Conservatism Rules Hardwood Lumber Markets.

THE BUSINESS WORLD has decided this is no time to be careless. Declining stock values, the perceived collapse of the "new economy and a new resident at 1600 Pennsylvania Ave. are among factors contributing to conservative attitudes in both industrial and consumer realms. The hardwood industry is no exception.

Gene Parker, editor of the Hardwood Market Report, says "caution" is the watchword in the hardwoods marketplace as the industry holds its collective breath in monitoring the economy's moderating pulse. This cautious attitude is most evident in terms of inventory. According to Parker, during the last 15 to 20 years, wood products manufacturers have been less willing to carry a large inventory of hardwood lumber. Buyers, instead, choose either to replace depleted inventories or simply to purchase lumber as the need arises.

Commentary in the Jan. 6, 2001 issue of the Hardwood Market Report discusses the potential effects of this conservative approach to inventory on standing timber prices, which in turn could lower the amount of timber available to mills. A rainier and snowier season than last year also contributes to a smaller amount of hardwood logs coming to production.

On the demand side of the coin, higher interest rates in 2000 translated into fewer housing starts, while higher energy costs added up to less expendable income in consumers' pockets.

Therefore, says Parker, the reaction of consumers to new economic initiatives, such as tax cuts, lowered interest rates and stabilized fuel prices, will determine how the hardwoods industry fares in 2001. As a whole, the general feeling expressed by the Hardwood Market Report is that all the factors currently facing hardwoods -- on both the supply and the demand sides -- "have the potential to influence the hardwood marketplace in a very positive way."

Global conditions are also expected to favor the hardwood marketplace. "International markets are playing a huge role," says Parker, explaining that if the Euro continues to catch up to the dollar, hardwood exports will be stimulated.

Generally speaking, although the growth rate in the hardwood market has decreased a bit, growth is still taking place. In terms of specific industry sectors, Parker says the cabinet business "is one of the brighter spots" in terms of growth, with 2000 cabinet sales through November up 8.9% from 1999, according to the Kitchen Cabinet Manufacturers Assn.

Cherry, Red Oak and Hard Maple in Biggest Demand

Regarding prices of specific species, the Weekly Hardwood Review reported in December 1999 on the noticeable change in hard maple and cherry prices during the decade. In the 1980s, according to the report, red oak accounted for approximately 80% of cabinet material, but the 1990s saw a shift in consumer preferences. The average annual growth in demand for FAS and 1F Appalachian cherry during the 1990s was 10.9%. The demand for northern hard maple increased 13.9%, while southern red oak and Appalachian white oak experienced average annual growth rates of only 1.4 % and 0.6%, respectively.

The Hardwood Market Report shows January 1990 prices for Appalachian 4/4 #1 Common cherry, red oak and hard maple as follows: cherry at approximately $675/MBF, red oak at $540/MBF, and hard maple at approximately $420/MBF. Zipping ahead 11 years, January 2001 figures show cherry at $1,115/MBF, hard maple at $965/MBF and red oak at $780/MBF. (Hard maple prices rose above red oak in late 1995 to early 1996.)

According to George Barrett, editor of the Weekly Hardwood Review, price increases in the last half of the decade, when all the factors are considered, have not really been all that significant. "During the past several years, the price levels of the woods used in cabinetry and case goods have generally increased by 10 to 20%," Barrett says.

"Part of the reason has been the high demand for individual species such as hard maple, cherry and red oak. Not all species have increased at the same rate. During times of high demand and sometimes poor logging conditions, lumber prices trend higher, but overall for the past 10 to 15 years, they have only increased slightly. In the case of hard maple, #1 common green has increased since 1995 from $715 per MBF to $1,090 per MBF. No. 1 common Appalachian green red oak has increased in the same time frame from $695 per MBF to $750. Another species, poplar, #1 common green has increased from $305 to $329. If you calculate inflation during this time, lumber has, overall, increased only slightly in price," Barrett says.

Another factor that will certainly continue to exert its influence on cabinet and case goods lumber prices in the long term is technology. For example, Parker says technological advances in the last 10 years have meant that the secondary wood industry has been able to utilize #2 common grades where it would previously have depended upon the availability of #1 common or higher.

The hardwood industry is essentially at a pivotal point. The coming months will lay the foundations for consumer confidence and the market's move into the 21st Century.

                         POPULAR FURNITURE LUMBER
                            PRICES: THEN & NOW
           1990 Jan. 2001  Change
Cherry     $675  $1,115    +65.2%
Red Oak    $540    $780    +44.4%
Hard Maple $420    $965   +129.8%
Prices per million boards feet.
Source: Hardwood Market Report