Hardwood demand is slowly improving in USA
‐2002.10.27／

The American economy is still sluggish. Low interest rates and increased government spending have not been enough to create a decisive economic turn-around. Nevertheless, the fundamental economic indicators are positive and corporate profitability is improving. It is therefore anticipated that next year will see a higher level of consumer and business confidence.

The production of hardwood lumber remains relatively low and there are few indications that it will increase quickly. The reasons are many and centre around poor weather, inadequate cash flows at sawmills and labour shortages in the primary and secondary timber sectors. If these conditions do not improve, production may further decline this winter. Hardwood logs and green lumber supplies are particularly strained and wholesalers may experience difficulties building up adequate inventories. With tight supplies of green lumber, it will be only a matter of time until kiln-dried lumber inventories will also shrink.

The hardwood demand is slowly improving. If this trend continues in the months to come, prices of some hardwood species may be pushed upwards. On the negative side, the flood of wood-product imports is limiting the demand for domestic woods. Due to the need to reduce costs, more and more wood manufacturers are buying their products - or furniture parts - from foreign suppliers. Generally, smaller plants are more loyal buyers of North American hardwoods as they are often lacking experience with importing. Furthermore, they are less burdened with high fixed overhead expenses and feel a lesser cost-cutting pressure than their larger cousins.

The housing market has been a boon for the lumber industry during the first half of this year. Recently, residential construction has slowed down but it still remains higher than one year ago. The kitchen cabinet business is benefiting from the housing market. Furthermore, autumn is the top lumber-buying season for the industry. The species most in demand is Red Oak. With new home and re-modeling markets strong, moulding and millwork manufacturers are also performing well.

Growing furniture imports continue to decimate lumber demand by this industry. Apart from the most sought-after species like Cherry, lumber sales are subdued. Even such staples as Hard Maple are purchased only in limited quantities. The fortunes of the wood component industry are closely tied to the furniture industry. With dwindling sales to domestic furniture manufacturers the wood component industry must seek new opportunities in foreign markets, mainly the Asia.

Production of strip-flooring continues to increase. Unfortunately, many mills are hampered by inadequate lumber inventories, above all green and air-dried lumber. Prices of several flooring products are edging upward, a welcome sight for manufacturers. However, keen competition in this industry will keep a lid on inflation.

Demand for railroad ties, pallets, common flooring lumber, and other low-graded woods is strong. Most treating plants have large order files for cross-ties. As the supply falls short of the demand prices for low-graded lumber are bound to increase slightly.

Hardwood lumber exports are well ahead of last year. The heavy rains and flooding in Europe, may also divert buyers to North American sources. Finally, the rising value of the Euro is creating more interest in North American hardwoods. On the negative side, the weak economies in France and Germany will hamper the export business. Also, less expensive Eastern European lumber poses a formidable competitive threat for North American lumber exports, in particular for White Oak.

Sales to China, Vietnam, Korea and Southeast Asia have been brisk. Chinese warehouses are well stocked with inventories of finished goods. Lumber sales to China of Red Oak and its substitute species - White Oak and Ash - could slow in the months ahead according to US analysts.

Demand, supply and price movements vary significantly between different species, quality grades, drying levels, and growing regions. There seems to be a shift in consumers' preference away from fine-grained woods to coarse-grained woods. Below, we are listing the price changes during the past month of several widely used species. (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 Lumber

Prices for Genuine Mahogany went up in April, May, June and July. Thereafter, demand has weakened slightly due to higher prices and lower domestic furniture production.

The reduced supplies from Brazil did not impact the availability in North America. As European customers are using less Genuine Mahogany, more of this species could be diverted to US customers. At the moment, shipments from Central and other South American sources suffice to meet the American demand. The supply of substitute woods, particularly African Mahogany, is also abundant.

S.American Mahogany
	KD	US$3600	No Change
	AD	US$3095	No Change
African Mahogany
	KD	US$2110	US$10

During the months of September, prices of most Red Oak items were still falling. It seems that the low point has now been surpassed. Sales of quality Red Oak are slowly improving due to the strengthening demand from millwork manufacturers. Similarly, cabinet and furniture plants as well as flooring manufacturers are buying more common Red Oak. Indeed, the demand for common Red Oak already exceeds the supply, a situation which is likely to continue for a while. Prices have started to rise again. Only thick lumber is in sufficient supply. Contrary to the domestic demand, export sales will likely decline.

Red Oak
Northern Region	KD	US$1645	US$30
	AD	US$1330	US$5
Southern Region	KD	US$1315	US$10
	AD	US$1010	US$10
Appalachians	KD	US$1505	US$8
	AD	US$1175	US$7

White Oak prices are relatively low and some items - such as green stocks in the South - are still falling. However, it is anticipated that the declining trend has now come to an end. Pre-finished strip flooring of White Oak is popular and the domestic demand for the common grades may surpass the supply later this year. Export sales to Europe of top-graded White Oak should also improve but this is not likely to trigger major price changes.

White Oak
Northern Region	KD	US$1200	US$5
	AD	US$775	No Change
Southern Region	KD	US$1060	US$20
	AD	US$770	US$30
Appalachians	KD	US$1250	US$15
	AD	US$865	US$13

The demand for Cherry from furniture and cabinet plants is improving. If prices of green Cherry are firming, harvesting of this species will be stepped up. Nevertheless, the availability of high quality Cherry lumber is limited, above all for long boards. End-users must learn to utilize more effectively shorter boards.

Cherry
Appalachians	KD	US$3100	No Change
	AD	US$2495	US$13

Light-colored woods are gaining favor from cabinet and furniture manufacturers. Inventory levels are declining, mainly of the common grades. Hard Maple prices are relatively low but if the species gains more popularity prices may start to firm.

Hard Maple
Northern Region	KD	US$2090	US$55
	AD	US$1765	US$20
Appalachians	KD	US$1920	US$40
	AD	US$1585	US$10

Kiln dried Soft Maple prices softened in September. This trend may reverse itself later this year as the demand for quality lumber is getting stronger. This applies in particular for light-colored stocks. Painted cabinets and darker stains are very popular, an application which lends itself well for Soft Maple. Sales of common Soft Maple to the Far East and other export markets have improved.

Soft Maple
Northern Region	KD	US$1405	US$30
	AD	US$1035	US$10
Appalachian	KD	US$1430	US$5
	AD	US$1135	US$20

Export sales of Walnut logs and lumber are picking up. The principle destination is China.

Walnut
Appalachians	KD	US$2280	US$15
	AD	US$1715	US$10

Yellow Birch has carved out a niche in the cabinet and flooring industries. Demand is fairly strong, particularly in Canada.

Interest in Beech has almost disappeared. Under the prevailing market conditions, loggers and sawmills see no benefit in producing this species.

With Ash relatively low in price, sales may increase to both domestic and export markets. Aspen sales to domestic clients may decline but this will be offset by increased exports to the Far East. The domestic and Far Eastern Basswood demand has been a bit better lately, a trend which is likely to prevail for a while.

Mainly due to wet spring weather in the South, Cypress production has been low so far this year. This has not led to noticeable shortages of the wood, as the home construction sector is increasing the use of competing products in applications such as cement-coated siding and composite decking.

Poplar production is limited. In view of good domestic and overseas demand, prices for the wood will remain firm. The future health of the Poplar market depends largely on its sales to Europe, China and other Far Eastern destinations. Currently, the foreign demand exceeds the supply, but this may change quickly as Poplar competes with many substitute woods. China is known of erratic switches between species.

Regional Comments

Buyers' interest in Northern hardwood lumber is still moderate and most of the demand is only for green stocks. Preferred items include common Aspen, Hard Maple and Soft Maple. Red Oak is also purchased in fair quantities by furniture and cabinet manufacturers. Finally, flooring and millwork plants seem to have a need for Red Oak and White Oak. The supply of White Oak is becoming somewhat limited.

In spite of a general shortage of logs and green lumber in the Appalachian mountains, wholesalers' inventories of KD lumber are still growing. However, supplies may tighten later this year. Kiln operators have a growing appetite for common green Red Oak and Hard Maple and for top-graded Walnut and Cherry. Furthermore, flooring plants need common Hard Maple and millwork manufacturers need high-quality Red Oak. Export shipments of high graded Ash and While Oak showed improvements recently.

The weather in the deep South was very wet during the spring and early summer. Due to below-average log harvesting, air-dried lumber inventories are dwindling. Even though kilns are operating at full capacity, some manufacturers are already experiencing inadequate inventories. The domestic demand for southern Red Oak can be described as "active". It stems mainly from flooring manufacturers for the common grades and from millwork manufacturers for the upper grades. In fact, the supply of Red Oak, both green and kiln-dried stock, has become tighter in recent weeks. The demand for low-graded lumber for pallet cants, railroad ties and similar applications is also healthy. There is a slight improvement in the European demand for high-quality Ash and White Oak from the southern region. Poplar remains a strong seller to the Far East but demand has declined slightly