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LUMBER AND PANEL MARKETS University of Minnesota

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LUMBER AND PANEL MARKETS University of Minnesota Powered By Docstoc
					LUMBER AND PANEL MARKETS




              Timothy M. Smith
            University of Minnesota
              St. Paul, MN 55108
             Phone: 612.624.6755
           Email: timsmith@umn.edu
  KINDS OF WOOD




 Hardwood comes from broadleaf trees that lose
  their leaves each fall season, called deciduous trees.

 Softwood comes from needle leaf, evergreen trees
  called conifers
   SOFTWOOD LUMBER PRODUCTION




Source: Southern Forest Products Association
SOFTWOOD LUMBER CONSUMPTION




                                                      2000

                              Res. Const.             41.5%

                              Repair/Remodel          30.2%

                              Industrial (MH/Other)   24.5%

                              Nonres. Const.          3.8%
WOOD USE IN RESIDENTIAL HOME
BUILDING
SOFTWOOD LUMBER INDUSTRY
CONCENTRATION
MAJOR PLAYERS
SOFTWOOD LUMBER TRENDS/ISSUES




 Plantation Forests

 Substitution of other Building Materials (case on Wednesday)

 US/Canada Trade Relations
Average Growth of Forests




   M3/hectare/year (conifer)
    US/CANADA TRADE RELATIONS



   The major of US timberlands are
    privately managed.
   In Canada, most timber is on “Crown
    Lands” managed by the Canadian
    Government.
   Each Canadian province has its own
    method of determining fair stumpage
    rates to be applied to the volume of
    timber cut.
   After more than 15 years of disputes,
    the US-Canadian Softwood Lumber
    Agreement (SLA) was signed in 1996.
    The SLA allowed 14.7 BBF into the
    US duty free, with tariffs placed on
    larger volumes. This agreement
    expired in April 2001, resulting in an
    immediate 30% increase in Canadian
    imports.
    US/CANADA TRADE RELATIONS



    October 2001 – April 2002…US
     DOC announced a preliminary
     determination in favor of a 19%
     import duty, later a permanent
     27.22% tariff on softwood
     exports to the US.
    US DOC determined that forestry
     practices in Canada provide
     substantial economic
     subsidies…resulting in below FMV
     stumpage fees…creating and
     uneven playing field between the
     US and Canadian timber industry.
    August 2003 – NAFTA rules US
     Tariffs too high.
    April 2005 – Canadian
     government gives lumber
     associations $20 million to
     compensate legal expenses
HARDWOOD LUMBER




 AKA: Broadleaf, deciduous, angiosperms…

 Not necessarily “hard”

 LUMBER: Sawn on at least two (2) sides.

 Hardwood lumber makes up about 20% of total lumber production
  in North America* (remaining 80% is softwood lumber).

* North American wood markets generally refer to the US and Canada only.
HARDWOOD LUMBER - DEFINITIONS




 Board foot – 12” x 12” x 1” = 144 cubic inches

 Hardwood lumber thickness is generally measured in quarters of an
  inch (4/4, 5/4, 6/4, 8/4 – i.e. “six quarter inch”).

 Mbf. – thousand board feet (i.e. “12 mbf, 4/4 red oak @ $850/mbf”
  or “12 thousand board feet of four quarter red oak costing $850
  per thousand”)
HARDWOOD LUMBER - DEFINITIONS




  Random Lengths (R/L) – Lumber is produced in lengths from 4 to 16
   feet. Most hardwood lumber is sold as R/L unless otherwise stated.

  Random Widths (R/W) – Typically neither widths nor lengths are
   specified, most hardwood lumber orders read “RW&L”.
HARDWOOD LUMBER – CHARACTERISTICS




    Species
    Region
    Grade
    Moisture Content
    Tally: Gross Talley or Net Talley
    Surfacing
    Size
    Color, Texture, Grain
    Sapwood/Heartwood
    End-Trimming
    Plain Sawn, Quarter Sawn, Live Sawn
MAJOR COMMERCIAL HARDWOOD LUMBER
SPECIES OF NORTH AMERICA
MAJOR COMMERCIAL
HARDWOOD LUMBER SPECIES
OF NORTH AMERICA (Cont.)
NORTH AMERICAN HARDWOOD LUMBER
PRODUCING REGIONS
HARDWOOD LUMBER GRADING



 Virtually all commercial hardwood lumber production in North
  America is graded and sold under the grading rules of the
  National Hardwood Lumber Association.
 Hardwoods are graded according to the expected number of
  clear face cuts a board will yield on its worst side - the larger
  the number, the higher the grade.
 The standard grades of hardwood lumber (in descending order
  of quality):
       Firsts,
       Seconds,
                                –In practice, some of these grades are
       Selects,                rarely used in the commercial trade and
       No. 1 Common,           others are typically combined (i.e. Firsts
       No. 2A Common,          and Seconds are usually combined into one
                                grade: "FAS", No. 1 Common and Selects
       No. 2B Common,          may be grouped as "No. 1 Common and
       Sound Wormy,            Better", and No. 2A Common and 2B
                                Common may be combined as "No. 2
       No. 3A Common, and      Common". The grade of Sound Wormy is
       No. 3B Common.          rarely used commercially.
HARDWOOD LUMBER GRADING




                                Minimum      Minimum       Minimum
         Grade   Face Graded
                               board length board width   cutting size
                                                             4" x 5'
    FAS             Best            8'          6"           3" x 7'
                                                             4" x 5'
    Selects         Best            6'          4"           3" x 7
                                                             4" x 2'

    1C              Worst           4'          3"           3" x 3'

    2C              Worst           4'          3"           3" x 2'

    3AC             Worst           4'          3"           3" x 2'

    3BC             Worst           4'          3"         1-1/2" x 2'
MOISTURE CONTENT




 Moisture Content (MC): percentage of water to wood fiber.
 Important because wood of lower moisture content:
    is more stable.
    sands stains, glues, paints better.
    is less likely to develop problems (stain, decay, infestation,
     etc.).
    weighs less, is cheaper to ship.

 Common MC terms:
    Green – moisture content after lumber is cut from the log (can
     be greater than 100%).
    Kiln-dried – typically 6-8% (some markets as high as 10%) MC.
    Air-dried – stickered to 25-30% MC.
    Partially Air-Dried (PAD) – who knows?
HARDWOOD LUMBER TALLY




 Tally refers to the specific size, number of pieces, and/or grade of
  the the lumber that makes up a particular shipment.
    Typically done on a “surface measure” basis (i.e. the area of
      the face of the board rounded to the nearest foot).
    Gross Tally – measured when green
    Net Tally – measured after shrinkage
 On average, hardwood lumber shrinks about 7% when it dries. So,
  a truckload measuring 13 Mbf before going into the kiln might only
  measure 12.15 Mbf dry.
 Additionally, as much as 2-3% of green lumber degrades in the kiln
 The implied “Standard Kiln-Dried Rule” – Grade behind the kiln.
HARDWOOD LUMBER – Size and Surfacing




  Obtaining uniform thickness!
     Rough
     Hit-or-Miss
     Clean Surfacing

         Minimum Thickness of Rough and Clean Surfaced Boards
         Nominal Thickness           Minimum KD                 Minimum KD S2S
                                   Rough Thickness              Clean Thickness
                  3/4                     11/16                      9/16
                  4/4                     1 3/16                    13/16
                  5/4                     1 5/16                    1 1/16
                  6/4                     1 7/16                    1 5/16
                  7/4                    1 11/16                     1 1/2
                  12/4                     2 7/8                     2 3/4
                  16/4                     3 7/8                     3 3/4
HARDWOOD LUMBER – COLOR, TEXTURE,
GRAIN




  Difficult to describe – the real finesse of the business that comes with
   experience.
     Sapwood – wood from the lighter, outer portion of the log.
     Heartwood – wood from the darker, inner portion of the log.
     Regional differences (Northern lumber more consistent than
        Southern lumber.
     Color Selected Grades – No. 1 & No. 2 White, Saps.
     Proprietary Grades
HARDWOOD LUMBER – COLOR, TEXTURE,
GRAIN
HARDWOOD LUMBER – SAWING AND
CUTTING




  Plain sawn – most common, growth rings less than 45 degrees
  Quarter sawn – more expensive, growth rings at more than 45 degrees.
  Live Sawn – produces both plain and quarter sawn boards.

  Double End Trimmed (DET) – Not always preferred…
  Precision End Trimmed (PET) – generally within 1/32” tolerance, found
   mainly in dimension parts.
HARDWOOD LUMBER – SHIPPING




  Unitization – How big is the bundle – most commonly 42” x 42” at a
   tallied lengths (three, four, five length separation).

  Weight – varies by species and moisture content.

  Method – flatbed, piggyback, containers, rail, less-than-truckload
     Cost
     Speed
     Quantity
     Product Safety

  Time – availability of product.
HARDWOOD LUMBER – TERMS OF SALE




  Price
     f.o.b. “free on board” mill or f.o.b. yard.
     Hardwood Market Review

  Credit – cash in advance, letter of credit, personal guarantee, cash-on-
   delivery, etc…

  Terms of payment
     “1% CD, 10 days ADI, net 30 days ADI” or “1/10, net 30”

  Order assignment – many times a verbal commitment, but always get
   an order number.
HARDWOOD LUMBER – NORTH AMERICAN
PRODUCTION




 14000
 12000
 10000
  8000
                                                   US
  6000                                             Canada
  4000
  2000
     0
         1990 1991 1992 1993 1994 1995 1996 1997
HARDWOOD LUMBER – SPECIES PRODUCED
HARDWOOD LUMBER – THE MARKETS




                  Exports
           Cabinets
                    5%
             5%


  Furniture                                  Pallets &
    16%                                     Containers
                                               40%


  Millwork                                          In 1998, estimated that nearly
                                                    half of hardwood production was
    6%
                                                    used in low-grade applications.
Railroad Ties
     6%                                  Flooring
                                           4%
          Dimension
                            Structural
            12%              Plywood
                               6%                                         (Luppold, 1989)
HARDWOOD LUMBER – THE PLAYERS




  Sawmills – Logs to Lumber – traditionally sold rough green, many
   now refine the lumber further
  Dry Kilns – sometimes independent operation, other times
   operated by sawmills, manufacturers, or distributors.
  Concentration Yards – usually implies the presence of dry kilns –
   buys from many sources, aggregates material and repackages for
   resale.
  Wholesalers – buy and sell everything – some carry inventory
   some don’t.
  Manufacturers (with or without dry kilns)
     Dimension/Component Mills
     Furniture, Cabinet, Flooring, Millwork companies
  Distribution Yards – like concentration yards, but generally don’t
   operate kilns and generally carry a smaller inventory of lumber
   along with other general building materials and wood products.
  Retail – buy less than truckload volumes, sell by the piece to DIY
   and small business customers.
HARDWOOD LUMBER – Major Issues




  Extremely fragmented – estimated that the 50 largest hardwood
   sawmills produce 15% of the total production, with no single company
   holding more than 1.5% market share.

  Increasing timber prices, timber supply problems, and declining labor
   availability adversely impact hardwood lumber producers.

  Efficiency improvements and integrating dry-kiln and other value added
   operations at the mill have met mixed results throughout the industry.
PLYWOOD



             Manufactured from thin sheets of
              cross-laminated veneer and bonded
              under heat and pressure with strong
              adhesives, plywood has been one of
              the most ubiquitous building
              products for decades.
              Plywood is available in a wide
              variety of appearance grades
              ranging from smooth, natural
              surfaces suitable for finish work and
              underlayment to more economical
              grades used for wall sheathing and
              subfloors.
             Available in more than a dozen
              common thicknesses and over
              twenty different grades.
PLYWOOD

             Grade Designations: Most sanded plywood grades are
              identified by the veneer grade used on the face and back of
              the panel.Veneer grades define veneer quality according to
              natural unrepaired growth characteristics and allowable
              number and size of repairs permitted during manufacture.
              Veneer grades in descending order of quality are A, B, C-
              Plugged, C and D.
             Exposure Durability: Sanded plywood is produced in three
              basic exposure classifications: Exterior, Exposure 1, and
              Interior.
                 Interior Panels: Manufactured with exterior glue but
                   are intended for interior applications only.
                 Exterior Panels: Made with a water resistant bond
                   and are designed for applications subject to permanent
                   exposure to the weather or moisture.The minimum
                   grade of veneer permitted in Exterior plywood is C.
                 Exposure 1 Panels: Consists of a water-resistant
                   bond and are designed for applications where long
                   delays may be expected prior to providing protection, or
                   where high moisture conditions may be encountered in
                   service.
             Marine Panels: Panel manufactured with the same glueline
              durability requirements as other exterior-type panels but with
              more restrictive veneer quality & manufacturing
              requirements.
    PLYWOOD: NORTH AMERICA




                       25 000


                       20 000
            3




                       15 000
              1000 m




                       10 000


                        5 000


                           0
                                1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

                                             Production     Imports      Exports


Source: UNECE Timber Committee, 2002
ORIENTED STRAND BOARD (OSB)



                             OSB is manufactured from waterproof
                              heat-cured adhesives and
                              rectangularly shaped wood strands
                              that are arranged in cross-oriented
                              layers, resulting in a structural
                              engineered wood panel that shares
                              many of the strength and performance
                              characteristics of plywood.
                             Produced in huge, continuous mats,
                              OSB is a solid panel product of
                              consistent quality with no laps, gaps or
                              voids.
                             OSB is widely used in residential and
                              commercial construction, and is
                              gaining popularity in markets such as
                              materials handling and the
                              manufacturing of upholstered furniture.
     STRUCTURAL PANELS: NORTH AMERICA



                       25 000


                       20 000
             3
              1000 m




                       15 000


                       10 000


                        5 000


                           0
                                1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

                                                      OSB      Plywood

      Continued substitution of plywood by OSB in the United States.
      OSB production in North America continued upwards reached 20 million m3.

Source: UNECE Timber Committee, 2002
NON-STRUCTURAL PANELS:
FURNITURE/CABINETRY



                            A) MDF core is heavy and flat..
                            B) Veneer-core plywood is strong
                             and light. This 3/4-in. veneer-core
                             plywood is made from five internal
                             plies laid at right angles to each
                             other plus two thin outer veneers.
                            C) Particleboard weighs roughly
                             the same as MDF core, but it is
                             slightly less expensive.
                            D) Combined-core plywood is a
                             happy compromise. Two layers of
                             MDF and a center of wood plies
                             make for a smooth surface and a
                             strong, flat panel.
NON-STRUCTURAL PANELS: MDF


                                Non-structural composite panels usually
                                 consist of particle board and medium
                                 density fiberboard (MDF). MDF is made
                                 from a combination of resin, wood chips
                                 and sawdust/shavings resulting in a panel
                                 with a very fine surface. The panels can
                                 be edge machined, molded, shaped,
                                 painted or glued and is primarily used in
                                 furniture, laminating, countertops,
                                 millwork, and door manufacturing.
                                MDF was originally developed exclusively
                                 for furniture. But it's weight strength and
                                 aesthetics have seen its proliferation to
                                 many uses. It is used extensively in
                                 kitchens and for mouldings, and in
                                 bathroom environments. It's use as an
                                 exterior cladding for housing has
                                 successfully been trialed, and structural
                                 applications are are increasing.
                                Fiberboard (wet/dry) used in sheathing,
                                 interior paneling, rigid roof insulation, and
                                 sometimes as siding. The advantages of
                                 this material are, You guessed it!!!
                                 Cheap!!!.
    NON-STRUCTURAL PANELS:
    FIBERBOARD




   Fiberboard (wet/dry process)
    used in sheathing, interior
    paneling, rigid roof insulation,
    and sometimes as siding.
   The advantages of this material
    are, You guessed it!!!
    Cheap!!!.
    PARTICLE BOARD: NORTH AMERICA




                         15 000


                         12 000
               3
                1000 m




                          9 000


                          6 000


                          3 000


                             0
                                  1995   1996    1997   1998   1999   2000   2001   2002   2003

                                                Production      Imports      Exports



Source: UNECE Timber Committee, 2002
    FIBER BOARD: NORTH AMERICA




                      10 000


                       8 000
            3




                       6 000
             1000 m




                       4 000


                       2 000


                          0
                               1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

                                            Production     Imports      Exports


Source: UNECE Timber Committee, 2002
    MDF: NORTH AMERICA




                      4 000



                      3 000
           3
             1000 m




                      2 000



                      1 000



                         0
                              1995     1996   1997   1998   1999   2000   2001   2002   2003

                                              Production     Imports      Exports


Source: UNECE Timber Committee, 2002

				
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