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Current Conditions in the American Hardwood Market
2002.08.23


Current Conditions in the American Hardwood Market

Disregarding recent accounting scandals at a few large US corporations, the North American economy is on a modest recovery course. Gross Domestic Product increased at an annualized rate of 5% during the first half of 2002 and the consumer segment is performing satisfactorily. Analysts at AKTRIN believe that business conditions will further improve later this year when the US comes out of the regular summer lull.

A major hurdle for a faster recovery is the lack of corporate spending. Almost every major category of industrial investment declined during the first half of 2002 versus the first half of 2001, and this in spite of the improving productivity in the manufacturing sector. On a positive note, it seems that the low-point of business investment has been surpassed now.

The demand for hardwood lumber has been dull during the first six months of 2002. The long string of closures in the pulp and paper industry has also hampered the sale of softwood. Nevertheless, year-to-date sales are still ahead of 2001. Due to voluntary and weather-induced production cutbacks at sawmills, the supply of wood has been curtailed in accordance to the weak demand. In fact, lumber inventories are declining and are now lower than normal for this time of the year. As a result, lumber prices did not fall much and a few items - particularly in the Northern growing regions - have even started to firm.

The anticipated rise in demand for lumber this fall may intensify this situation. To make matters worse, many sawmills are lacking sufficient working capital to adequately stock their yards with logs and they are poorly prepared to quickly increase production. The few suppliers with large kiln-dried lumber inventories may reap some interesting benefits.

Strong residential housing starts will exercise a positive stimulus for the wood processing industries. It will fuel the demand for cabinets, millwork, stairs and flooring products. On the other hand, the commercial building sector remains sluggish and no early turnaround is anticipated.

The furniture industry is still hurting. Little change is expected before the end of the typically slow summer season. Lumber sales to the furniture industry are very slow with the exception of a few sought-after species, such as Cherry and - surprisingly - Poplar.

Most kitchen cabinet plants have adequate lumber inventories and no buying-surge is expected over the next couple of months. Red Oak seems to gain favor among cabinet makers while Hard Maple is losing market share.

Strip-flooring production has increased dramatically in the last year. Manufacturers continue to look for more lumber. Prices for some strip-flooring items - such as common Oak - are edging upward. While the North American demand for hardwood flooring is strong and growing, competition is becoming fiercer in this industry. More and more plants and flooring lines are being constructed and it is not sure whether the market can absorb all of this new capacity. The heavy competition may bring an end to the current price advances.
Dimension lumber and wood component manufacturers are generally performing well. Business conditions are looking favorable for this fall, with the possible exception of shipments to the furniture industry and export markets. Producers, capable of meeting customers' length and width specifications have a competitive advantage over those not offering such customized products. Cabinet and flooring manufacturers are increasingly relying on the supply of dimension blanks. The wood component industry has undergone a substantial consolidation process in recent years and the market is now being divided among much fewer players.

The fortunes of the moulding and millwork industry are closely tied to the construction industry. In spite of slow commercial construction activity - which is not likely to improve before next year - new and existing home sales are sufficient to keep the demand for moulding and millwork fairly high.

Demand for low-graded lumber is generally exceeding the supply and many common lumber items see their prices go up. This applies in particular to Oak railroad ties. On the other hand, the markets for pallets and frame-stock are more subdued.

The value of the American dollar as declined significantly recently and a further weakening is predicted for the remainder of this year (and beyond). North American hardwoods are now much more competitive in overseas markets. Hardwood exports are always seasonally slow in the summer but they are likely to increase after the end of the holiday. Most exports will go to Europe and China.

Demand, supply and price movements vary significantly between different species, quality grades, drying levels, and growing regions. Below, we are listing 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).

The supply of Brazilian Mahogany has almost vanished. Some new shipments from Central America, Peru and Bolivia will not be enough to prevent a shortage of Mahogany in the USA. This shortage will become more visible this fall when the American furniture industry resumes full production after its regular summer lull. Earlier this year, U.S. Customs Service impounded a large stock of Mahogany and it is not yet clear how this will be disposed. The shortage of Genuine Mahogany and the rising prices are spilling over to African substitute species.

Imported Lumber

S.American Mahogany
KD US$3600US$20
AD US$3095US$10
African Mahogany
KD US$2100US$15

Sales of Red Oak lumber improved a bit, mainly in the Northern region. Both, the markets for kiln-dried and green Common Red Oak is undersupplied and prices will probably firm slightly in the near term. On the other hand, thick lumber seems to be in a state of slight over-supply.

Red Oak
Northern Region KD US$1690US$50
AD US$1325US$10
Southern Region KD US$1325US$5
AD US$1000US$5
Appalachians KD US$1513US$2
AD US$1168US$12

The demand for top-graded White Oak may strengthen over the next couple of months, mainly from European buyers. Orders for the common grades will emanate mainly from domestic flooring plants.

White Oak
Northern Region KD US$1205US$10
AD US$770 US$5
Southern Region KD US$1050US$25
AD US$810 US$15
Appalachians KD US$1240US$5
AD US$880 US$5

Conditions in the furniture industry are subdued and the requirements for Cherry wood are low. The demand for Cherry lumber and veneer is likely to improve later this year. As Cherry production has been and will likely remain low, sourcing the species may become more difficult in the months to come. The common grades and thick lumber may be in particular short supply.

Cherry
Appalachians KD US$3120US$10
AD US$2415US$75

While the availability of high graded kiln-dried Hard Maple is still plentiful, this may change this fall. As the current production is low, the supply is bound to decline. This may coincide with a stronger demand once the furniture industry recovers. The common grades of Hard Maple may become more difficult to come by and prices are bound to rise.

Hard Maple
Northern Region KD US$2145US$20
AD US$1765US$20
Appalachians KD US$1955US$15
AD US$1575US$5

The demand for good-quality Soft Maple should remain healthy in the coming months, even though sales to the furniture industry are suffering. The outlook for the common grades is less optimistic.

Soft Maple
Northern Region KD US$1415US$20
AD US$1035US$10
Appalachians KD US$1440US$10
AD US$1115US$5

Walnut sales have been fairly strong and this is likely to prevail for some time. Overseas purchases of all quality grades have increased in several markets including China. .

Walnut
Appalachians KD US$2310 US$10
AD US$1705 No Change

In recent years, Yellow Birch has gained greater acceptance in the cabinet, furniture and flooring sectors. It is an attractive wood with growing consumer appeal.

The strengthening demand and rising prices of Red Oak and White Oak may spill over to Ash, which is frequently used as a surrogate for Oak. Ash prices are still very low. This is stimulating demand, mainly for the common grades. Surprisingly, lower prices seem to provide little incentive for more production.

There is a fairly strong export demand for Poplar, but competition from other species is becoming more pronounced. Aspen is a good substitute species for Poplar. The healthy demand for Poplar in the Far East had some positive spill-over effect for Aspen.

The domestic demand for Basswood and Beech is still weak and only modest improvements can be expected in the foreseeable future. On the other hand, the overseas demand for Basswood is somewhat better.

The Cypress demand has improved slightly, however as production usually increases during the summer, prices are predicted to remain stable.

Demand from cabinet manufacturers for top-graded Hickory/Pecan may be cooling a bit in the near future. Nevertheless, there is still a good demand for the common grades for rustic flooring purposes.

Regional Differences

The demand for logs and lumber in Eastern Canada - notably in Quebec - is fairly good, but it has become more difficult to locate trucks to deliver the wood. In the Northern United States, items which sell well include green Red Oak, mainly the common grades used by flooring plants. On the other hand, demand for Hard Maple is still sluggish. Exports of a few items such as White Oak and common Basswood (to the Far East) improved a bit.

The lumber supply in the Appalachian region is relatively tight, particularly in Kentucky and Tennessee. Nevertheless, prices did not rise as the demand for lumber was also weak, with the exception of a few sought-after items such as common Cherry, Hard Maple and Oak. Much of the demand stems from flooring plants. Hickory has gained increased popularity among kitchen cabinet manufacturers. In regards to foreign sales, only Poplar deserves some mention.

The long streak of rainy weather in the South (mainly in Mississippi and Alabama) is over and normal logging has now resumed. Nevertheless, kiln-dried lumber production is still low and inventories are below normal for this time of year. Cash-flow problems at many sawmills are further restraining production. The low lumber supply coincides with a modest revival in demand. Demand for low-grade lumber is particularly strong, emanating mainly from flooring plants (strip-flooring and truck-flooring) and railroads. Some buyers are already forced to extend their sourcing regions beyond 200 miles.

World Value of the US Dollar 26th July 2002
Australia Dollar 1.8676
Bolivia Boliviano 7.26
Brazil Real 3.0225
Cambodia Riel 3835
Cameroon C.F.A.Franc 677.38
Canada Dollar 1.5746
Central African C.F.A.Franc 677.38
China Yuan 8.2766
Colombia Peso 2555.0
Congo D.R C.Franc 352
Congo,P. Rep C.F.A.Franc 677.38
Cote d'Ivoire C.F.A.Franc 677.38
Denmark Krone 7.6515
Ecuador dollar 1
Egypt Pound 4.6452
EU Euro 1.0308
Fiji Dollar 2.1839
Gabon C.F.A.Franc 677.38
Ghana Cedi 8252.0
Guyana Dollar 180.5
Honduras, Rep. Lempira 16.52
India Rupee 48.62
Indonesia Rupiah 8990
Japan Yen 120.11
Korea, Rep. of Won 1198.5
Liberia Dollar 1
Malaysia Ringgit 3.8
Myanmar Kyat 6.4632
Nepal Rupee 77.226
New Zealand NZ Dollar 2.1815
Norway Krone 7.6926
Panama Balboa 1
Papua New Guinea Kina 3.9457
Peru New Sol 3.5575
Philippines Peso 51.625
Russian Fed Ruble 31.61
Surinam Guilder 2178.5
Sweden Krona 9.5723
Switzerland Franc 1.5038
Thailand Baht 42.37
Togo, Rep. C.F.A.Franc 677.38
Trinidad and Tobago Dollar 5.98
United Kingdom Pound 0.6562
Vanuatu Vatu 139.87
Venezuela Bolivar 1363.5



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