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Value-Added Wood Industry and Market Trends for Ontario

Wood Centre

Feb. 23, 2007 Ian D. Manson, MNR


Industry Organization PRIMARY Harvesting Forestry Nurseries Services

In 1998 C$

SECONDARY

Commodity

$16.6B

Value-added

Lumber $2.8B Residuals Pulp $4.3B Newsprint

Wood Products$5.5B

$7.1B

$9.5B

Papers

$4.0B


What are value-added wood products?

Timber

Plants

Traditional

Non-Timber Products & Services

• furniture • cabinets • millwork • EWPs • boards • mfd housing • converted papers

• health care • personal care • foods • crafts • decorative • recreation • services

BioMass

BioProducts • bio-fuels • bio-materials • bio-chemicals


What makes something ‘value-added’? the more capital (technology) and labour used to process a raw material the more value is created

Primary Forest Industry

X6

Value-Added Wood Industry


Sub-sector Segmentation 2004 % Mix of Ontario VA Wood Based on $ Revenue: Statistics Canada, ASM Wood Office Furniture 10%

Mfd Housing Crates/Pallets 5% 5%

Millwork 25%

EWP 32%

Cabinets 13%

Wood Household Furniture 10%


Importance to Ontario Selected Ontario Industry Employment, 2002

Food Mfg

81,671

Plastics Mfg

71,200

Value-Added Wood Mfg

59,020

Chemical Mfg

49,288

Electronic Mfg

47,958

Motor Vehicle Mfg

42,430

Aerospace Mfg

9,445

0

20,000

40,000

60,000

Employment

Source: Statistics Canada, 2002 ASM

80,000

100,000


Importance to Ontario Exports as % of Total Ontario Forest Sector 1995 Exports Value $2.8BN 45% 2004 Exports Value $5.2BN 40% 42% 35% 1995 2004 30% 25% 25% 28% 20% 24% 24% 23% 22% 15% %10% Export Value 12% 5% 0% Primary P&PValue-Added Primary Value-Added P&P Wood WP Products

Source: Minister’s Council of Forest Sector Competitiveness, Statistics Canada


Ontario is a Leader in Value-Added Wood VA Employment in Canada, 2002 BC

Quebec has grown 51% in VA wood jobs since 1997 vs. Ontario at 31%.

BC, 20,954

Alberta

Alberta, 14,611 Ontario, 59,020 Quebec, 57,627

Ontario Quebec 0

20,000

40,000

60,000

80,000

VA (SW) Employment in Great Lakes Area, 2002 19,419

Mich Minnesota

23,202

NY

19,877 16,714

Illinois Indiana

35,242

Wisconsin

32,695

Ohio

32,253

Ont

38,067

Penn

37,489 -

10,000

20,000

Source: Statistics Canada, Dept of Commerce

30,000

40,000

Ontario ranks #5 in North America for Value-Added wood jobs, but no industry association


… without leadership. •

British Columbia - BC WOOD

ALBERTA - Dept. of Value-Added Wood

QUEBEC - QWEB

Great Lake States - Secondary Wood Mfg Association

ONTARIO - nothing representing value-added wood


Large‌ and small Businesses by Employee Size South Ontario Wood Processing Industries Secon dary 2,000 Primar 1,500 y 1,000 500 0 # of Businesses 1-4 5-9 10-1920-4950-99 500 + 100-199 200-499 Employee Size Range


Lack of Sector Integration Source, by % utilization Code

Industry

ONT

PQ

BC

ALT U.S OTH

D.K.

321215 EWP 321911 Windows/Doors

30.5 35.0

62.2 15.0

0.4 0

1.4 0

3.0 0

2.5 0

0 50.0

321919 Other Millwork

32.7

13.6

0

0

48.7

1.4

3.5

321920 Pallets/Crates

31.1

61.2

5.1

0.2

0.1

0.6

1.7

321999 Misc. Wood

92.0

5.5

0.1

0.1

0.3

0

2.0

337110 Cabinets

76.8

23.1

0

0

0

0

0.1

337123 Furniture

66.2

13.5

1.6

0

17.6

0

1.1

321992 Mfd Housing

31.6

37.2

22.8

8.4

0

0

0

38.1

41.5

1.7

0.6

15.1

1.4

1.6

TOTAL

Source: Linking the Forest to the Factory, MNR


Species, by % utilization Softwoods Code

Industry

Pw

Sp

Pr

Ce

SPF

OTH

TTL

321215 EWP 321911 Windows/Doors

0.7 70.5

15.6 0.4

0.1 0.1

0 0.7

28.7 0.9

0 0

45.2 72.6

321919 Other Millwork

5.2

0.7

2.6

0.9

0.2

0.2

9.7

321920 Pallets/Crates

0.9

8.2

0.3

0.1

79.2

0

88.6

321999 Misc. Wood

2.8

9.1

0.4

0.8

44.7

2.0

59.7

337110 Cabinets

2.3

0

1.8

0.1

0

0

4.1

337123 Furniture

16.3

0

0.1

0.1

0

1.6

24.4

6.3

60.3

0

6.2

32.6

0

99.4

3.6

9.1

0.9

0.7

27.6

0.2

42.0

321992 Mfd Housing TOTAL

Source: Linking the Forest to the Factory, MNR


Species, by % utilization Hardwoods Code

Industry

321215 321911 321919

EWP Windows/Doors Other Millwork

321920

Mh

Bw

Po

Or

Aw

OTH

TTL

0.9 2.6 23.7

1.6 0.5 0.4

51.5 3.60 15.5

0.4 5.9 26.6

0.4 0.5 4.8

0 14.3 19.3

54.9 27.4 90.3

Pallets/Crates

3.4

2.1

2.5

2.0

1.2

0.2

11.4

321999

Misc. Wood

16.2

2.3

10.4

2.3

1.9

6.3

40.3

337110

Cabinets

34.3

15.0

3.3

25.0

0.4

17.7

95.9

337123

Furniture

23.5

2.1

3.9

20.5

0.8

24.8

75.7

321992

Mfd Housing

0

0

0

0.6

0

0

0.6

9.8

1.4

27.6

9.7

1.9

7.5

58.0

TOTAL

Source: Linking the Forest to the Factory, MNR

Other - cherry, basswood, walnuts, exotics


Materials, by % utilization Solids Code

Industry

321215 EWP

RawLum Retail Spec Veneer MSR OTH TTL 4.9 2.6 18.8 2.4 2.7 46.8 78.2

321911 Windows/Doors

1.6

0.2

68.3

0.1

1.0

0.4

71.6

321919 Other Millwork

84.5

1.2

7.1

0.8

0.2

1.0

94.8

321920 Pallets/Crates

85.0

7.0

3.4

0.1

0.4

0.6

96.5

321999 Misc. Wood

28.1

54.9

12.8

0.2

0.2

0.4

96.6

337110 Cabinets

6.7

9.3

18.6

7.1

0

0.9

42.6

337123 Furniture

25.4

9.6

14.5

9.0

0

4.5

63.0

0.6

2.8

17.4

0.1

4.4

6.3

31.6

36.5

3.5

22.6

1.6

1.3

17.1

82.6

321992 Mfd Housing AVERAGE

Source: Linking the Forest to the Factory, MNR


Materials, by % utilization Composites Code

Industry

321215 EWP

Plywood Particle Chip Laminate OTH TTL 0.1 0 0 0 21.9 22.0

321911 Windows/Doors

9.8

0.1

18.5

0.1

0.1

28.6

321919 Other Millwork

3.5

1.6

0

0.1

0

5.2

321920 Pallets/Crates

3.1

1.2

0.2

0

0.1

4.6

321999 Misc. Wood

2.5

0.9

0

0

0

3.4

337110 Cabinets

13.4

22.3

1.3

16.5

3.8

57.3

337123 Furniture

13.3

14.1

0.2

8.4

1.0

37.0

321992 Mfd Housing

20.3

0

45.4

2.8

0

68.5

4.1

1.3

3.8

0.6

7.8

17.6

AVERAGE

Source: Linking the Forest to the Factory, MNR


Benchmarking Quantitative Ranking

5.0

4.0

3.0

Alberta BC Quebec Ontario

Management Workforce Capability Skill Level

5.0

Clustering Policy

Industry & Raw Market Technology Material Structure

4.0

3.0

US Great Lakes 2.0

1.0

Nordic Germany

2.0

Denmark

1.0

* based on labour, energy and productivity costs

Source: Jaakko Poyry: Assessment of the Status and Future Opportunities of Ontario’s Solid Wood Value Added Sector, June 2001


Ontario’s Wood Manufacturing Sector is…. • • • • • •

Large Diverse Export focused Technically sophisticated Expensive Rudderless


Trends Industrial Markets


Top Strategic Industry Issues RISING BUSINESS COSTS

56%

STRONGER CANADIAN DOLLAR

46%

CHANGING PATTERNS OF CUSTOMER DEMAND

41%

AVAILABILITY/COST OF ENERGY

41% 37%

AVAILABILITY OF SKILLED & EXPERIENCED PERSONNEL TECHNOLOGICAL CHANGE

30%

COMPETITION FROM CHINA

28% 27%

BRINGING NEW PRODUCTS/SERVICES ONTO THE MARKET HIGHER TAX & REGULATORY COSTS

26%

INCREASING COMPETITION FROM OTHER COUNTRIES

26%

MANAGING BUSINESS GROWTH

24%

INTRODUCING NEW/IMPROVED PROCESSES

23% 23%

GLOBAL SOURCING BY CUSTOMERS BUSINESS OPPORTUNITIES IN OTHER COUNTRIES

20%

AGEING WORKFORCE

20%

0%

10% 20% 30% 40% 50% PERCENTAGE OF COMPANIES

Source: Canadian Manufacturers Export Association

60%


Trends Effecting Value-added Wood Markets 1. 2. 3. 4. 5. 6. 7. 8. 9.

developing populations disposable incomes housing starts renovation market ‘greening’ wave skilled labour shortages Changing consumer tastes Glut of wood world wide U.S. protectionism – commodities


Trends in Value-Added Wood Comparison of VA Wood Segment Growth in Ontario Furniture

17.4% 37.4%

Cabinets

2002 1998

25.5%

Boards, EWP Mfg Housing

19.6% 45.2%

Millwork

0

5000

10000

Employment Source: Statistics Canada, 2002 ASM

15000


Opportunities 1. 2. 3. 4. 5.

Manufactured Housing Building components - EWPs Doors, Windows, Moldings, other millwork Furniture Cabinets – Kitchen, bath & storage


1. Manufactured Housing The evolution of residential construction Existing Products Commodity Lumber

Emerging Growth

New Technologies

EWPs and Bldg components

Integrated Structural Systems

$95 Hand-Crafted

Construction Type

Log home

$80 Std Precut, Panelized

$55

$72

Timber Frame

Site built Single Family

$31 Manufactured Home Per sq ft

“ in 2006, one in seven American homes were ‘manufactured’”


‌ Manufactured Housing Woodbridge Report Population = 83 million Construction Sales = $239B

EWP/Components = $800m Manufactured Housing = $300m Millwork = $150m


Manufactured Housing • Increasing export focus – e.g. Confederation Log Homes

• But foreign markets don’t like dealing with Ontario companies, because they lack critical mass • Strategy to go after traditional domestic stick built market first?


2. EWP’s Product Life Cycle Introductory Stage

Growth Stage

2nd/3rd Generation EWP’s

New Laminate Technologies nd 2 Generation Wall Panels (fibre polymers) Species Segregated Softwood Lumber

Maturity Stage Commodity LVL

Commodity Eastern SPF framing lumber

Commodity OSB

Eastern SPF MSR

Glulam

I-Joists

Parallam

Composites

Decline Stage

Variable quality Dimension lumber

PSL & LSL Custom Orders Eastern SPF FJ Installed Sales

-Building components account for 14% of total VA sales with 11% CAGR, but last two years growth at 28%, again driven by buoyant housing starts.


3. Millwork - Windows and doors account for 13% of total VA sales, with compound annual growth rate of 7%, but 16% in last 2 years, driven by high Canadian housing starts - However, window and door markets moving rapidly away from wood usage towards vinyl and steel respectively - Other millwork (moldings, stairs, flooring, etc.) = 22% of total, with a CAGR of 15%, and stable at 13% recent growth - Also, many of these products are moving away from solid wood towards FJ, MDF and composites


Millwork - Flooring • the solid wood flooring market is rapidly giving way to engineered wood flooring

Solid

Engineered

• one piece of solid wood can provide up to 6 surfaces on an EWF • built on an composite substrate, EWF can go straight onto concrete and doesn’t move like solid


4. Furniture – Furniture = 36% of total VA sales with CAGR of 12%, falling to 1% in last two years – Perfect storm for most of industry as retail markets convert to RTA and imports; quality and design still important but becoming more of a niche market – Also large anticipated boom in office furniture


5. Cabinets – Cabinets are a very regional market business unless standardized sizes – Cabinets = 15% of total VA with CAGR of 11% and reasonably strong recent growth = 9% – Cabinet demand will double in 10 years driven by new home construction and home renovations Cdn Housing Starts and US Reno $ Projections 250

Starts Renos

200 150 100 50 0 Starts and US$ BN Housing 90

92

94

96

98

2000 2002 2004 2006 2008 2010


Best Opportunities Pharmaceuticals (collection) Nutraceuticals

Market Growth

NTFPs

Manufactured Housing

Bio-chemicals Bio-Materials

Cabinets EWPs Millwork - Other

Bio-energy

Furniture Bio’s Millwork – Doors/Windows

$Thousands

Capital Investment

$ millions


Questions?


http://woodcentre.ca/%7Ewoodcent/docs/Value%20Added%20Wood%20Industry