A Regional Overview

Jan Wiedenbeck, NRSAl Schuler, NRS

What are the Market Trends Impacting the Sawmill Industry?

U.S. Graded Hardwood Lumber Consumption Trends (BBF)

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Furniture Flooring Millwork Kit. Cab. Exports

1962 2005

Source: Bill Luppold, USDATotal 1962=4.60 BBF, 2005=6.6 BBF

Total: 6.6 BBF

Total consumption up 2 BBF (44%) between 1962 and 2005, but dramatic changes in where the lumber is consumed

Source: Bill Luppold, USDA

Many Secondary Manufacturers are Very Dependent on Housing Markets

Source: Buehlmann et al. 2008, Modern Woodworking

U.S. Hardwood Flooring ImportsHousing’s Impact is Huge

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$200

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$500

World Imports Imports from China

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Source: USDA, FAS

2007

Imports $143 million

Exports 92 million

Deficit $ 51 million

U.S. Housing Decline

Components in building materialsinterior trim, moldings, stair parts, flooring blanks

Source: WCMA

Changing Hardwood Component Markets

1984 2008Furniture 65% 22%Cabinetry 16% 27%

Building Products* 10% 42%Decorative/Specialty 4% 7%Industrial Products 5% 3%

Source: 2008 WCMA Market Study

* residential and commercial, both new construction and remodeling

World Trade In Temperate Hardwood Logs -- Share (Value-Basis) of Top Importers and Exporters in 2006

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10%

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40%

China India Finland Sweden

Importers

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5%

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15%

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25%

30%

Russia U.S. Malay. France

Exporters

Source: Global Trade Atlas

Structural Change in International Log Markets

1) Russia is world’s largest exporter (volume basis) of both hardwood and softwood logs

2) Softwood tax increases from 6.5% today to 80% by Jan 2009

3) Hardwood sawlogs (oak, beech, ash) tax increases from 20% today to 40% by Jan 2009

U.S. Hardwood Lumber and Log Exports to China: A Comparison

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2002 2003 2004 2005 2006 2007

Logs Lumber

Million $

Source: FAS

•Log exports increase 35% in 2007 •Lumber exports decrease 19% in 2007

With many of today’s wood products (e.g., EWPs and OSB), fiber requirements are less quality based and more quantity based – Plantations contribute between 25% to 40% of global industrial wood supply – in 20 years, could exceed 50%

Source: FAO – State of Word’s Forests - 2007

Plantations Contribution to Global Industrial* WoodProduction Is approaching 50% according to FAO

* Excludes firewood

Per Capita Wood Consumption

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China World OECD USA

Source: China Timber Import Export Co/Hardwoodmarkets.com 2003Source: China Timber Import Export Co/Hardwoodmarkets.com 2003

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•Lots of potential to export more wood products to China•Affluent population today ~13 million ~$40,000 income (PPP)•By 2025, upper middle class ~ 520 million people ~ $25,000

China and US Consumption of Wood Products – What will China’s Share be in the Future and

where will it come from?

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5%

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35%

China U.S.

Roundwood Sawnwood Wood based panels

Pulp Paper & Paperboard

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Source: FAO

International Exports, 2007

Indiana is:9th most important state in terms of ash

lumber exports 12th in maple lumber exports (OH is #11)9th in cherry lumber exports (OH is #3)10th in oak lumber exports (OH is #7)17th in beech lumber exports13th in log exports (OH is #9, TN is #12)

Source: Global Trade Atlas

You Can Strengthen Your Competitive Position with Information that is at Hand

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Potential Profit Margins are Slim to Begin With

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Sawmills Studied (35 total)

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Grade 1 Grade 2 Grade 3 Below Grade

Log Value Ratio for Different Log Grades

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FS Log Grade

1.31.4

1.61.71.8

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Potential Profit Margins by Diameter Class for Grade 3, Red Oak Logs

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Small-End Diameter (inches)

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149

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165

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Doyle Overrun by Diameter Class for Grade 3, Red Oak LogsD

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Small-End Diameter (inches)

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LRF by Diameter Class for Grade 3, Red Oak Logs

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Small-End Diameter (inches)

Operating Costs Have Dramatic Influence on Profitability of Sawing Individual Logs

Operating Cost

Average Value Ratio, 4,857 logs

Percent with VR < 1.00

Percent with VR < 2.00

Percent with VR ≥ 2.00

$0/min 1.38 30% 54% 16%

$5/min 1.11 42% 54% 4%

$10/min 0.96 58% 41% 1%

$20/min 0.77 80% 20% 0%

COST, a Cost Accounting Tool, Gives a Fresh Look at Your Cost Picture

COSTCOSTCCost ost oof f SSawing awing TTimberimber

A Manufacturing Cost Analysis A Manufacturing Cost Analysis Program for SawmillsProgram for Sawmills

Jeff Palmer & Jan WiedenbeckUSDA Forest ServiceNorthern Research Station241 Mercer Springs RoadPrinceton, West Virginia 24740

Bob Mayer

Consulting Forester in Indiana

What is COST?What is COST?

• It is a computer program that calculates a sawmill’s annual and per-minute operating cost

• The per-minute cost figure is calculated based on information provided by the user that can be more or less specific

• It is a companion to the SOLVE sawmill analysis application (a sawmill operations performance analyst)

Simply stated…Simply stated…

COST provides you with a good estimate of the total annual and per minute costs

of operating YOUR sawmill.

What are the required What are the required inputs?inputs?

• Production information (annual log consumption and lumber / byproduct production)

• Weekly work schedules, annual wages and salaries

• Downtime, planned shutdown days and annual overhead costs

What information does What information does COST provide?COST provide?

• Work shift summaries

• Annual wage and salary costs

• Non-payroll operating costs

• Annual procurement costs

• Annual sawmill operating cost, cost per mbf of logs processed and cost per mbf of lumber produced

What If…All wage employees given a 5% increase?

What If…Offering a $2,000/employee wage incentive increased production by 5%?

What If…1 more material handling employee is needed and 1% greater downtime occurs when

processing small diameter logs?

Cost per mbf increases $3

What If…1 more material handling employee is needed and 1% greater downtime occurs when

processing small diameter logs?

Cost per mbf increases $3

SOLVESOLVEThe Performance Analyst for Hardwood The Performance Analyst for Hardwood SawmillsSawmills

Jeff Palmer, Jan Wiedenbeck and Elizabeth PorterfieldUSDA Forest ServiceNorthern Research Station241 Mercer Springs RoadPrinceton, West Virginia 24740

Additional Software Tools that You Should Find Useful

• Hardwood Quality CD

• Hardwood Log Defect CD

• Hardwood Lumber Edging and Trimming

• SAWFEAS and other Wisconsin Extension Programs

• ROMI-3

The Hardwood The Hardwood Edging and Edging and Trimming Trimming

TrainerTrainerFor Windows 95, 98, 2000 and XPFor Windows 95, 98, 2000 and XP

Developed by the Southern Research Station, Blacksburg, VA Phil Araman

The Hardwood Edging and Trimming Trainer The Hardwood Edging and Trimming Trainer is designed to help hardwood sawmill edger is designed to help hardwood sawmill edger and trim saw operators improve their and trim saw operators improve their processing performance.processing performance.

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Lumber price Lumber price editoreditor

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Graded boardGraded board

ROMI-3: Rough Mill Simulator Version 3.0

Ed Thomas

Joel Weiss

USDA Forest Service

Princeton, WV

What If…

I process a different grade mix?

I had a wider arbor?

I used more part grades?

I can cut more lengths at a time?

I process more narrow or short lumber?

I can use a narrow min. width in my panels?

I bid on this job… what yield can I expect?

I bid on this job… how much lumber and processing will this order require?

Lumber Data Banks3,483 kiln-dried red oak boards

totalling over 20,000 board feet, graded to 1998 NHLA rules

655 FAS boards350 F1F boards278 Select boards1,040 1 Common boards925 2A Common boards235 3A Common boards

Lumber Data… the foundation

The data banks consist of actual boards whose length, width, defect size, location, and type information were recorded.

Least Cost Grade Mix

• Determines the grade-mix that has the lowest combined lumber and processing cost for a given cutting bill:

– Older programs such as Optigrami were limited:

• Based on chop-first yield studies from the 60’s and 70’s.

Developed by Urs Buehlmann and Xiaoqiu Zuo at NCSU

COST & SOLVECOST & SOLVE

Jeff Palmer, Jan Wiedenbeck and Elizabeth PorterfieldUSDA Forest ServiceNorthern Research Station241 Mercer Springs RoadPrinceton, West Virginia 24740304-431-2700 or jpalmer@fs.fed.us