Characterise the mood of the us hardwoods industry in 2015?
Judd Johnson: There’s some supply side frustration. After investing heavily to boost production to replenish inventories, supplies have surpassed demand for some vital items, leading to some risk aversion at yards and secondary processors.
Tom inman: I’d say the industry is positive following a year of increased sales and production. Demand exceeded supply in the first half of 2014 and mills responded by increasing volume. This continued into 2015 and supply has overall equalled demand. Prices have adjusted accordingly and continued stability is expected in most markets.
MJ: where does industry capacity stand relative to before the economic crisis?
Ti: Production capacity in 2015 is about two-thirds of the peak of 13 billion board feet in 1999-2000. US hardwood production rose to more than 12 billion board feet again in 2006, but fell to just under 6 billion board feet in 2009. Production was estimated at 9.8 billion board feet in 2014 and forecast for the same level in 2015.
JJ: US hardwood supplies have rebounded to nearly 80% of 2006 levels and up 48% over the historic low point in 2009. Sawmill capacity is capable of more volume; 15% more is not an unreasonable estimate. However, the capacity utilization has been curtailed slightly and possibly will be reduced more this year, depending on market conditions.
MJ: how do mill numbers compare to pre-credit crunch levels?
JJ: The number of mills is probably 75% that in the peak production period. Investments in technology have also increased unit production per man-hour and consolidation through acquisition has also cut employment. So employment is something less than 75% of peak.
Ti: It was estimated that 35-45% of U.S hardwood sawmills closed in the downturn, although many were small operations. A few have reopened under new ownership and much of this production has been made up by mid-sized and larger facilities. The number of workers has declined accordingly.
MJ: do you see more mills adding value by producing engineered wood, thermally modified (TM) and other enhanced wood products?
JJ: I don’t foresee these areas expanding significantly. Engineered wood requires unique production processes and marketing. Even TM wood products are more than an evolutionary add-on. It is not that sawmills cannot pursue these endeavours. But it’s more involved than, for instance, manufacturing components for the cabinet trade.
Ti: Sawmills have put in kiln capacity and surfacing equipment to add value. And dry kiln concentration yards have added surfacing equipment too for dimensional products. TM hardwoods have had limited interest, although if demand increases in the US or Europe, other companies would likely invest.
MJ: how is The us domestic Market developing?
JJ: It’s slow for grade lumber, which drives profitability, as housing has not yet reached critical levels needed for a vibrant business. But industrial markets are performing quite well, currently accounting for most volume consumed.
Ti: There have been slight improvements in components, millwork and flooring and niche markets for solid wood furniture and cabinetry. But most growth in 2014-15 has been for pallets, industrial crating, road board materials and pellets.
MJ: is THe drive To export still growing?
JJ: The big picture view is that exports are expected to grow and that the sector can support this and increased domestic demand. Because the US hardwood resource is growing more rapidly than removal, the only thing necessary for more production volume is lumber manufacturing infrastructure. Ti: Export markets are crucial for upper grades of US hardwoods, with producers seeking new customers worldwide. As US housing recovers, there will be increased demand for upper grades for millwork, cabinet and furniture products. This could impact export sales, but there’s production capacity to meet this need.
MJ: will China continue To be the major export growth driver?
JJ: Yes, for the foreseeable future. Ti: China continues to be the primary export market, with 2.5 times the volume of second place Canada, and its domestic demand is still increasing. The U.S. has a vast hardwood resource and the infrastructure to bring timber to market, and Chinese consumers value American hardwoods and are demanding a better product for their homes as their economic status improves.
MJ: How important is Europe for us Hardwoods?
JJ: Western Europe is viewed as a mature marketplace, like Japan, Australia, the US, and Canada. Populations are relatively static and personal wealth, while high, is unlikely to grow substantially annually. So the rate of growth in demand for US hardwoods is expected to be moderate. There should be opportunities for growth in the developing economies of Eastern Europe, but not of the same order as China. But due to different preferences, US producers don’t view Europe and China as an either/or; for instance white oak is favoured in Europe and red in China. TI: Europe has faced the same economic downturn as the US and has certainly diminished. However, there’s still manufacturing in Europe that’s important for US hardwoods and many long-term trading relationships between the two.
MJ: what are Europe’s attractions for us hardwood exporters?
JJ: There’s a comfort factor, with familiarity and cultural similarity making trade easier. Having said that, US producers and Chinese manufacturers are committed to their business too, and invested heavily to develop trading relationships long-term. TI: European customers are important because they understand the beauty and manufacturing characteristics of American hardwoods. They also favour higher grades as European manufacturers understand that these produce higher yields and better products.
MJ: how significant is the UK?
JJ: It is rather specific in terms of species required, but, with its more robust economic recovery, the UK has moved up the European volume and value league table for US hardwood exports.
TI: The UK is the fifth largest US hardwoods destination and its imports in January rose a further 2.5% by volume and 5% by value on 2014, at 7,176m3 and US$5.7m respectively. It’s the leading European US hardwoods market, followed by Italy which imported 5,215m3 in January, Germany 3,259m3 and Spain, 933m3.
MJ: how do you see the near to medium future for us hardwoods?
JJ: Business will continue to grow, but I’m concerned about market volatility. Price increases coming out of the 2009 low point were unsustainable, but now it seems the pendulum will swing too far the other way, with prices spiralling down for key species. I think the domestic US market is key to stability, so we need economic and jobs improvement to energize the construction industry.
TI: I’m extremely optimistic because, while elsewhere in the world forest supply is tightening, the US resource is expanding and there are ever-increasing markets for hardwood products. There’s worldwide awareness of US hardwoods’ availability in log, lumber and dimension and, with advances in technology for wood utilization in solid, pellet and now cross laminated form, the future is robust.
