LUMBER AND PANEL MARKETS

Timothy M. SmithUniversity of Minnesota

St. Paul, MN 55108Phone: 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, Selects, No. 1 Common, No. 2A Common, No. 2B Common, Sound Wormy, No. 3A Common, and No. 3B Common.

–In practice, some of these grades are rarely used in the commercial trade and others are typically combined (i.e. Firsts and Seconds are usually combined into one grade: "FAS", No. 1 Common and Selects may be grouped as "No. 1 Common and Better", and No. 2A Common and 2B Common may be combined as "No. 2 Common". The grade of Sound Wormy is rarely used commercially.

HARDWOOD LUMBER GRADING

Grade Face GradedMinimum

board lengthMinimum

board widthMinimum

cutting size

4" x 5'Best 3" x 7'

4" x 5'Best 3" x 7

4" x 2'

Worst 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'

FAS 8' 6"

Selects 6' 4"

1C 4' 3"

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

Nominal Thickness

Minimum KD Rough

Thickness

Minimum KD S2S 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

Minimum Thickness of Rough and Clean Surfaced Boards

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

0

2000

4000

6000

8000

10000

12000

14000

1990 1991 1992 1993 1994 1995 1996 1997

US

Canada

HARDWOOD LUMBER – SPECIES PRODUCED

HARDWOOD LUMBER – THE MARKETS

(Luppold, 1989)

In 1998, estimated that nearly half of hardwood production was used in low-grade applications.

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

0

5 000

10 000

15 000

20 000

25 000

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

1000

m3

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

0

5 000

10 000

15 000

20 000

25 000

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

1000

m3

OSB Plywood

Source: UNECE Timber Committee, 2002

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

m3.

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

Source: UNECE Timber Committee, 2002

0

3 000

6 000

9 000

12 000

15 000

1995 1996 1997 1998 1999 2000 2001 2002 2003

1000

m3

Production Imports Exports

FIBER BOARD: NORTH AMERICA

Source: UNECE Timber Committee, 2002

0

2 000

4 000

6 000

8 000

10 000

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

1000

m3

Production Imports Exports

MDF: NORTH AMERICA

Source: UNECE Timber Committee, 2002

0

1 000

2 000

3 000

4 000

1995 1996 1997 1998 1999 2000 2001 2002 2003

1000

m3

Production Imports Exports