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?