‐2002.11.25／

During the past twelve months, the American economy has been progressing very slowly and domestic demand for lumber by secondary wood-products manufacturers is also weak. To make matters worse, export demand did not add any stimulus either. Nevertheless, prices remained fairly stable as the subdued demand was matched by limited log and lumber supply. At the moment, green lumber is reported to be in short supply and many green items are fetching higher prices than a few months ago.

As wages in the forestry and saw-milling sectors have been under some pressure recently, products with a relatively high labour content did not experienced price erosion. For instance, rough lumber is priced 1.8 percent higher than twelve months ago. On the other hand, higher value-added dressed lumber advanced by only 0.2 percent and dimension lumber and veneer even declined by -0.7 percent and -2.2 percent respectively. However, the thrust of the price declines seen earlier this year has lost some of its steam.

Taking a long-term perspective, lumber and veneer prices did not advance much either, remaining within a range of only plus 3 and 11 percent during the past 6 years.

Demand, supply and price movements vary significantly for 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).

At the moment, green lumber is in relatively short supply and many green items are now fetching higher prices than a few months ago. Generally, prices in the Northern growing regions are the weakest, while they are the most robust in the Appalachian mountains. However, there are many exceptions to these "broad-brush" comments. Not surprisingly, the most popular species are holding their prices better than marginal species. Cherry is one of the most sought-after woods, and its price escalation exceeds most other species, including Mahogany.

Current prices paid for high-quality, kiln-dried Appalachian Cherry are well in excess of US$3000 per 1000 board feet (MBF). On the other hand, the price weakness of Hard Maple comes as a surprise. Hard Maple was long one of the most widely used woods and its price skyrocketed throughout 2000 and 2001. Maybe prices have risen too much and reached a solid ceiling. Some wood manufacturers are now diverting to other substitute species. At the present time top-graded, kiln-dried Hard Maple lumber in the North sells for more than US$2000 per MBF.

Imported Lumber

US demand for imported tropical lumber is subject to the same market forces as domestically produced lumber. As demonstrated above, the price trend for most lumber items is generally downwards, with the exception of the most desirable species, such as Cherry and Mahogany.

Up to September 2002, Mahogany lumber prices moved up continuously and they bucked all the negative influences which have plagued the hardwood market. Atypical of this trend, Mahogany prices started to slip in October. While the decline was less than 1 percent for South American Mahogany, it amounted to 1.4 percent for African Mahogany. Nevertheless, Mahogany prices (South American variety) are still some 4 percent higher than one year ago, and a whooping 46 percent higher than six years ago.

It is not sure whether the recent price weakness is just a short "irregularity" or the beginning of a new trend. The cause may lay in the lower consumption of this wood in Europe and/or the continued strength of the American dollar.

Engineered Wooden Boards

With regard to engineered wooden boards, particleboard prices and demand continue along there long-lasting slide. The product is now priced almost 3 percent less than one year ago, in fact it is standing at a twelve-months low. In relation to January 1996, prices are standing 12 percent lower. The general trend for plywood is similar to particleboard, albeit less pronounced. Plywood is priced 0.3% lower than one year ago and a meager 5.7% higher than at the beginning of 1996. However, since the beginning of this year, plywood prices have started to firm a bit. Apart from the poor economy, particleboard and plywood are under heavy competitive pressure from OSB and MDF respectively.

MDF is also suffering under sluggish business conditions, but the product is emerging more and more as the material of choice for an increasing number of applications. Therefore, prices of MDF performed much better than prices of plywood and particleboard. MDF is now standing at a twelve-months high with a year-over-year gain of 1.8 percent. The industry has not yet solved its problem of over-capacity. Compared to the beginning of 1996, prices are still 8 percent lower.

Demand for Oriented Strand Board is decent, with the West showing a bit more resilience than other regions. Nevertheless, the supply remains abundant and prices subdued.

Finished and Semi-finished Wooden Products

The downward price pressure on finished and semi-finished secondary wood products was less pronounced than for timber and primary wood products. In fact, most prices are now higher than one year ago. Among the products monitored, only chairs (-0.1 percent) and wooden frames for upholstered seats (-0.5 percent) saw their prices drop by a small fraction between September 2001 and September 2002.

Products with the steepest price escalation include tables (up 6.1 percent), headboards for beds (4.7 percent) and cabinets (4.4 percent). Even prices for office desks advanced by 2.9 percent, which is surprising in light of the subdued demand for office furniture. Some prices are now standing at an all-time-high, for instance for cabinets, bedroom dressers, office desks and windows. Taking a six-year historic perspective, office desks, tables, bedroom furniture, and chairs exhibited the highest price inflation, all in excess of 15 percent. On the other hand, wooden door prices are now only 4.6 percent higher than in 1996. This can be explained by the increasing usage of hollow-core doors with less expensive MDF door-skins.
Wooden moldings advanced by 1.9 percent during the past twelve months. Considering the still healthy residential construction market, this is a surprisingly small price advance. Part of the reason is the aggressive price-cutting by Brazilian exporters of moldings, supported by the devaluation of their currency

Conclusion

During the past year, prices of finished and semi-finished wooden products have been much firmer than prices of their raw-material inputs. Therefore, it may surmise that profit margins (as a percentage of sales) of secondary wood-products manufacturers did not decline during the past year. This does not mean that companies' profitability (as a percentage of the balance sheet total) did not suffer. Sales volumes have been depressed and therefore revenue and profits declined for many firms.

Of course, there are many exceptions to this general observation. Mahogany prices advanced faster than many finished Mahogany products, thus squeezing profit margins. On the other hand, particleboard prices continue to fall, while prices for end-products - such as RTA furniture - are rising, thereby boosting such manufacturers' margins.