FOREST PRODUCTS FEATURE ARTICLES
THE NEW BUILDING
STANDARD LAW OF JAPAN - A POTENTIAL BOON TO WOOD PRODUCTS
By: Craig Jenkins, Economist
The 1999 Building Experts Committee (BEC) meeting was held in Tokyo on November 15. American, Canadian and Japanese government officials, industry and trade association representatives discussed the revision of the Building Standard Law (BSL) and other building related issues. Japanese Ministry of Construction (MOC) officials outlined the new BSL which will become effective by June 2000. The revisions described below offer tremendous potential for building products manufacturers and suppliers to make significant inroads into the Japanese residential housing market.
The current BSL is primarily based on prescriptive standards for building products and construction methods rather than a performance-based system. Because of this, some non-Japanese building products cannot be used in Japan because they are made of different materials from ones specified in the BSL, regardless of how the products would perform if tested scientifically. In the new BSL, MOC will set performance criteria for each building product, and, if the building products meet MOC's performance criteria, they can be used in Japan. In addition, MOC intends to harmonize its testing methods with those specified by the ISO (International Organization for Standardization), which should make it easier for foreign companies to test their products for use in Japan.
Fire Prevention Provisions
Among revisions to the BSL, regulations on fireproof construction and noncombustible materials may have the most significant influence on imports of American building products. The fire prevention provisions of the old BSL specify that materials used in buildings be classified as either noncombustible, quasi-noncombustible or fire retardant, based on their degree of combustibility. The type of materials that can be used are limited according to where they are used inside buildings.
The introduction of performance-based building regulations under the new BSL will be accompanied by the stipulation of performance-based building regulations required for fire preventive materials, as well as verification (testing) methods for measuring performance. The new BSL also specifies that fireproof or quasi-fireproof construction should be used in certain areas of buildings. The Government of Japan (GOJ) will specify the performance criteria required for these structures, as well as the testing methods needed to ensure that the structures meet those performance criteria.
In fire protection or quasi-fire protection districts and other districts where noncombustible roofing is required, it has been necessary to cover roofs with noncombustible materials or make them of noncombustible materials. The new BSL will impose a performance requirement that materials will not catch fire from sparks. The GOJ will specify the performance criteria required for roofs, as well as the method for verifying performance.
Changes, In a Nutshell
In summary, the two major differences between the old and new BSL are: 1) prescriptive requirements will be replaced with regulations that specify required performance levels; and 2) verification methods for measuring performance will be harmonized with those specified by ISO. (MOC is currently in the process of establishing new performance criteria. It is expected that details on the new criteria will be announced before June 2000 when the new BSL becomes effective.)
Together with the steady recovery of the overall Japanese housing market, the new BSL could give a much-needed boost to United States residential building product manufacturers and suppliers to the Japanese housing market.
Sources: FAS/FFPD; FAS/Tokyo and FCS/Osaka.
KOREA BOUNCES BACK
By Craig Jenkins, Economist
The Korean market for U.S. wood products is showing a fast recovery. Imports of all wood products for the first eight months of 1999 increased 59 percent over the same period of 1998 to $1.1 billion, due principally to recovery in the housing and construction sectors. Imports from the United States jumped to $146 million, up 53 percent.
The key factor to Korea's increased wood imports is the rapid recovery of Korea's economy, which grew more than 10 percent in the third quarter of 1999. Fourth quarter economic growth is forecast to keep pace with the third quarter, with overall annual growth estimated at 8 percent. Additionally, there has been continued growth in exports, increased investment and production, and a rebound in overall consumer demand. The Korean Government has forecast 6-7 percent economic growth in 2000.
Housing starts for August more than doubled from the same month of 1998 to 23,665 units. This is the first time since the start of the economic crisis that increases have been recorded for housing starts. Construction activities for the remainder of this year are expected to be very brisk and this should be reflected in increased demand for wood product imports. As a result of the recession in the first half of 1999, annual housing starts are estimated at 350,000 units, versus 300,000 units built in 1998. This is still well-below pre-crisis levels, however, as Korea built over 600,000 units of housing per year until 1997. Additionally, imports of pre-packaged houses from the U.S. more than doubled through August of 1999 compared to prior year levels, while the U.S. market share remains at around 60 percent.
Encouraging Wood Frame Construction
Thanks to deregulation measures and restructuring programs designed to stimulate housing demand, home construction is now permitted in areas adjacent to golf courses and in green belt areas. As a result, the number of wood frame houses in Korea has continued to increase and many developers are planning to develop wood frame home communities. Another factor which will contribute to the increase in wood frame construction in Korea is the recent change in Korean regulations allowing foreign ownership of land. Purchases of residential land by foreigners increased sharply in the second quarter of 1999 to 17.4 million square meters valued at $1.4 billion. These figures represent a tripling in foreign ownership of land over the first quarter of 1999. A breakdown of purchases reveals that Korean-Americans topped the list with 1,825 transactions, or 84.5 percent of the total purchases. Residential property purchased by foreigners offers new potential for 2x4 wood frame housing since most new owners are accustomed to this style of housing and have shown an interest in wood frame construction.
Changes in land development regulations also bode well for wood frame construction. Korea's Ministry of Construction and Transportation (MOCT) has announced a new policy designed to encourage construction of single family and low-rise, multi-family homes by allowing the sale of residential land for single family homes to a multi-unit area. In the past, land for single family housing was only sold on a unit by unit basis. The new policy allows the sale of up to 1,000-2,000 pyong (one pyong equals 3.3 square meters) of housing land which will allow developers to purchase the land for single family homes. The new policy offers increased potential for wood frame construction since this style of construction is very popular with consumers in the single family housing market.
Hardwood Exports Leading the Charge
The interiors and furniture market segments are looking up too. In fact, hardwoods continue to lead increases in all United States wood exports to Korea, lumber in particular. Korean imports of U.S. hardwood lumber increased dramatically to $35 million through October, up from $18 million for the same period of 1998. Through October, imports of U.S. hardwood logs increased to $11.5 million from $4 million through October of 1998. The sharp increase in log imports is attributed to strong demand for veneer for the ondol (heating from floor) flooring market. The size of veneer used for the wood based ondol flooring is not available in the United States. Therefore most imported hardwood logs are for veneer production.
The U.S. market share of hardwood imports has increased to 34 percent from 29 percent in 1998. Maple has replaced oak as the number one species imported from the United States. Imports of maple and oak (white and red) accounted for 70 percent of January-September 1999 imports of hardwood lumber.
HOUSING SHORTAGE IN
By Andy Salamone, Economist
Over the past few years, the severe housing shortage that plagues Mexico has seen a dramatic increase. While population growth has actually slowed, the demand for housing has increased. This is because a large segment of the Mexican population is of the prime age for setting up new households. In addition to a shortage of existing houses, many of the existing units are in dire need of repair. This shortage provides an excellent opportunity for U. S. exporters of softwood lumber and panel products. In the past, exporters have focused much of their effort in promoting wood-frame-construction for housing. This article will argue that more effort should be placed on developing niche markets such as mixed construction systems, prefabricated housing, and industrial construction.
According to recent statistics, the Mexican housing market is 4.6 million units short. This number is expected to grow by 800,000 units a year until 2010. The explosion in demand is due to the composition of the Mexican population. A large portion of the population is at the age where new households are normally established. Mexican builders and suppliers can not keep up with this demand. In 1997, only 34 percent of the needed units were supplied. In addition to the lack of new housing, it was estimated that as many as 2.7 million existing structures are in need of repair. This number is also likely to increase with time.
Typically, U.S. lumber exporters have focused on the promotion of the wood-frame-construction (WFC) system. This is the same type of system used in the United States. While some gains have been made in promoting WFC use in the development of hotels, restaurants, and other tourist infrastructure, very little has been accomplished when promoting this system for the construction of single-family homes or housing developments. The statistics clearly indicate that, due to a variety of reasons such as cost, misinformation, and, perhaps most importantly, culture, these promotional efforts have been largely ineffective. For example, only 10 percent of houses in Mexico have been built using the WFC system. These statistics are somewhat higher in the northern states of Mexico where up to 24 percent of houses use this system. While these statistics indicate limited use of the WFC system, it should be kept in mind that these percentages have remained relatively static over the past three years. Additionally, the numbers are misleading in that they do not differentiate between inhabited and uninhabited housing.
The reasons for this lack of use are the following:
1. The cultural connotation of a wood-frame house. These structures are usually associated with low-income or low-status people. They are seen as temporary structures, whereas a house constructed of cement block or masonry is seen as a permanent structure and a positive status symbol.
2. Wood frame houses are viewed as inferior when compared to houses constructed of traditional materials for providing such things as security, resistance to earthquakes and fires, and freedom from termites and other pests.
3. The cost of wood-frame construction is significantly higher than construction using traditional materials. WFC prices would have to be 20 to 30 percent lower than present levels to gain competitive advantage. As mentioned above, the northern states of Mexico have a higher percentage of homes constructed using the WFC method. Per capita income in these northern states also tends to be higher.
4. Mexico lacks a workforce trained in such important trades as carpentry. This lack of important skilled positions increases the cost of WFC and contributes to the reason WFC is not used.
5. There is a lack of education concerning WFC on all levels in Mexico. The consumer is not aware of potential benefits, the builders do not have the skilled positions, and local, state, and federal government officials insist on clinging to policies that discourage WFC. An example of these discriminatory policies include the refusal of banks and other lending institutions to provide loans to consumers wishing to build homes using WFC.
6. Mexico also has poor distribution channels for wood products. This causes delays in the arrival of materials which could cause builders to lose money.
Recent promotional efforts have focused on trying to improve several of the above areas, with limited success. The perceptions and attitudes described above are not likely to change quickly. While this does not bode well for exporters attempting to promote WFC, it does present some new opportunities for the development of niche markets such as wood flooring, roofing, and walls. While still not as prevalent as traditional materials such as masonry and concrete, these materials have gained acceptance and have shown an increase in use by Mexican builders and consumers. Other niche markets, such as prefabricated houses and hardwood interiors, also show great potential. Promotional efforts seeking to attain a more secure long-term position may wish to focus on some of the niche markets described above since consumers have already demonstrated a higher degree of acceptance.
NEW ZEALAND'S AVAILABLE
WOOD SUPPLY IS FORECAST TO DOUBLE BY 2005
By Justina Torry, Assistant Economist
New Zealand's wood supply is expected to almost double to 30-35 million cubic meters by 2005 with softwood exports expected to rise significantly over the next 5-10 years. This is due to the fact that New Zealand's domestic market is relatively small and stable. Forestry products are now New Zealand's third largest export sector.
In global terms, New Zealand is a small player in the international forest products market, accounting for 1 percent of the world's total supply of industrial wood and 1.2 percent of the world's trade in forest products. New Zealand's main forestry exports are softwood logs, sawn timber, wood chips, wood pulp, pulp/paper and panel products, many of which compete with U.S. wood products. Modest opportunities do exist for exports of U.S. hardwoods to New Zealand.
An industry funded marketing organization, Wood New Zealand, has been launched to assist New Zealand forest products exporters. Wood New Zealand opened their first office in Shanghai, China in July 1999. Next year, they are planning to open an office either in Japan or the United States.
In addition, the New Zealand Forest Industries Council has released AVision 2025", a strategic plan based on New Zealand's expanding annual harvest.
Although its inflation remains among the lowest in the industrial world, New Zealand's heavy dependence on trade leaves its growth prospects vulnerable to economic performance in Asia, Europe, and the United States. The 1998 market downturn in Asia, particularly the significant downturn in the export log trade to Korea, has encouraged the New Zealand industry to seek out new markets and diversify further into value-added products.
DECLINING PRODUCTION AND INCREASING DEMAND MAY WIDEN THE DOOR TO
MARKET ACCESS IN 2000
By Roseanne Freese, Economist
Since the beginning of the decade, tropical hardwood production in Indonesia, Malaysia, the Philippines and Thailand has fallen significantly. In 1991 the region produced 69 million cubic meters (cum) of tropical hardwood logs. For 1999, however, tropical hardwood log output is expected to reach only 44 million cum. Increasing demand for forest land for agricultural, industrial and urban development and the adoption of more effective environmental controls are the leading factors reducing Thailand's production capacity. According to the most recent estimates supplied by FAS posts overseas, output in these four countries is expected to fall further to 42 million cum in 2000.
Although Southeast Asian lumber and plywood mill owners are vigorously investing to diversify production to include builder's joinery and carpentry, improved value-adding processes cannot overtake reduced resource availability. Further, with slackening demand in the region's largest market, Japan, returns to investment are low. Indonesia and Malaysia are Japan's third and fourth largest solid wood suppliers, but their combined share in that market fell from 26 percent in 1996 to 22 percent in the first half of 1999. Indonesia and Malaysia also lost share in sales to China, the world's third largest importer of tropical hardwood products. While China looked to these two countries to supply 53.1 percent of its import needs in 1996, this fell to 38.2 percent for the first half of 1999. The rapid expansion of China's furniture production B now Asia's largest exporter B also has Thailand's furniture mill owners concerned. With less supply available at home and greater competition next door, industry confidence has fallen.
In recognition of these economic realities, Southeast Asian countries are opening their doors and making it easier for United States companies to compete. Vietnam, in meetings with the American Hardwood Export Council in July of this year, affirmed its intention to outsource lumber, veneer and other value-added wood products to become more competitive in the world furniture market. Vietnamese leaders also affirmed that opening the door to imports would provide the benefit of reducing the strain on domestic timber. United States solid wood exports to this market, zero in 1996, will exceed $1 million in 1999.
Other Asian countries are also adopting pro-trade and pro-conservation policies. The Philippines significantly reduced tariffs and import controls while reducing logging in 1995. Indonesia dissolved its industrial monopoly, APKINDO in 1998, and although export quotas are still maintained, export tariffs on logs and lumber have been significantly reduced. Indonesia's mills are now allowed for the first time in decades to make their own decisions concerning product sourcing and marketing. Although not a member of ASEAN (the Association of Southeast Asian Nations), China in 1998 initiated a logging ban which is now enforced in 18 provinces. In January of 1999, China reduced its log and lumber tariffs to zero in order to maintain steady solid wood supplies for its interior panel and furniture manufacturing industries.
Last, but not least, Malaysian mills are moving out of lumber and plywood production into more downstream production of furniture, flooring and builder's carpentry. While this may improve Malaysia's competitive capacity with respect to ultra-value added wood products, the demand for U.S. hardwood logs, lumber and veneer for further processing will benefit. With record high furniture demand in North American and European furniture markets, the demand for furniture and panel grade U.S. lumber, plywood and other intermediate products is very likely to rise in 2000, not only for Malaysia, but for all of Southeast Asia.