Hardwood: State of the Industry - April 2011

By Darius Helm

The hardwood industry is hoping for increased growth this year, but it’s dependent on a handful of influences that should start to impact the market in the next couple of months. At the top of the list is the state of the housing market, which has so far been sluggish. Then there is the Department of Commerce investigation on countervailing duties and dumping relating to China. Other factors include the strength of the dollar and the actual rate of rebound in housing.

Over the last four years, as the housing market slumped and hardwood demand diminished, a huge number of sawmills closed down their operations—anywhere from a third to half of all U.S. sawmills have ceased manufacturing. Loggers have gone out of business. And hardwood manufacturers have had to reduce shifts and in many cases shutter facilities.

The ramifications of this reduced capacity became evident in the first half of last year, as demand temporarily shot up due to the U.S. government’s tax credit for new home buyers and bottlenecks in supply forced up lumber prices. As demand diminished in the second half of the year, prices came back down. However, this year has seen an increase in quotes on the remodeling side—though sales have yet to be consummated—and that is driving up lumber prices again. Nevertheless, prices are still low compared to when the market was healthy a few years ago.

Despite pent-up demand, it’s unlikely that the market will rebound in any dramatic way this year, but even a single-digit increase will put huge pressure on suppliers. Many of the private landowners—and the domestic lumber supply is largely privately held—have been holding off on cutting their trees, choosing instead to keep them in the ground, growing while they wait for prices to go higher. After all, they’re coming off of several lean years in a row, so they’re not inclined to harvest their stock in a lousy market.

Steady, gradual growth is the best case scenario for everyone from manufacturers to consumers, and many industry experts are predicting just that. Not much activity is expected for the first half of the year, thanks in part to a tough winter in much of the country. Business in the second half should ramp up, and most of that will likely be on the remodeling side. Mind you, that scenario relies on a dearth of unexpected developments, and considering the rollercoaster of the last five years, people know better than to count their chickens before they hatch.

Last year, the domestic hardwood market was up 5.8%, according to Market Insights/Torcivia, but not all players experienced that growth. Imports, including those channeled through domestic manufacturers, were up about 18%, and that accounts for close to a third of the market. Armstrong, which by itself accounts for a similar volume, was down 6%. Many of the other domestic producers were up by single digits.

While Chinese imports have been continuing to grow, demand for imports of exotic woods have fallen, largely due to the Lacey Act Amendment. Imports from Canada have also fallen and continue to do so, in part because of the relative health of the Canadian market but also because the Canadian dollar has been gaining strength against the U.S. dollar, and that’s a trend that has been accelerating so far this year.

For the complete story on Hardwood: State of the Industry, see the April 2011 issue of Floor Focus Magazine.