|
Click here to return to this month's Article Index The Cutting Edge™ April 2005Business BriefingWhat's Happening in the Secondary Wood Products Industry? This month, Business Briefing expands its usual sector situation report to headline status. Our purpose is to recap recent history and forecast the near future for the important secondary wood products sectors that comprise your largest customer base. Hardwood Sawmills Hardwood Consumption
Pallets - Cutting over 3 billion board feet, the pallet industry is the biggest hardwood user. The industry is operating at 90% of capacity. With the economy continuing to grow, pallet mills are set to grow at a near 4% rate in 2005. Specie winners included Hard Maple, which reached record price levels, as well as Cherry. The big loser was Red Oak as demand from flooring mills and cabinet plants dropped severely. Oak, our most prevalent hardwood, is no longer the consumers' favorite. Exports were up 10% with the focus on Asia rather than Europe. The fastest growing market was Vietnam, and China retained second place in the destinations ranking. The Asian markets will continue strong in 2005. Lower demand will come from Germany, the UK, France, and the Benelux countries as Eastern European lumber enters these markets. Hardwood imports rose by nearly 16% last year with Canada the largest supplier. In total 86 countries shipped hardwood lumber to the U.S. With abundant supplies available from U.S. mills, import penetration may flatten in 2005. In the end, experts are predicting a solid 2005 for hardwoods with growth of about 3%. Kitchen Cabinets With continued strong demand from new home starts and remodeling, cabinet sales in the U.S. reached nearly $14 billion in 2004. Last year's growth of 16.8% extends the trend of double-digit sales increases to three years. In fact, since 2000 cabinet volume has expanded by an amazing 61%. With this performance the cabinet industry has replaced wood furniture as a major consumer of lumber, panelboard, coatings, and machinery. Cabinetmakers purchased about 780 million board feet of North American hardwood lumber directly. Another 600 million board feet was purchased in the form of components like doors, drawer fronts, and mouldings. This sector's preference for light-colored woods like Hard Maple and Cherry has pushed prices of those species to record highs. Red Oak, long a staple of the cabinet industry, has fallen out of favor with cabinet buyers. Other noteworthy cabinet statistics include:
Managing that lengthy supply chain has proved challenging. Some cabinetmakers are retreating to domestic suppliers as quality and delivery issues prove difficult to overcome. Experts are predicting another banner year in 2005 with cabinet volume up by 12-15%. Cabinet sales rose 12.8% in February vs. the same month in 2004 according to the KCMA's Trend of Business Survey. For the first two months of 2005 sales were also up 12.8%. With the U.S. economy averaging 4.5% growth since 2000, can the industry sustain their recent double-digit advances? Many players in our industry have a vested interest in their success. Stay tuned.
Masco reported a 12% increase in cabinet sales in their 4Q2004. Operating profit was 18.2%, up from 16.6% in the same period last year. Installation services also showed strong growth with an 11.8% rise in sales.Home Furniture Our readers are all too aware of the cataclysm that has befallen the wood home furniture industry in the U.S. American consumers continue to buy furniture. Last year retail furniture spending rose 8%. But the sources of these products are foreign, not domestic. As a result, 2004 saw 60 more furniture plants close or suffer mass layoffs. More than 14,000 workers were laid off. The list of companies affected included Thomasville, Pennsylvania House (a La-Z-Boy company), Ethan Allen, Bassett, and Hooker. On the bright side, the remaining plants produced 4.2% more wood furniture in the first three quarters. If that pace continued through year-end, 2004 would be the first positive year of domestic production since 2000. As shown in the Hardwood Consumption table above, a declining furniture industry also adversely impacts its supply chain. The usage of hardwoods as well as panelboard, veneer, coatings, and corrugated containers also fell. The Hardwood Review forecasts hardwood usage by furniture makers to fall another 2.9% in 2005. With the tariff issue behind us, some experts are predicting a new wave of closures as plants that were saved by the prospect of a high tariff are finally shuttered. Recent shutdowns and layoffs include: Broyhill Furniture is closing its Conover, NC, assembly and finishing plant that employed 106 people.Other companies, particularly in upholstery, are fighting the closure trend. Mitchell Gold has purchased the former Bassett Furniture plant in Hiddenite, NC, to support continued sales growth. The company sells to specialist retailers like Pottery Barn, Crate & Barrel, and Storehouse. BenchCraft has expanded its production capacity by relocating warehousing operations to a leased 105,000 ft2 facility in Ripley, MS. Private investors acquired WoodMarc, a subsidiary of Berkshire Hathaway's Nebraska Furniture Mart. The 260,000 ft2 plant, located in Winterset, IA, augments its domestic production with imported products to provide a broad range of entertainment and bedroom furniture. Financial results at the company level... Office Furniture BIFMA reported that January orders increased by 8% year over year marking the sixth month in a row of year-over-year growth. Shipments grew too, up 17%, the second consecutive month of double-digit increases. This report is good news for an industry sector that suffered a breathtaking decline in sales three years ago following the boom times of the 1990's. From a rate of over $13 billion in late 2001, shipments fell to nearly $8.5 billion in mid-2003. Shipments are just now exceeding the rate first achieved in early 1995. Since 1999 the big three office furniture makers - Steelcase, Haworth, and Herman Miller - have shuttered 16 plants. Industry-wide layoffs totaled 13,000 workers. Analysts are cautiously projecting the industry's return to more normal times when shipments grew in step with U.S. gross domestic product. Company results are, however, mixed... Steelcase announced a major restructuring plan to remove excess production capacity. Headcount is being reduced by 600, and 2.6 million ft2 of manufacturing space is being eliminated. Herman Miller's 3Q2005 revenues advanced 16% to $382 million fueled by strong international sales. Gross margin rose to 32.1% despite higher material costs. SG&A expenses decreased to 24.5% leaving a solid 7.6% operating margin. Overall, BIFMA, the industry trade association, is predicting 9.2% growth in 2005. Wood Flooring January 2005 shipments of strip flooring declined 4% over the same month in 2004. This performance followed significant weakness in pricing and a leveling in sales over the last seven months of 2004. And while experts believe total U.S. hardwood flooring sales grew in 2004, much of that growth was in domestically produced engineered products as well as imported flooring. Indeed Hardwood Review calls the significant growth of flooring imports the biggest hardwood industry story in 2004. Government data show that imports of solid strip and engineered flooring rose by 37% last year. But misclassification of trade data may under represent that number. Suffice it to say that imports of wood flooring are quickly gaining speed, and foreign producers are pushing for U.S. market share. Strong consumer demand will not absorb the volume of flooring made available by importers and domestic producers who expanded their own capacities. Larger supply often means lower prices. Falling Red Oak prices, down 75% over the last 14 months, have enabled domestic producers to improve margins. However, experts predict lower prices will not bring increased sales of domestic Oak flooring. More exotic offerings like Brazilian Cherry and Mahogany are catching the consumers' eye. The import tidal wave of flooring, like that in wood furniture, will continue... Moulding & Millwork Cabinets were not the only wood product benefiting from record-setting home construction in 2004. Moulding and millwork producers, especially those selling into high-end residential markets, experienced good business. While housing starts were up 7.5% and remodeling expenditures grew by 7.8%, non-residential construction lagged with only 0.6% growth in 2004. Inevitably, as with most other wood products, imports have taken market share. For example, from 2000 to 2004 hardwood moulding imports rose 30.3%. About two-thirds came from Southeast Asia with China shipping about 43.5% of all moulding imports. Chile is now the second largest source of hardwood mouldings. As a result, hardwood usage by domestic producers in this sector has declined about 19% since 2000. Like the cabinet industry, Maple has taken share from the Oaks in moulding and millwork products. In addition MDF and finger-jointed mouldings for paint grade and veneer-wrapped MDF have increased in acceptance and popularity. Experts are predicting stronger non-residential construction in 2005. While homebuilding may decline slightly, demand for this sector's products should improve. In the end the story here will be the same - competition from every country that has a tree will put pressure on prices. To survive domestic producers must find niche markets, offer more customized products, and mind their costs. Economic Factoid Table of Contents
|
||||||||||||||||||||||
