Current State of the Hardwood Industry

Matt BumgardnerU.S. Forest Service

Northern Research Station

The Future of the Hardwood Lumber Industry ConferenceNov. 2, 2016

Outline

• Overview of hardwood industry trends

- production, employment

• Impacts of secondary woodworking on hardwood demand

- housing

• Export trends for hardwoods

• Questions/comments

Eastern U.S. hardwood lumber production

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Bill

ion

Bo

ard

Fee

t

Estimate 1 Estimate 2 Estimate 3

Source: Luppold and Bumgardner

The major markets for hardwood lumber

• Appearance-based:– Furniture

– Cabinets

– Flooring

– Millwork

– Exports

• Industrial:– Pallets

– Railroad ties

Photo: 2010 Ohio Hardwood Furniture Market

Photo: AHMI

Photo: USDA Forest Service Southern Research Station Archive, USDA Forest Service, SRS, Bugwood.org

U.S. hardwood lumber consumption by market segment*

4850 50

46

36 37

4038 39

43

54

50

13 12 11 11 10

13

1991 1999 2002 2006 2009 2015

Pe

rce

nt

Appearance-based Industrial Other

* Exports excluded Luppold and Bumgardner. 2016.

U.S. hardwood lumber exports

YearVolume

(billion bd. ft.)

Percentage of total

consumption plus exports

Percentage of appearance-based

consumptionplus exports

1991 0.9 8% 16%

1999 1.2 9% 16%

2002 1.2 10% 17%

2006 1.3 11% 21%

2009 0.8 10% 25%

2014 1.7 17% 37%

2015 1.5 16% 34%

Luppold and Bumgardner. 2016

Where the hardwood lumber volume went,

2015

Where the hardwood lumber volume went,

1999Pallets, 35.4%

Railway ties, 5.3%

Furniture, 19.5%

Millwork, 17.7%

Cabinets, 11.5%

Exports, 10.6%

Pallets, 34.9%

Railway ties, 12.8%Furniture,

7.0%

Millwork, 18.6%

Cabinets, 9.3%

Exports, 17.4%

Source: Luppold and Bumgardner

Hardwood lumber price index

80

90

100

110

120

1301

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

19

90

= 1

00

Deflated Price Average 1990 to 2015

Data source: U.S. Dept. of Labor; Luppold and Bumgardner

Preliminary comparison of production plus imports and consumption plus exports

1999 to 2000

6

7

8

9

10

11

12

13

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Bill

ion

bo

ard

fee

t

E & W Production + imports Consumption + Exports

Source: Luppold

Price of 1C lumber versus the price of stumpage in Ohio

708090

100110120130140150160170180190200210220230240

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Ind

ex 1

98

2 =

10

0

OH Stumpage 1C Lumber

Sources: Luppold; HMR; ODNR/OSU

Impacts of secondary hardwood markets and housing

Data sources: U.S. Census Bureau; International Trade Admin.

Market share estimates of imports in the U.S.

Consumption = value of shipments + imports – exports Import share = imports/consumption

Why makes the Holmes County furniture cluster a viable model?

Customer driven . . . Customers select style, stain, and species, making each order unique

- - customization Like the U.S. cabinet industry!

Extremely fluid production process . . . Production of specific products (e.g., tables, chairs). A dining room

group could be constructed by multiple producers- - specialization

Supply chains . . . Finishers receive pieces from multiple shops Many operations use the same set of 15+ stains

Outsourcing components locally =aggregate productivity

Major U.S. import sourcesHousehold & Institutional Furniture & Cabinets (NAICS 3371)

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

Bill

ion

$

China

Vietnam

Canada

Mexico

Total

61%

59%

Data source: International Trade Administration

31%

Housing market’s importance to woodworking employment

Data sources: US Census Bureau; Bureau of Labor Statistics

0

20

40

60

80

100

120

140

160

180

200

0

200

400

600

800

1000

1200

1400

1600

1800

2000

59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

No

. of

em

plo

yee

s (0

00

)

Sin

gle

fam

ily s

tart

s (0

00

)

Year

Single family housing starts No. of employees - Cabinets No. of employees - Millwork

Employment indexes for last two economic recession periods

60

65

70

75

80

85

90

95

100

105

110

2000 2001 2002 2007 2008 2009

20

00

an

d 2

00

7 =

10

0

Millwork Pallets Cabinets WHF

Luppold and Bumgardner. 2016. BioResources.

Employment indexes for last three economic expansion periods

50

60

70

80

90

100

110

120

130

140

1501

99

1

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

02

20

03

20

04

20

05

20

06

20

07

20

09

20

10

20

11

20

12

20

13

20

14

20

15

19

91

, 2

00

2,

and

20

09

= 1

00

Millwork Pallets Cabinets WHF

Luppold and Bumgardner. 2016. BioResources.

Index of sawmill employment and number of sawmills in the Appalachian Region

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ind

ex 2

00

1=1

00

Employment # of sawmills

Data source: Bureau of Labor Statistics

Emp. = 23,597Sawmills = 1,579

Emp. = 17,231Sawmills = 1,128

Value of private U.S. construction, 2002-2015

Data source: U.S. Census Bureau

0

50

100

150

200

250

300

350

400

450

Bill

ion

$

Single family housing Multi-family housing

Residential improvements Nonresidential construction

Multi-family percentage of total housing market(single family + multi-family)

19.2

35.7

0

5

10

15

20

25

30

35

40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pe

rce

nt

Value of construction # of Starts

Data source: U.S. Census Bureau

Value per start in 2015:SF = $306,508MF = $130,883

2010 2011 2012 2013 2014

Seven years of studies in collaboration with

Virginia Tech, the U.S. Forest Service, and

Woodworking Network/FDMC

2015 2016

0

10

20

30

40

50

60

70

Much worse Somewhatworse

Slightly worse Slightly better Somewhatbetter

Much better Unchanged

Pe

rce

nt

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

Year-over-year changes in sales volume

Year % losing sales volume

2009 81

2010 50

2011 38

2012 31

2013 25

2014 21

2015 20

Number of firms 11,333

4,468

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

2008 2009 2010 2011 2012 2013 2014 2015

Cabinets(NAICS 33711)

Millwork(NAICS 32191)

Year-over-Year Cabinets Millwork

08-09 -6.3% -5.8%

09-10 -6.0% -6.4%

10-11 -6.7% -5.5%

11-12 -5.1% -3.1%

12-13 -3.3% -2.4%

13-14 -1.6% -1.5%

14-15 -1.2% -0.3%Data source: Bureau of Labor Statistics

8,306

3,450

Preliminary data (1st qtr.) positive for 2016

Perceived reasons for sales volume declines(for those firms indicating a decline)

1 2 3 4 5

Competition from non-wood substitute products

More domestic competitors entered the market

Offshore competition

We contracted in proportion with the overall economy

Downturn in nonresidential construction

Downturn in the remodeling expenditures

Downturn in the housing market

1=Minor reason to 5=Major reason

2015

2014

2013

2012

2011

2010

2009

Proportion of production volume associated with the single family housing construction market

2324

2627

2524

30

21

27 27

2422

23

2725

26

21 21

35

2324 24

31

21

27

2425

24

0

5

10

15

20

25

30

35

40

0% 1-20% 21-60% 61-100%

Pe

rce

nt

2009 2010 2011 2012 2013 2014 2015

Hardwood Export Trends

U.S. hardwood product* exports and imports,1990-2013

* Includes hardwood logs, lumber, veneer, cooperage, molding, siding, plywood, andflooring

Source: Luppold and Bumgardner. 2014. BioResources.

Top five hardwood lumber-exporting countries*

1990 % 2000 % 2011 %

United States 34.3 United States 23.6 United States 22.8

France 12.1 China 13.0 Belgium 8.9

Yugoslavia 11.8 Canada 11.5 Russia 7.2

Canada 7.8 France 5.3 Romania 7.1

Germany 5.8 Romania 5.2 Germany 5.9

Top 5 71.8 Top 5 58.5 Top 5 51.9

* Temperate Region

Bumgardner, Johnson, Luppold, Maplesden, and Pepke. 2014. Markets and Market Forces for Lumber (Ch. 3).

U.S. hardwood lumber exports(Top 5 destinations)

0

500

1000

1500

2000

2500

2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

$

Canada

China

Mexico

Italy

Vietnam

Total to World

~ 74% of total

106 other trading partners account for the remaining 26%

• Japan and the UK were slightly higher than Italy starting in 2012, dropping Italy to 7th

Data: USDA Foreign Agricultural Service

-12%

Jan-Aug 2015 vs. 2016:

+9%

Importance of coastal locations tohardwood lumber exporting

Port Regions(incl. all port types –

water, land, air)% of U.S. Hardwood

Lumber Exports

East Coast* 63

West Coast 20

Great Lakes 12

Gulf of Mexico 5

* 70% of hardwood lumber leaving East Coast ports was destinedfor East Asia and Southeast Asia

USDA Foreign Agricultural Service 2015

Summary

• Industrial markets fared better than appearance-based markets through the recession/housing downturn

• About half of domestic consumption currently in industrial markets

• Importance of exports

• 6 years of increases in hardwood lumber production since 2009 (+41%)

– But still 27% below peak year of 1999

Summary

• Secondary employment has improved, but the overall number of firms lagging

– Similar trend for sawmills

• Surviving companies have seen steady improvements in sales volume since 2009

• Log and stumpage markets returning to a more “normal” pattern; stumpage was affected by housing downturn

Thank you.

Questions?

Wood & Wood Products 2010