Panels & Furniture Asia January/February 2021

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MARKET REPORT 2020 rolls into 2021: Politics are impactful, but business is business By Judd Johnson, Managing Editor, Hardwood Market Report Publications Rather than speculating about possible effects on international trade from the November 2020 US presidential election, this article will better serve its purpose by concentrating on business – specifically, current trends in US hardwood supply and demand, and factors influencing supply and demand. First, the US/China trade war. From the second half of 2018 until now, the volume of US hardwood lumber traded to China fell to approximately half of that in 2017. This occurred despite that fact that US sales prices decreased by more than the tariffs levied by the Chinese government. US sawmills shifted production to other products. Market outlets capable of accepting additional volume at that time traditionally use lower grade lumber and industrial lumber and timbers. For example, sawmills sold #1C and even Fas Red Oak to US Oak strip flooring manufacturers, which use #2A&3A Oak as primary raw materials. The problem with this business is that sawmills could not attain full value for #1C and Fas. On the positive side, US hardwood activity with China began to increase in Q4 2019. The Chinese government announced in mid- February 2020 that tariffs on US hardwoods would be suspended for a year. There was already a growing sense that US/China business was gaining momentum at that time. This reprieve from tariffs added even more encouragement about improving trade volumes and price recovery. Also, at that time, the world was aware China was contending with a new coronavirus. It was initially perceived to be a problem in China and for China to resolve, not unlike the Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS), which were mostly confined geographically. Obviously, this perception was wrong. The effects from the COVID-19 pandemic on US hardwood production were immediate and substantial. Contraction of this magnitude (-25.6% loss in volume in 2020 from 2019) is comparable to that only of a major economic downturn such as the Great Recession (-29.2% in 2009 from 2008). Coupled with the weakened financial position from the trade war, many US hardwood lumber concentration yards and sawmills were forced to close. Government efforts to mitigate the pandemic caused downturns in US domestic markets. Reportedly, some market sectors lost as much as 50% of their sales due to shutdowns of customers’ businesses that were deemed “non-essential”. Even though most of those companies have since returned to work, sawmill production was sharply reduced at that time and has been very slow to recover (Figure 1). Once again, US hardwood sawmills needed to pivot production to other products. This time, many shifted to softwoods. Because of resistance in hardwood lumber markets and better opportunities with softwoods, each Eastern US hardwood lumber producing region (Northern, Appalachian and Southern) has experienced meaningful production shifts to softwoods since the COVID-19 outbreak. DOMESTIC US DEMAND FOR HARDWOODS ON THE RISE The pandemic is restricting human activity worldwide, but it is not stopping human activity. Ironically, COVID-19 has actually strengthened Sawmills also processed more logs into crossties. Ties were readily saleable then and often priced higher than lumber that otherwise would be produced from those same logs. However, this was also a case of diminishing returns, as sawmills could not recover their costs for high-valued sawlogs from producing ties or other industrial products. It was not a sustainable solution. The impact on Eastern US hardwood sawmill output from the US/China trade war was moderate, given the circumstances. The production makeup changed substantially, but volumes decreased only 1.5% in 2018 and 7.2% in 2019. However, the financial impact on US hardwood sawmills from the trade war and China’s slower economy is severe and lasting. Figure 1. Eastern US hardwood sawmill production 18 Panels & Furniture Asia | January / February 2021
MARKET REPORT Figure 2. Population of the US by generation Figure 3. Eastern US hardwood sawmill production some human needs and desires that have benefitted US hardwoods in many ways. As US state and local government restrictions eased, retail activity for home furnishings surged. The upturn is attributed to consumers being shut in for a period of time, as well as those who are still working remotely from home. Along with pent-up demand, there also are indications that higher-valued home furnishings and interior fittings are more important to US consumers than before. Since they spend much more time in their homes, homeowners want nice surroundings and are willing to invest in upgrades. This trend is seen in retail statistics, as well as in the historically elevated amounts of spending for remodeling houses. Increasing new residential construction is another significant development in demand for US hardwoods and hardwood products. Construction of new single-family housing in the US had been below static demand since the Great Recession, creating what is now a chronic and, in certain cities and states, severe shortage of housing. That is beginning to change. Construction of new single-family houses since August 2020 reached what economists say is a level equal to static demand in the US (approximately 1.1 million units annually). This good news on US housing demand gets better. As US residential construction recovers to a level of traditional static demand, it is important to note that the US population of potential home buyers is increasing. Moreover, it is increasing to historically high levels. Consequently, the static level of housing demand for the US Baby Boom generation and Generation X is not sufficient for the Millennial generation or for the one behind that: Generation Z (Figure 2). The higher level of housing demand effects a higher level of demand for all components that go into home construction. It effects demand for interior finishes and furnishings the same way. Consider the influence by Baby Boomers on demand for US hardwood lumber by viewing the Eastern US hardwood sawmill production graph (Figure 3). The peak of sawmill production was near the peak of home-buying activity by that generation. Now, consider the possibilities of the Millennial generation, which is 19% larger than the Baby Boom generation, and Generation Z, which currently is 16% larger. There is no way to know for certain if either of these generations will follow the same pattern of homeownership as Baby Boomers. But studies have shown homeownership is a priority for Millennials, and at the most basic level, people must have shelter. In closing, the duration of the monumental decline in Eastern US hardwood sawmill production has left hardwood lumber supplies thin. At the same time, business is recovering worldwide after the initial pandemic shutdowns. There is an added element of demand stemming from repressed consumer activity during the shutdowns. More substantially are the two successive, historically large populations of up-andcoming homebuyers in the US that could elevate housing demand and everything that goes with it. Considering the potentials from this unfolding event, this may be the first time since 1999 when business for US hardwoods is influenced by net increases in demand rather than the continual contraction experienced these past 20 years. Much of that demand for US hardwoods will come from international markets manufacturing goods for US housing. The US hardwood industry has proven time and again that it has the resources and resourcefulness to adapt to the market’s needs. This potential upturn in demand will be no exception. P Hardwood Market Report (HMR) is the leading source of pricing and market information for North American hardwoods. It has provided reliable, expert analysis of pricing and market trends to hardwood companies throughout the world since 1922. Sample copies and subscription services for HMR and all other HMR publications are available online at www.hmr.com. Panels & Furniture Asia | January / February 2021 19
Page 1 and 2: JANUARY/FEBRUARY 2021
Page 6 and 7: CONTENTS 42 26 33 51 4 Panels & Fur
Page 8 and 9: FROM THE EDITOR New year, renewed h
Page 10 and 11: NEWS PANELS & FURNITURE ASIA AND PA
Page 12 and 13: NEWS LIGNA.21 POSTPONED TO SEPTEMBE
Page 14 and 15: NEWS VIETNAM: PRIVATE SECTOR COMMIT
Page 16 and 17: NEWS BRAZIL: FOREST SECTOR INVESTME
Page 18 and 19: NEWS IPCO APPOINTS ROBERT HERMANS A
Page 22 and 23: MARKET REPORT Today to 2026: An ove
Page 24 and 25: MARKET REPORT Pandemic gins up Russ
Page 26 and 27: MARKET REPORT specifications: “Mu
Page 28 and 29: ENVIRONMENT REPORT Inside the fores
Page 30 and 31: ENVIRONMENT REPORT appointed to con
Page 32 and 33: PRODUCT HIGHLIGHT “All-in” solu
Page 34 and 35: PRODUCT HIGHLIGHT First-of-its-kind
Page 36 and 37: FURNITURE MANUFACTURING Innovative
Page 38 and 39: FURNITURE MANUFACTURING electronic
Page 40 and 41: FURNITURE MANUFACTURING SalvaPush_2
Page 42 and 43: PANEL MANUFACTURING Diamond-tipped
Page 44 and 45: IN PERSON Roger&Sons: Giving local
Page 46: IN PERSON 1 2 3 Legend 1 These benc
Page 49 and 50: MATERIALS 3 production of Machine S
Page 51 and 52: MATERIALS three years, the shipment
Page 53 and 54: STRUCTURAL ELEMENTS Sculptform Show
Page 55 and 56: STRUCTURAL ELEMENTS Panels & Furnit
Page 57 and 58: SHOW PREVIEW CONTINUED SUCCESS The
Page 59 and 60: Asia’s Leading Event
Page 61 and 62: WOOD CLINIC and suck the preservati
Page 64 and 65: EVENT CALENDAR Events Calendar 2021
Page 68: Try Canadian Wood Liên Hệ Canada

Panels & Furniture Asia January/February 2021

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