|FOREST PRODUCTS MARKET NEWS - APRIL 2000|
|Wood Products Exports to Benefit
from Japan's Housing Policy Measures
By Craig Jenkins, Agricultural Economist and Michael Hicks, Trade Policy Coordinator
|Japan's Use of Kiln-Dried Lumber
and Glulam Set to Accelerate
By Craig Jenkins, Agricultural Economist
|Record Exports to France in 1999;
Outlook for 2000 Cloudy
by William P. Bomersheim, Agricultural Economist
|Dominican Republic: An Increasingly
Important Market for U.S. Panel Producers
By Andy Salamone, Agricultural Economist
Wood Products Exports to Benefit
from Japan's Housing Policy Measures
By Craig Jenkins, Agricultural Economist and Michael Hicks, Trade Policy Coordinator
Recent changes in Japan's housing policy are expected to lead to higher quality and more reliable housing as well as facilitate the introduction of more innovative products and building methods. As one of Japan's largest supplier of wood products, U.S. exporters stand to benefit significantly from Japan's latest efforts to lower housing costs and improve its housing stock. Japan, a market of $1.58 billion in U.S. wood products export sales in 1999, has traditionally been our largest export market, but was surpassed by Canada in 1999 because of continuing lack luster demand on the part of consumers in Japan. Nevertheless, Japan's housing market, with 1.2 million starts last year, is second only to that of the United States.
Extension of Housing Stimulus Measure Approved
The Japanese Government (GOJ), recognizing the key role that the housing sector can play in leading Japan out of its recession, has extended a tax incentive benefit for housing loan borrowers until June 2001. This is excellent news for wood products exporters, as the measure is sure to continue to encourage housing demand. The Mortgage Interest Tax Deduction Program, the first U.S.-style tax incentive program to be adopted in the Japanese housing sector, enables a home buyer to claim a tax deduction for the balance of the mortgage loan each year for 15 consecutive years. The tax benefit was introduced as a temporary measure last year aimed at stimulating consumer demand for new homes. Its effect was very significant in 1999 in increasing Japan's housing starts, stimulating the construction of an estimated additional 148,000 housing units, or approximately 12 percent of total housing starts. By housing type, the program is estimated to have stimulated the construction of an additional 75,000 units of owner occupied houses, 58,000 units of condominium built for sale, and 15,000 units of detached houses built for sale. Though the impact for 2000 is unknown, it will certainly be positive for wood products exporters.
Housing Quality Assurance Program To Increase Imports of Kiln-Dried Lumber
Another recent housing policy measure sure to affect Japanese imports of kiln-dried solid timber and laminated wood products, such as Douglas-fir beams and joists, is the Housing Quality Assurance Law (HQAL). To resolve a growing number of disputes between home buyers and home builders, this legislation, which will be effective on April 1, 2000, is intended to provide assurance to home buyers of the quality and integrity of new homes. The legislation requires home builders/suppliers to provide at least a 10-year warranty for the structural components (e.g. foundations, floors, walls) of a home. Extension of the warranty period up to 20 years is optional and voluntary, to cover not only basic, structural members of the houses but also non-structural parts. Liability does not extend to manufacturers and exporters. The law also includes a legal mechanism to resolve disputes. There is also a voluntary component of the HQAL, the housing performance indicator system," whereby manufacturers can label the performance (e.g. energy efficiency, fire-resistance, structural stability) of their product or system based upon testing by a Ministry of Construction designated evaluation body. It is expected that the HQAL should be an important factor in further stimulating demand for a variety of solid wood and laminated products.
Performance-Based Codes and Standards To Be Implemented
Beginning June 10, 2000, Japan will implement performance-based regulations in its revised Building Standard Law to replace the current prescription-based codes. The regulations will allow a uniform evaluation system for new building materials and an improved building inspection system. This increased flexibility for building design and materials use is promising for U.S. exporters by removing many of the restrictions and red tape which have inhibited wood frame construction and discriminated against some imported products. Provisions will allow for the testing of products by approved foreign testing organizations. One of the most promising developments for U.S. exporters is the removal of the prohibition on the construction of three-story, multi-family and mixed-use wood-frame buildings in quasi-fire protection zones (urban areas). This type of building has tremendous potential in Japan's cities and should lead to increased wood demands in Japan's many densely populated areas.
House and Land Lease Law to Stimulate Rental Stock Investment
In a decision likely to increase the size and quality of rental property on the market, renters will be subject to fixed-term leases beginning in March 2000. The new law will eliminate automatic lease renewals and justifiable cause requirements for lease renewal refusal, and allow for negotiated rents. Currently, owners cannot raise rent or terminate the lease of a renter without certifying that it is for good reason. Tremendous scope exists for improvement of Japan's vast rental housing stock. In 1993, the average floor area of rental property was 45 square meters compared to the average floor area of owner-occupied houses of 122 square meters. Though average floor areas have increased for both types of housing since then, the large disparity in floor area still prevails. Landlords will now have greater incentive to invest in larger and higher quality housing units.
Mortgage Rates Increase, Could Moderate Gains
The gains expected from the measures discussed above could be moderated somewhat by recent increases in Japanese mortgage rates by the Government Housing Loan Corporation (GHLC). The GHLC, a quasi-government agency, finances almost one-half of all housing loans in Japan, underwriting 46 percent of the loans between January and September 1999. Its loan program is one of the primary tools the GOJ uses for maintaining momentum in the housing market and boosting demand for housing, when the economy needs an economic stimulus. The GHLC rate, which was as low as 2.2 percent last year, was raised to 2.8 percent from 2.6 percent on November 1, 1999, but is still extremely low by U.S. standards.
Japan's Use of Kiln-Dried Lumber
and Glulam Set to Accelerate
Glue-laminated lumber ("glulam") use in Japan increased rapidly throughout the past decade. With the Housing Quality Assurance Law (HQAL) set to take effect in June of this year, the use of these products will likely accelerate even more. Japan is also experiencing a related shift from green lumber to kiln-dried (KD) lumber. Similar technological and market forces are influencing both trends. Much of the KD lumber is lamstock used for Japanese production of glulam for both laminated posts and structural beams.
Possible Future Price Premiums in Japan
Tremendous opportunity exists for suppliers of KD lumber and glulam to Japan with the expected adoption of the HQAL on June 10. The HQAL, by requiring housing builders and suppliers to take responsibility for structural defects in housing, will stimulate the increased use of more dimensionally stable materials, namely KD lumber and glulam. Though expected to grow, Japan currently has limited kiln drying capacity. With demand expected to outstrip supply, exporters may experience price premiums in the Japanese market in the near future. According to the November 15 issue of the Japan Lumber Journal, Hirakaku beams (large dimension structural beams) are particularly promising: "An annual demand of 600,000 cubic meters for laminated "hirakaku" will be expected several years from now, but present supplies including domestic production and imports are less than 100,000 cubic meters."
Green Lumber Exports to Continue in Decline
In contrast to KD lumber and glulam, green lumber exports to Japan are expected to continue to decline. According to the December 1999 Wood Markets Quarterly, "Current demand forecasts indicate that the volumes of green hemlock/balsam and Douglas-fir structural lumber use per traditional [post and beam] Japanese house are expected to continue to decrease by as much as 40%-50% over the next two to three years." Price premiums for green lumber have declined as well, and prospects are not bright for a turnaround. Nevertheless, the market for green lumber is not about to disappear, as exporters who target more price-conscious buyers will find plenty of opportunity.
Precut Lumber Plants Driving the Change in Material Use
The increase in the use and acceptance of glulam has been driven by a change in the production of traditional post and beam (P&B) housing and construction methods. P&B builders have moved away from the traditional method where each piece is hand cut, to the use of a precut package of posts and beams for each house. These structural lumber packages are computer designed and each piece is cut to length, with each joint cut for an exact fit. In precut plants, since each piece of structural material is processed by machines, the material required must be uniform in length, thickness, and width. This has driven the precut plants to use more glulam and KD lumber. Traditional unseasoned materials, or green lumber, although less costly, provide too little dimensional stability for this type of processing. Japanese precut plants have greatly increased in number and productivity in recent years as significant cost savings and building-erection time can be achieved with precut materials. The number of precut plants increased from 181 in 1986 to 890 in 1998. The number of housing units supplied annually by the precut plants has grown even more rapidly, from 23,000 units in 1986 to 210,000 in 1998.
Japanese Imports of Lamstock to Increase
Though imports of glulam are rising rapidly, Japan meets most of its domestic needs. For example, for structural glulam, Japanese production was two and a half times greater than imports in 1998, with Japanese production of 374,000 cubic meters compared to imports of 145,000 cubic meters. It is important to note, however, that Japanese production relies largely on imported material (lamstock) for its glulam production. In 1998, Japanese softwood provided only 8 percent of total material inputs for glulam production. This percentage has been falling steadily as Japanese species increasingly cannot compete with imported species. Though North American lamstock still has the largest market share, European whitewood lamstock, as with glulam, has achieved a remarkable market penetration. Despite this stiff competition, however, prospects for U.S. lamstock exports to Japan remain bright.
U.S. Very Competitive in Glulam Beams
In addition to lamstock, the United States is also the number one exporter of glulam to Japan, though overall U.S. market share has been falling rapidly. Other leading exporters to Japan include Russia, Canada, Sweden, Austria, Finland, Germany, China, and New Zealand. Some suppliers of glulam to Japan, particularly China and to a lesser extent New Zealand, export mostly nonstructural glulam. These smaller dimension products do not compete directly with the U.S. exports of glulam which are almost all structural. Among structural glulam exporters, the U.S. specializes in large dimension beams whereas European production is oriented toward the structural post market. U.S. exports of large dimension structural glulam to Japan should continue to increase. U.S. Douglas fir is particularly favored for its strength and is the number one species choice for certain glulam applications, especially beams. U.S. industry working with key Japanese partners played a major role in trail blazing and expanding the Japanese glulam market.
European Softwood Lumber and Glulam Is in Japan to Stay
European exports of softwood lumber and glulam have been growing especially rapidly, and in 1998, Russia entered the market very strongly. Europeans were quick to capitalize on Japan's increasing need for KD lumber. All-time high North American wood export prices in 1993 induced Japanese importers to look for alternative sources of supply and led to a dramatic increase in imports from Northern Europe. As most European softwood lumber for export is kiln-dried, European species saw rapid adoption by the Japanese as these materials met Japanese precutters needs for size accuracy and proper moisture content. European whitewood also caught on quickly in Japan as this market favors the light color, fine grain, and small knot size of European species which include spruce, pine and larch. Prices are also very competitive due partly to favorable exchange rates and low shipping costs. The threat from European suppliers is not likely to diminish in the near term.
Opportunity Abounds for Kiln-Dried Lumber and Glulam
For exporters of KD lumber and glulam, the Japanese market is very promising. Anticipating the opportunity in Japan, many U.S. mills have been increasing kiln-drying capacity, and glulam production continues to increase as this product has great potential in the U.S. market as well. The United States is particularly strong in the production of large dimension, longer-span beams of which there will be an anticipated shortage in Japan. After the slump in the Japanese market in 1998, the anticipated market turnaround will be a welcome change.
Record Exports to France in 1999;
Outlook for 2000 Cloudy
After years of declining exports to France, U.S. wood product exports have rebounded. Strong GDP growth, falling unemployment, and stronger consumer confidence have finally worked their way through the French economy and into the wood consuming industries. Housing starts, building renovations, and furniture production in France are increasing, and the outlook for continued growth is positive. As a result, U.S. producers exported a record $63.8 million of solid wood products to France in 1999, up 10.5 percent from 1998. However, while the economy is expected to continue growing, increasing shifts to composite boards in the furniture industry, and severe storm damage in French forests leave the future of U.S. exports cloudy. Since the early months of 1998, a rebound in economic activity has led to a surge in French housing starts, especially for single family dwellings. Housing starts increased to 285,000 in 1998, and are estimated at around 300,000 for 1999. New single family dwellings accounted for nearly all of the increase, growing from 175,000 starts in 1998 to 190,000 in 1999. Among EU countries, only Ireland and Spain had faster construction growth rates in 1999. In addition, the Government of France reduced the Value Added Tax (VAT) on building and renovation related works last September in a bid to aid the sector. Construction output in France is expected to continue growing through 2002, and renovation activity is expected to accelerate.
Total Construction Output
Source: Euroconstruct *Euroconstruct Forecast
Dominican Republic: An Increasingly
Important Market for U.S. Panel Producers
As the third largest market for U.S. softwood lumber, the Dominican Republic (DR) is extremely important to U.S. lumber exporters. With demand for panel products such as plywood and OSB increasing, the DR is also an increasingly important market for panel producers. However, U.S. exporters of all wood products are facing increasingly stiff competition from suppliers such as Brazil, Chile, Honduras, and possibly even Russia.
On a recent trip to the Dominican Republic, representatives from FAS's Forest and Fishery Products Division conducted interviews with importers, engineers, architects, and building contractors to discuss U.S. promotional efforts. From these contacts, we gathered additional information concerning the types of products being imported, uses of these products, barriers to U.S. products, and buying practices of Dominican importers. A brief overview of the findings follows.
A wide variety of wood products are in demand in the Dominican Republic. Two of the most popular are softwood lumber and panel products, primarily plywood. In 1999, U.S. softwood lumber and plywood exports to the DR totaled $45 million and $9 million, respectively. However, U.S. dominance of this market is being challenged by several other countries. Other key suppliers in the Dominican market include Brazil, Chile, Honduras, and most recently Russia. Brazil and Chile supply mostly plywood, however, Chile has become more of a competitor in the softwood lumber market. Honduras is supplying some softwood and a majority of the hardwood (mahogany) used in the DR. Recently, Dominican importers received a shipment of Russian softwood lumber. It is still unclear if this is a long-term arrangement since the wood was delivered on consignment.
Most of the lumber being imported into the DR is being used in infrastructure and tourism construction. Significant volumes of softwood lumber are being used in the construction of large resort hotels in the north and east of the country. There are presently three such sites under construction with two more scheduled to be built over the next twelve to eighteen months. The most common use for softwood lumber is in roofing, walls, and decks. Panel products are typically used in concrete forming activities. While traveling throughout the DR, we noticed several bridge and overpass projects in which plywood was being used for concrete forming purposes. Hardwood lumber is being used in a very small furniture business and on a limited basis in interiors of hotels and other tourist infrastructure projects.
Throughout the trip, all segments of the Dominican wood industry indicated that the main barrier to U.S. wood products is price. Softwood lumber prices from alternate suppliers are up to 20 percent less than those from the U.S. and panel products are as much as 40 percent lower. This is extremely important in a market such as the DR, where end-users tend to buy based on price alone. While the U.S. products are of superior quality, end-users do not necessarily take this into account with such extreme price differentials.
For hardwood lumber the traditional preference for mahogany, a product the United States does not produce, presents another barrier. Importers have expressed some interest in purchasing U.S. hardwoods, but they have not done so because of the length of time between when the product is delivered and when it is finally sold to the end-user. The lengthy interval between delivery and sale causes a loss of profitability.
Another interesting trend noticed about the major importers in the DR is the fact that many choose to buy their lumber from brokers or trading companies in the U.S. rather then purchasing directly from the sawmills. Importers explained that this was done because they did not have a good working knowledge of the best mills. The brokers deal with many different mills allowing for larger, and better quality, shipments. In addition, brokers offer much more attractive credit terms, sometimes offering a 45 to 60 day period after delivery before payment is due. Dealing with individual sawmills often requires immediate payment. Very few building and engineering firms purchase lumber directly from the United States. Most use the well established importers in the DR.
The outlook for the Dominican Republic remains bright. The economy is continuing to strengthen and should lead to further growth in the construction sector. According to the U.S. Embassy/Santo Domingo Country Commercial Guide, the Dominican economy is projected to grow by 7 percent in 2000, with the construction sector expected to increase by 17 percent over the previous year. Growth in commercial infrastructure construction should be particularly brisk over the next two years. Significant growth is possible in the panel market coupled with continued strong sales of softwood lumber. U.S. sales of hardwoods also have potential to increase if Dominican buyers can be persuaded to buy species other then mahogany. This could be spurred along by increased environmental regulation of mahogany forests in supplying nations such as Honduras and Nicaragua. However, U.S. exporters must continue to be wary of increasing competition from foreign suppliers. Since the U.S. products are currently more expensive, U.S. trade associations with active support from individual companies and FAS should continue efforts to emphasize the superior quality of U.S. solid wood products.
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|Last modified: Friday, January 19, 2007|