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|The US Lumber Market in Spring 2002
There are more and more signs that the recession in the United States has come to an end. In tandem with the general economic improvements, optimism in the lumber industry is rising. Sawmills and lumber traders are looking forward to better conditions in the second half of this year and beyond. Bulk-consumers of hardwood lumber such as cabinet, flooring and millwork producers are gradually getting into a buying mood again. Lumber suppliers are receiving more orders, both for immediate and future deliveries.
Nevertheless, secondary wood products manufacturers remain in a cost-cutting mode. In an effort to keep their stocks lean, end-users of lumber are shifting the inventory burden to their suppliers. Many furniture and cabinet companies that traditionally purchased full truck-loads of lumber are now ordering smaller quantities at more frequent intervals. Furthermore, special requirements in regards to length, width, color and package size are more common and suppliers have to do much sorting to meet their clients' requirements. This is creating new business opportunities for middlemen who are increasingly performing the function of stock piling and fine-distribution to end-users. Lumber distribution is moving away from sawmills towards lumber wholesalers, distributors and retailers.
The housing market remained a vibrant segment in the US economy throughout the recession, and this industry has not ceased to purchase sizeable quantities of structural lumber. The short decline in residential construction following the September attack on New York has been counterbalanced by a strong catch-up demand during the first quarter of this year. In addition, low mortgage rates provided a boost to housing. Driven by a sharp gain in single-family homes, new home starts in February rose 2.8 percent to a seasonally adjusted annual rate of.1.769 million units, the highest since December 1998. Conditions may further improve as housing usually experiences a cyclical increase in the spring and summer. Lumber suppliers are now stocking up their inventories in anticipation of more sales to this industry in the months to come.
Stair and millwork shops benefit from the busy house construction activity. The same applies to kitchen cabinet manufacturers who are becoming more confident about their business prospects. Hickory cabinets have been very popular recently but it is not sure whether this can be sustained.
In spite of the strong housing activity during the last two years, furniture sales have been relatively weak. Analysts at AKTRIN believe that some modest, pent-up, demand will emerge once the economy gathers steam. Some furniture companies are boosting production so that they can fulfill the expected rise in consumption. Lumber inventories at furniture plants are relatively low and manufacturers will have to make some purchases in order to replenish their raw material stock.
Sales of strip-flooring is strong. Nevertheless, prices remain soft due to an abundant supply of hardwood flooring products from a great many of competing producers. While inventories are still adequate, some manufacturers are experiencing declining wood stocks. They will have to step up their purchases of lumber, mainly green/air-dried Red Oak and to a somewhat lesser extent Hard Maple.
In an effort to enhance efficiency, more and more secondary wood products manufacturers are becoming more specialized and confine themselves to components and parts to be supplied to furniture and cabinet plants or the export market. The health of the wood components industry is closely tied to the health of the furniture industry. Business declined throughout most of 2001 and many component making companies have vanished. The industry is now made up of fewer - but larger and stronger - players. With the revival of the furniture industry, wood component sales are also improving but low cost overseas competition remains a formidable challenge. Successful domestic manufacturers will have to offer better service and products that more closely match their clients' specifications.
Demand for low graded lumber is still weak, with the exception of railroad ties. The upholstered furniture business has been better lately but sales of hardwood frame stock is not likely to improve as plywood and other engineered wood products are encroaching on the market share of traditional hardwood frames. Sales of wood-chips are suffering due to low demand from paper mills.
While export markets will improve in the months to come, the recovery is likely to be
slow. Some renewed interest for North American woods can be observed from Chinese buyers.
Shipments of North American lumber to Europe may also improve moderately. The continent is
pulling out of the recession, above all Germany, the biggest economy in Western Europe.
Business in Italy - the country with the largest furniture sector in Europe - is also
getting better. On the other hand, American lumber exports to Mexico are suffering as this
country's furniture industry is being decimated by fierce competition from Asia.
During the past year, most lumber mills have not been profitable. Higher log prices, low demand and low prices for cut lumber, rising insurance costs, higher wages and more governmental regulations have all contributed to this fact. As a result, many logging and lumber companies have closed down or curtailed production. For many independent landowners prices have not yet reached a high enough level to step up their logging activities. Similarly, many sawmills are unwilling to process logs that cannot be sawn into lumber at a profit. Stocks of timber and lumber are still dropping. On the positive side, the downscaling has alleviated the decline of lumber prices. While the down-sizing has abated now, it has not yet ended. Many plants are still reducing their operating hours or are closing down.
So far, the overall wood supply is still adequate - above all for green lumber - to meet the revived demand. However, inventories of kiln-dried lumber are melting down and prices of the more popular species have started to rise again. This is a very welcome development for sawmill operators, many of whom have been suffering losses during the past year. The more efficient sawmills should now be able to operate again at a profit.
Demand, supply and price movements vary significantly between different species, quality grades, drying levels, and growing regions. Below, are listed the price changes of several widely used species during the past month. (Note that the following comments and data refer to 1000 Board Feet (MBF) of top-quality lumber, 1" thick. Imported lumber is quoted at dockside West Coast port of entry. Approximately $ 50.00 to $ 55.00 will have to be added for East Coast ports).
Imported Tropical Species
The demand for high-graded Cherry is fairly good. As production of this species remains
subdued, some items - such as long lumber - is becoming tighter. On the other hand, short
stocks are still in a state of oversupply. In response to current demand trends, Cherry
log processing is shifting away from veneer to lumber. Sales of common Cherry may also
increase slightly since manufacturers have depleted much of their inventories.
Compared to Hard Maple, the demand for high graded Soft Maple is somewhat better, above
all for the upper quality grades. The ability to meet clients' color specifications
becomes increasingly important. Demand of "Wormy Soft Maple" is low but the
supply is abundant.
Walnut has been one of the most sought-after species recently. While demand is no
longer increasing, it remains strong at a high level. Many Walnut producers have
difficulties filling their orders for some of the more popular items. It is not likely
that the supply shortage will alleviate in the near future. Walnut prices are still
North American Beech wood is not in very high demand at the present time. A revived
interest for this wood in Europe is not anticipated in the near future.
The demand for top-graded Ash is weak and likely to stay so. Ash is competing against
Red Oak and White Oak which are in good supply and relatively inexpensive. Sales of common
Ash are somewhat better, largely due to the popularity of grainy woods in the Far East.
Business conditions for Poplar look fairly good. The demand for the common grades is improving from China, and more recently also from Italy. However, unless producers show more restraint prices will remain low.
Sales of Basswood improved which may be related to quality problems with imported substitute species.
The Southern region is the hub of American furniture production. The furniture industry has not yet participated in the economic recovery. However, with wood inventory levels low, some furniture manufacturers are now staring to replenish their stocks in anticipation of better times later this year. In many areas of the South, heavy rain has slowed logging, creating a shortage of logs. Wood prices are moderately increasing. Lumber exports to Europe (Germany) were up recently, but sales to Mexico remain lackluster.
There is more optimism in the lumber industry of the Appalachian Region. Nevertheless, demand of the region's staple species - Red Oak - is still below normal, above all the common grades. Export orders of White Oak and Walnut picked up a bit, mainly for the upper grades.
As elsewhere, sales in the Northern Region improved but inventory levels are still sufficient to meet the demand.
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