC 2435. Stock hardwood panels (4 feet wide by 6 to 10 feet long, and sold mostly to do-it-yourself home repair centers) comprise upward of 40 percent of the hardwood plywood shipments. According to the Hardwood Plywood Manufacturers Association (HPMA), the industry produced 722.7 million square feet (67.1 million square meters) of stock hardwood panels in 1990. It is estimated that stock hardwood panel production declined by 5 percent in 1991. Production was down 8.5 percent in the West and up slightly in the East.

Architectural (decorative) panels are the second leading type of hardwood panel. Made-to-size hardwood panels, which have blanks that are cut prior to overlaying, and cut-to-size panels comprise most of the remainder of hardwood plywood production. Made-to-size panels are used primarily in furniture; cut-to-size panels are used primarily in cabinetry.

The hardwood plywood industry also produces prefinished wall paneling, which is sanded, varnished, and embossed before shipment. According to the HPMA, prefinished hardwood plywood and lauan shipments totaled 112.6 million square feet and 939.9 million square feet (10.5 million square meters and 87.3 million square meters), respectively, in 1990. Indications are that shipments of both types dropped substantially in 1991.

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INTERNATIONAL COMPETITIVENESS

U.S. hardwood veneer and plywood exports rose for the fifth straight year, to an estimated $241 million in 199 1, an increase of almost 5 percent over 1990. Programs such as those of the American Hardwood Export Council helped the industry achieve gains in the overseas markets. Consumer concern, particularly in Europe, over the rapid deforestation of tropical hardwoods forests has also aided U.S. exports in recent years.

Hardwood veneer accounted for an estimated 82 percent of the export mix. Exports to Germany, the leading market with 39 percent of the total, were up 13 percent in 1991. Exports to Europe as a whole were up 5 percent. Canada was the second leading market, accounting for 10 percent, followed by Japan (8 percent) and the United Kingdom (7 percent).

Hardwood plywood exports totaled slightly less than $38 million in 1991. Canada and Mexico were the leading markets, accounting for 47 percent and 29 percent of total export sales, respectively.

Hardwood veneer and plywood imports declined substantially in 1991, reflecting soft end-use markets in the United States. Hardwood veneer imports, valued at a little less than $125 million, were down almost 22 percent from 1990. Canada, with more than 60 percent of the import total, was the United States' primary supplier. Hardwood plywood imports also declined substantially in 1991, to slightly more than $265 million. Indonesia was the major supplier, with 58 percent by value. Imports from Indonesia alone exceeded total U.S. hardwood plywood exports by almost seven to one. Taiwan, Brazil, Malaysia, and Canada were important secondary suppliers of hardwood plywood. Imports from Malaysia were up more than 50 percent.

Outlook for 1992

Shipments will rebound, but not enough to offset expected losses in the hardwood plywood sector. Indications are that producers of prefinished hardwood paneling will give additional ground to gypsum board, particularly in the interior wall paneling and mobile home markets. Thus, prefinished hardwood will not benefit substantially from the expected upswing in residential construction. Overseas markets offer hardwood plywood producers the best opportunity for growth.

Hardwood veneer producers should fare a lot better, based on an expected strong recovery of the furniture industry. Overseas markets should also be strong in 1992.

Long-Term Prospects

Hardwood veneer and plywood shipments are projected to decline about 1 percent to 1.5 percent annually over the next 5 years. Hardwood veneer producers should fare slightly better than producers of hardwood plywood. Domestic and overseas hardwood veneer markets are projected to remain moderately strong throughout the period. On the other hand, hardwood plywood producers will see many of their markets erode because of increased competition from reconstituted panel products for the low end of the furniture and cabinet markets. They also will face increased competition from gypsum board in the residential construction market. Exports should continue to offer the best growth opportunity because of the growing concern over deforestation in many tropical plywood producing countries. U.S. producers can realistically expect to see their share of the world hardwood plywood market increase over the next 5 years. Indonesia will continue to be the United States' principal overseas supplier, but indications are that its market share will decline.

SOFTWOOD VENEER AND PLYWOOD

Softwood veneer and plywood shipments totaled $5.3 billion in 1991, down 6.5 percent in constant dollars from 1990. Domestic and overseas markets were generally stagnant in 1991. The industry faced increased competition from producers of composite panels, particularly from producers of oriented strand board (OSB). Tight timber supplies prevailed in the Pacific Northwest, substantially increasing the cost of raw materials and the number of mill closings.

U.S. softwood plywood production on a 3/8-inch basis totaled an estimated 19.4 billion square feet (17.1 million cubic meters) in 1991, compared with 20.7 billion square feet (18.3 million cubic meters) in 1990. Softwood plywood capacity stood at 25.3 billion square feet (22.4 million cubic meters). Softwood plywood capacity has been declining steadily since 1983. The pace of mill closings has accelerated in recent years. An estimated 123 softwood plywood mills were operating in 1991, down from 128 the previous year.

The South was the leading plywood-producing region in 1991, accounting for more than 55 percent of the industry's output. The South's share of the market has increased steadily over the past decade in part because of its lower raw material costs. Another factor, often overlooked, is that 90 percent of the timberland in the South is privately owned. Accordingly, it has not been affected by court-ordered restrictions on harvesting of Federal timber.

Residential construction is the leading market for softwood plywood; it consumes about 31 percent of the industry's production. The average single-family house contains 8,433 square feet (7.5 cubic meters) of softwood plywood (3/8-inch basis). The average multifamily house contains 3,155 square feet (2.8 cubic meters). Residential housing starts were off almost 12 percent in 1991. The second leading market for softwood plywood is in such industrial applications as transportation equipment, furniture and fixtures, and materials handling. Together, these segments accounted for about 24 percent of total production. Most of this end-use market was stagnant or down slightly in 1991, with materials handling the only exception. Increased U.S. exports, coupled with a need for protection during overseas transit, has brought about a greater use of softwood plywood in the materials handling sector. Other major end-uses for softwood plywood include repair and remodeling and nonresidential construction. Repair and remodeling is becoming increasingly important, particularly in light of the downturn in new residential construction.

Sheathing is the most common softwood plywood product. It is used primarily by the construction industry to enclose exterior walls, floors, and roofs prior to installation of finishing materials. Sheathing with exterior glue (CDX) accounts for about 40 percent of all sheathing produced. CDX shipments as a percent of total shipments have declined in recent years, however. The reason, according to industry sources, is that there has been a general upgrading of all plywood panels because of increased competition from nonveneered panels.

Prices of softwood plywood were generally higher in 1991. But the higher prices failed to offset higher raw material costs, and contributed to the closing of a number of mills. Other mills succumbed to poor market conditions or because they lacked the timber necessary to keep operating.

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INTERNATIONAL COMPETITIVENESS

Softwood plywood and veneer exports totaled $245 million in 1991, down almost 25 percent from 1990. The downturn follows five consecutive years of growth, during which export sales increased from $84.8 million to $326 million. The downturn can be attributed to a general economic slowdown in many overseas markets, particularly the European Community (EC), the industry's largest regional overseas market. Softwood plywood exports to the EC were down more than 35 percent. Exports to the United Kingdom, the industry's largest single overseas market, were down 55 percent due to an economic recession in that country. However, exports to Mexico and Japan were up substantially in 1991. The industry has expanded marketing in both countries in recent years. Marketing efforts in Japan have been aided by last year's U.S.-Japan Wood Products Agreement. In early September, the American Plywood Association (APA) received approval from the Japanese Ministry of Construction to build a three-story wooden multifamily demonstration project.

A long-standing dispute with Canada over plywood standards moved closer to resolution in 1991 with the development of a draft consensus performance standard. The draft standard has already been approved by the Canadian Standards Association and approval is pending by the National Institute of Standards and Technology in the United States. The standard still has to be incorporated into the building codes of both countries, which will probably take about one year. Once the issue has been resolved, it will pave the way for the staged elimination of U.S. and Canadian tariffs on softwood plywood, oriented strand board/waferboard, and particleboard.

Softwood veneer and plywood imports totaled an estimated $33 million in 1991, down about 25 percent from 1990. Canada was the largest supplier, accounting for some 33 percent. Other major suppliers included Indonesia (27 percent) and Finland (17 percent). Canadian and Finnish exporters primarily ship temperate species of softwood plywood; Indonesia primarily ships Agathis and other tropical softwood species.

Outlook for 1992

The availability of timber in the Pacific Northwest will continue to be one of the softwood plywood industry's biggest concerns. Federal timber under contract in the region is at an all-time low because most of the U.S. Forest Service and Bureau of Land Management sales planned for 1991 have been tied up in environmental litigation. This could lead more mills in the region to close.

In constant dollars, shipments of softwood veneer and plywood are projected to increase 3.5 percent, based on an anticipated 11 percent increase in private residential housing starts. Southern plywood will continue to gain a larger share of the structural panel market, as will nonveneered panels.

Exports should turn around in 1992, increasing by 15 percent. This assumes a modest economic recovery overseas, particularly in the United Kingdom. The industry's marketing efforts in Japan may get a boost from the Japan Plywood Manufacturers Association's decision to promote the use of softwood logs in the manufacture of plywood. Currently, almost all the plywood manufactured, imported, and used in Japan is hardwood plywood.

Long-Term Prospects

Industry shipments are expected to remain at or near the 1992 level. The fortunes of the softwood plywood industry will remain closely linked to the level of new residential construction and, to a lesser extent, the repair and remodeling market. Residential housing starts are projected to average around 1.25 million units annually through the mid-1990's.

The Pacific Northwest will continue to decline as a plywood producing region. However, harvests should eventually stabilize and provide a secure, though much smaller, resource base for producers that remain in the region. The South's share of the market will continue to increase, as will that of the inland region (Colorado, Idaho, Montana, etc.). Plywood producers in all regions will continue to face increased competition from OSB.

Overseas markets will offer the industry the best opportunity for growth. The EC will remain the largest market, but Japan will become increasingly important. Imports could increase substantially if the long-standing plywood standards dispute with Canada is resolved. If so, the way could be paved for tariff reductions negotiated as part of the U.S.-Canada Free Trade Agreement.

PALLETS AND SKIDS

Shipments by the pallets and skids industry (SIC 2448) were essentially flat in 1991 due to the downturn of the economy. The industry produces wooden pallets and cargo containers used in the Storage and transportation of manufactured goods. It is the largest consumer of domestically produced hardwood lumber. Between 90 percent and 95 percent of the pallets and skids produced in the United States are made of wood.

In constant dollars, shipments were valued at $1.7 billion in 1991, down less than 1 percent from 1990. Over the past 10 years, U.S. wooden pallet production has increased by almost two-thirds.

The industry primarily uses hardwood lumber, logs, and cants, consuming an estimated 5.1 billion board feet (17.6 million cubic meters) in 1991. Oak is the most commonly used wood, accounting for about one-third of the total. The industry also consumed an estimated 1.7 billion 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 (3/8-inch basis) in 1991.

The pallets and skids industry is composed mainly of small operators employing an average of 18 workers per establishment. The United States has an estimated 2,180 pallet-producing firms, with the most in Michigan (298) and Pennsylvania (251).

The industry produced an estimated 460 million wooden pallets and skids in 1990. Production continued to be evenly distributed between higher valued reusable pallets, constructed for warehouse use or extended shipping, and less expensive expendable pallets made for limited use. The 48 by 40 inch flush stringer double-faced, non-reversible pallet, commonly used by the grocery industry, is the most frequently produced pallet. In 1991, more than 40 percent of the pallet-producing firms were recycling used pallets at a rate of about 90,000 a year. Most pallet producers operated at only about 70 percent of capacity during 1991. The grocery, agricultural, paper and printing, steel, and chemical industries are the primary users of pallets. Pallet prices remained constant for most of 1991, averaging about $6 per unit.

Responding to competition from plastic and metal pallets and changing market requirements, the industry came out with what it calls an "enhanced pallet" in 1990. Researchers at Virginia Polytechnic Institute and the U.S. Forest Service Forest Product Laboratory identified several commercially available products that can be used to sanitize, decontaminate, and clean pallets. In addition, "enhanced pallets" have greater fire and flame resistance, improved decay and rot resistance, and are non-toxic to users. Competition has also led to increasing use of computer programs that enable manufacturers to design pallets for specific performance requirements. Pallet exchange programs are also on the rise.

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INTERNATIONAL COMPETITIVENESS

Exports by the pallet and skids industry decreased a little more than 6 percent in 1991, (after increasing 20 percent in 1990), from $13.1 million to $16.2 million. Canada and Mexico are the industry's leading markets, accounting for 38 percent and 37 percent, respectively. Exports to Japan increased in 1991.

Imports of pallets and skids were valued at an estimated $6 million in 1991. Canada and Mexico are the principal suppliers, with 50 percent and 40 percent, respectively.

Outlook for 1992

The industry is expected to rebound next year in response to a stronger economy. Product shipments are forecast to increase by 3.1 percent. Low-cost pallet repair and recycling will continue to be one of the industry's fastest growing segments.

International trade of pallets and skids will become more competitive next year as domestic and foreign manufacturers seek to expand sales in overseas markets. Exports and imports are expected to increase about 10 percent. Canada, Mexico, and the Caribbean region will remain the leading U.S. export markets.

Long-Term Prospects

Shipments of pallets and skids are forecast to increase by an average 2 percent per year over the next 5 years, assuming continued growth in the U.S. economy. Foreign trade, though still a small percentage of total consumption, will continue to expand. A stable U.S. dollar will contribute to higher foreign sales.

Sales of traditional wood pallets and skids will continue to be under pressure over the next 5 years from alternate shipping mediums, including corrugated paperboard slipsheets, plastic shipping containers, and metal pallets, skids, and containers. Nevertheless, wood will continue to be the principal raw material.

Solid waste issues will affect producers of pallets and skids during the forecast period. The costs of solid waste disposal will lead producers to rebuild, recycle, and reuse pallets and skids to an ever greater extent. Companies engaged in rebuilding and repairing used pallets will experience lower raw material costs.

WOOD PRESERVATION

Shipments of the domestic wood preservation industry (SIC 2491) fell 1 percent in 1991. Sales were hampered by the sharp decline in housing starts. Continued growth of the repair and remodeling market, which grew by more than 4 percent, minimized the effects of lower sales. This market accounts for nearly two-thirds of total sales and is the area where manufacturers direct most of their advertising.

The industry treats sawed or planed wood with waterborne preservatives or other types of preservatives to prevent decay and to protect against fire and insects. Included among the industry's products are treated lumber, plywood, timbers, treated poles, posts, and railway crossties. About 95 percent of the estimated 565 U.S. plants use a process in which a preservative is applied to the wood by high-pressure equipment. This process accelerates the absorbtion and depth of the preservative. Pressure-treated wood lasts upward of 35 years even when in contact with the ground. Untreated wood deteriorates in as little as three years. The remaining preserving plants rely on atmospheric pressure for absorption. This process can also be very effective, depending upon species and end-use.

In 1991, the industry treated about 550 million cubic feet of lumber, timber, and related wood products. Southern yellow pine accounted for more than 75 percent. In recent years, the cost of southern yellow pine has risen because it is preferred for many construction applications. Other types of wood, especially spruce, pine, and fir, have been used in treated markets as consumers search for less expensive alternatives. Oak, maple, and other mixed hardwoods hold a small share of the market and are used mostly for such things as crossties and bridge ties.

In 1991, about 74 percent of the industry's output was treated with waterborne preservatives, primarily chromated copper arsenate (CCA), followed by creosote solutions (15 percent) and pentachlorophenols (9 percent).

The industry also treats wood products with fire retardants. Use of Fire Retardant Treated (FRT) lumber, plywood, and related products in lieu of noncombustible materials is permitted under several major U.S. building codes. FRT wood products accounted for about 2 percent of the industry's volume in 1991.

One of the leading uses of FRT plywood is for roof sheathing at walls separating units of townhouses, duplexes, and professional buildings. In recent years, there have been reports of structural failures of FRT plywood, resulting in warpage, leaks, and collapsed roofs. Laboratory tests have shown that some FRT plywood - especially if it has been treated with formulations containing monoammonium phosphate - undergoes a chemical reaction when it is exposed to high temperatures and humidity that causes it to lose its structural integrity. Litigation against a number of U.S. manufacturers is continuing.

In November, 1990, the Environmental Protection Agency (EPA) designated certain wood preserving process residuals and byproducts as hazardous wastes to be regulated under Subtitle C of the Resource Conservation and Recovery Act (RCRA). The rule cites the following as hazardous wastes: wastewaters, process residuals, preservative drippage, and spent preservatives from wood preservation plants that use (or have used) chlorophenolic formulations, creosote, or inorganic preservatives containing arsenic or chromium. The industry characterized the rule, which became effective in mid-1991, as "survivable," but expressed concern about the cost of compliance.

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INTERNATIONAL COMPETITIVENESS

Although international trade of preserved wood products is small, the United States has traditionally enjoyed a nearly 2-to-1 trade surplus on a value basis. In 1991, exports increased 5 percent, while imports fell 8 percent. Exports, principally treated lumber and poles and pilings, were valued at $50.5 million. The main export markets were the Caribbean Basin, Canada, and Mexico. Imports were valued at $26.6 million, supplied almost entirely by Canada.

Outlook for 1992

Constant dollar shipments are forecast to increase 3 percent, based on expectations of an economic recovery. Producers will experience stronger growth in repair and remodeling than in new home construction.

International trade will increase in 1992 as imports climb about 6 percent and exports increase 5 percent. If the U.S. dollar remains stable (or drops slightly), exports could be even stronger.

Long-Term Prospects

The industry should continue to experience higher sales over the next 5 years as mature product lines show nominal growth and new product adaptations are developed. This forecast is contingent upon moderate growth in the U.S. economy, increased residential construction, and an increase in renovation and remodeling. Experimentation with new, different species of wood will continue to reduce the industry's strong reliance on southern yellow pine. The industry will likely increase the use of spruce, pine, and fir, as well as nontraditional hardwoods, to broaden its raw material base.

Foreign trade will continue to increase as domestic and foreign producers seek new end-uses. The growth of exports will exceed that of imports if the dollar remains stable or drops in value over the forecast period, and as U.S. producers expand their overseas promotional efforts in the Caribbean Basin, Canada, and Mexico. Competition from imports will continue to come mostly from Canada.

RECONSTITUTED PANEL PRODUCTS

Shipments of the reconstituted panel product industry totaled $2.9 billion in constant dollars in 1991, down approximately 9 percent from 1990. Establishments classified in SIC 2493 produce particleboard, hardboard, medium density fiberboard (MDF), insulation board, and oriented strand board/waferboard. Some establishments also produce prefinished particleboard and MDF from purchased particleboard and MDF. The products are similar in that all are reconstituted panel. However, their production processes, and to some extent enduses, are different. Demand for most of the industry's products was extremely soft in 1991.

Particleboard accounted for about 28 percent of the product shipments for SIC 2493 in 1991. Shipments were off, reflecting a continuing decline in the furniture industry, particleboard's main market. Producers faced stiff competition in the furniture industry from producers of MDF and hardboard, as well as from some non-wood producers. Industrial board, or particleboard for use in furniture, fixtures, and cabinets, was the industry's leading product, accounting for an estimated 80 percent of shipments. Other lesser particleboard products included floor underlayment, door cores, and mobile-home decking.

Particleboard production (3/4-inch basis) declined to an estimated 3.5 billion square feet (6.2 million cubic meters) in 1991. According to the National Particleboard Association, U.S. particleboard capacity stood at 4.7 billion square feet (8.3 million cubic meters) in 1991. About 57 percent of the industry's productive capacity was in the eastern half of the United States, although Oregon had the highest concentration of producers and the highest productive capacity.

Oriented strand board/waferboard industry shipments slipped for the first time in a decade in 1991. Nevertheless, the industry, which began as a single mill in Minnesota in 1973, has become the second largest segment of the reconstituted panel products industry. Oriented strand board (OSB) shipments accounted for an estimated 21 percent of total shipments in 1991. Waferboard has not been produced in the United States since 1988.

Twenty-nine mills, with a combined capacity (3/8-inch basis) of 5.6 billion square feet (5.0 million cubic meters), produced some 5.0 billion square feet (4.4 million cubic meters) of OSB in 1991. OSB end-uses are similar to those of softwood plywood. The two products also are manufactured to the same grades and standards. OSB's largest end-use market, as is it for softwood plywood, is new residential construction, consuming an estimated 30 percent of production. Industrial applications is second, consuming an estimated 25 percent of production. Other significant end-uses include repair and remodeling (18 percent) and nonresidential construction (15 percent).

Hardboard, which accounts for about 19 percent of total shipments, was off 9 percent in 1991. A sluggish economy and soft demand from the industry's two largest end-users, residential construction and furniture, were the major reasons. According to the American Hardboard Association, these two industries use almost two-thirds of the hardboard produced in the United States. Hardboard's share of these markets has declined in recent years, which tends to exaggerate any downturn.

U.S. hardboard production (1/8-inch basis) in 1991 was estimated at 4.6 billion square feet (1.4 million cubic meters), compared with 5 billion (1.5 million cubic meters) in 1990. A substantial portion was used for exterior siding.

MDF producers fared slightly better in 1991, primarily at the expense of particleboard and hardboard producers. Shipments were down only about 4 percent. MDF makes up about 9 percent of the product shipments for SIC 2493. MDF production (3/4-inch basis) was estimated at 950 million square feet (1.7 million cubic meters) in 1991, compared with 969 million square feet (1.7 million cubic meters) in 1990. More than 95 percent of the MDF produced went to the furniture industry.

In constant dollars, shipments of insulation board were down 9 percent in 1991. About 90 percent of the insulation board produced is used by the construction industry.

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INTERNATIONAL COMPETITIVENESS

Exports of reconstituted panels increased for the fifth year in a row in 1991. This was one of the industry's few bright spots. Exports were valued at an estimated $225 million, compared with $214 million in 1990, and $118 million in 1987. Most sectors of the industry registered some gain in 1991.

Particleboard exports increased by an estimated 5 percent in 1991, to $83.4 million. No direct comparison can be made with earlier years because of recent changes in how exports of particleboard are reported. Mexico, with 26 percent of total export sales, replaced Canada as the leading foreign market, but Canada was a close second with 25 percent. Japan and Taiwan were important secondary markets.

OSB exports were estimated at $15 million in 1991. No direct comparison with earlier years is possible since 1991 was the first year exports of OSB were broken out. However, indications are that exports were up slightly. Canada was the leading foreign market for OSB, as well as the leading foreign supplier of OSB/waferboard. OSB/waferboard imports from Canada were valued at $90 million in 1991, down from $121.4 million in 1990.

Exports of hardboard products were off 15 percent in 1991, following a 12 percent gain in 1990. Declines were registered in most overseas markets, with the exception of Taiwan and South Korea. Canada was the leading export market for hardboard, accounting for 70 percent of total export sales, followed by Taiwan (8 percent) and South Korea (5 percent). Hardboard exports totaled an estimated $37.5 million in 1991. U.S. hardboard imports fell substantially in 1991, a reflection of the soft end-use markets in the United States. Imports from Brazil, historically the United States' leading foreign supplier, were off 25 percent. U.S. hardboard imports were valued at $202 million in 1991.

MDF is the reconstituted panel industry's second leading export commodity. MDF exports were valued at $56.7 million in 1991, up 18 percent over 1990, and 43 percent over 1989, reflecting a growing worldwide demand. Taiwan and South Korea were the leading overseas markets for MDF, accounting for 26 and 23 percent, respectively. Both countries are major producers and exporters of furniture. Other important overseas markets were Canada (13 percent), Greece (6 percent), Japan (6 percent), and the United Kingdom (5 percent). U.S. imports of MDF totaled $5 million in 1991. Canada supplied approximately 75 percent of the total, followed by Mexico, with 21 percent. Imports from Mexico have grown steadily in recent years.

Outlook for 1992

Shipments for the reconstituted panel products industry are projected to increase by 3 percent, measured in constant dollars. This is based on an anticipated recovery of the industry's major end-users, the construction and furniture industries. All sectors of the industry should experience moderate growth in 1992, with the strongest growth in the OSB sector. The OSB share of the structural panel market is expected to increase as it makes further inroads into traditional softwood plywood markets.

U.S. exports of reconstituted panels products are projected to increase an additional 8 percent in 1992. Exports of OSB, particleboard, and MDF should fare best.

Long-Term Outlook

The industry will experience steady but slow growth throughout the period. Shipment levels will stay closely tied to the performance of the construction and furniture sectors. Housing starts will average around 1.25 million units annually, forcing producers to look toward the repair and remodeling and furniture markets for much of their growth. International markets offer the greatest potential for some producers.

OSB will make further inroads into traditional softwood plywood markets due to its comparative price advantage. Consumer acceptance of OSB is also growing. This will lead to increased use of OSB in the repair and remodeling market.

The industry will continue to pursue new markets overseas. Recent changes in the Building Standard Law of Japan, which allows greater use of OSB in traditional housing, bodes well for U.S. exporters. However, U.S. producers will face increased competition in Japan and elsewhere from Canadian producers. Canada exports approximately 60 percent of its production, much of it to the United States.

Shipments by the particleboard and MDF industry depend to some extent on the furniture industry. Because of pent-up demand, the furniture industry should experience moderate growth over the next 4 to 5 years. Particleboard and MDF producers will look increasingly overseas for new markets, leading to a steady growth in exports.

Indications are that there will be continued inroads into traditional hardboard and insulation board markets, leading to a slight decline in the shipments of these products. Increased exports could help moderate the decline.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information on 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, 1987 Census of Manufactures, Bureau of Census, U.S. Department of Commerce, Washington, DC 20233. Telephone: (301) 763-2510. Lumber Production and Mill Stocks, Current Industrial Report, Bureau of Census, U.S. Department of Commerce, Washington, DC 20233. Telephone: (303) 763-5911. Crow's Weekly Letter, C.C. Crow Publication, Inc. P.O. Box 25749, Portland, OR 97225. Telephone: (503) 646-8075. Forest Industries, Miller Freeman Publications, 500 Howard St., San Francisco, CA 94105. Telephone: (415) 397-1881. The Pallet Industry in the United States, 1980, 1985, and 1990, 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 28222-1469, Telephone: (704) 543-4408. Wood Preservation Statistics, 1989, American Wood Preservers Institute, Tyson's International Building, 1945 Old Gallows Rd., Vienna, VA 22180. Telephone: (703) 893-4005. Regional Production and Distribution Patterns of the Structural Panel Industry 1991, American Plywood Association, P.O. Box 11700, 7011 South 19th St., Tacoma, WA 98411. Telephone: (206) 565-6600. 1990 Statistical Yearbook of the Western Lumber Industry, Western Wood Products Association, Yeon Building, 522 SW Fifth Ave., Portland, OR 97204. Telephone: (503) 224-3930. Wood Used in New Residential Construction in the United States, 1988, American Plywood Association, P.O. Box 11700,7011 South 19th St., Tacoma, WA 98411. Telephone: (206) 565-6600. National Forest Products Association, 1250 Connecticut Ave., NW, Washington, DC 20036. Telephone: (202) 463-2700. Hardwood Plywood Manufacturers Association, P.O. Box 2789, Reston, VA 22090. Telephone: (703) 435-2900.

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