On November 17, 2005, Industrial Reporting, Inc. conducted its first audio conference, entitled “Of Course It Could Get Worse! A Look Into the Low-Grade Hardwood and Pallet Markets.” We believe it was successful, both inparticipation and material covered. All participants held on through the entire presentation, and many stayed on the line past the projected hour and a half with lively questions and responses. The one question that was not addressed at the time was answered later and sent to participants.
The focus here is on one of the low-grade hardwood products that competes with pallets for lumber — wood flooring. These highlights give a glimpse into the kind of material covered in the conference and what participants can expect to see in future audio conferences conducted by Industrial Reporting.
Several market characteristics of hardwood flooring point to significant points of interest. Demand for hardwood flooring fluctuates over time due to buyer habits, how the variation in flooring products offered is impacting demand, and the recent impact of imported flooring on the U.S. lumber supply. Hardwood flooring demand is of interest to the pallet industry because it competes with hardwood pallets, particularly for 4/4 hardwoods.
Hardwood Flooring — Where Has It Been?
Table 1 provides shipment numbers for solid strip flooring in thousands of board feet for almost a century, from 1907 through 2004 (Table 1). The demand for strip flooring grew fairly steadily for the twenty years from 1907 through 1928. When the depression hit, the demand fell off the table from over 568 million bd. ft. in 1928 to 108 million bd. ft. in 1934, which shows its volatility relative to disposable income in the society. In this sense it behaves much like almost any product, particularly those that are consumer driven according to preferences and desires. In the mid-30s, flooring demand started picking back up and recovered to late 20s levels (544 million bd.ft.) by 1941.
World War II cut deeply into hardwood flooring shipments for thesecond time in history, bringing them down to 186 million bd.ft. by 1944. After WWII, hardwood flooring demand picked back up quickly and topped one billion bd.ft. for the first time in 1950. Demand stayed strong throughout the 50s, softened a little in the 60s, but held on by standards that were still historically pretty strong.
In 1964, Uncle Sam, in his infinite wisdom, allowed people to put a five year carpet on a 30 year FHA loan. The resulting surge in wall-to-wall carpeting saw hardwood flooring shipments undergo a sharp, steady decline to 75 million bd.ft. in 1982. As tastes changed, hardwood flooring started its third recovery (fourth growth cycle) as it grew steadily for over two decades to the strong levels we have enjoyed since 2000. Through the recession since 9/11, flooring has continued its growth due to the strong housing market, larger houses, and a positive consumer attitude toward hardwood flooring. The numbers in Table 1 reflect projected production of finished and unfinished solid strip hardwood flooring from U.S. manufacturers.
In June, 2005, The Wood Flooring Manufacturers Association (NOFMA), which was established in 1909, changed its method of compiling and publishing statistics to base it on sq. ft. of production, not bd. ft. NOFMA has begun work to complete its first ever, comprehensive U.S. wood flooring market study. This study will seek to uncover detailed information about how much of which types of flooring are used in the U.S., aimed at providing a better overall understanding of what’s happening in the flooring market. Its completion is scheduled after the end of the first quarter in 2006. The association has contracted with The Beck Group of Portland, Ore., to conduct the study. Table 2 (page 53) compares month by month production for a year up to September 2005 with the previous year. Early in the year, overcapacity in flooring manufacturing coupled with greater imported flooring quantities to cause lower strip flooring prices and a reduction in shipments. By the summer of 2005, flooring shipments improved. The last few months in this table illustrate a possibility of continued improvement in shipments after a relatively stable shipment schedule over the previous two years.
A correlation between residential housing starts and bd. ft. of domestic flooring shipments is shown in Table 3. While there is a great deal of hardwood flooring used in renovations, new housing starts offer an interesting comparison. Board feet of flooring per start increased from less than 100 bd. ft. in the mid 80s to around 350 bd. ft. or so since the turn of the century. Houses are larger, hardwood flooring has become more popular, and flooring renovations have been common.
Hardwood Flooring — Where Is It Going?
There is good reason to believe that wood flooring will continue to be popular because wood floors are beautiful. No other building material offers the warmth and beauty of wood. Two factors have surfaced over the past several years that have had a significant impact on the flooring market. First, product offerings have changed dramatically. People have a much wider product line for selection. Parquets, prefinished flooring, a wider range of colors and finishes, and a growing variety of wood species, including many imported woods, have greatly enhanced consumer options.
Second, like many forest products markets, flooring is being impacted by imports, particularly the Pacific Rim, South America, and Central America. Table 4 shows the dynamic shifts that took place in our flooring imports between just 2002 and 2004. Like most projections, these numbers are open to various interpretations, but the growth trend is undeniable. Hopefully the study being conducted will shed more light on the flooring market and the impacts of various imports. Total flooring imports almost doubled in this short span. During this two years, domestic flooring shipments were relatively stable. Notice that bd. ft. per housing start dropped from 2002 to 2004 (Table 3). It is reasonable to believe that hardwood flooring popularity has not receded. After all, it had been on a steady climb through 2002. It is likely that imported flooring increases have filled in to satisfy increased demand, instead of domestic flooring picking up all of the increased demand. The demand for hardwood flooring has continued to grow, domestic production is beginning to level off, and imports have expanded greatly. This would certainly be consistent with supply changes in a number of other hardwood lumber markets.
At this time, sources indicated that most solid hardwood unfinished flooring for site finished floors still comes from domestic suppliers. Imported flooring tends to be slanted more toward non-standard sizes, finished flooring, and engineered products that use plywood. Imported flooring includes a wide variety of different species that were not typical for flooring until recent years. These include exotic hardwoods and bamboo. It is safe to say that imported wood products, including flooring, are increasing, and that the overall wood flooring market continues to grow.
What does this mean to the future of U.S. hardwood sawmills and pallet plants? It might mean a leveling of demand for those who service the hardwood flooring industry. If this develops, it is possible that the pallet industry may see some future easing of the pressure that some pallet people have seen from the flooring market. Nobody knows for sure what tomorrow may bring. The flooring study being conducted may shed some light on the dynamic flooring market and what to expect. At this time, it appears that much of the unfinished solid flooring for site installation and finishing is still being supplied by domestic manufacturers. Much of the finished flooring, engineered flooring, and lower end flooring is being imported. The supply of hardwood flooring continues to be tight at this time. But change seems to be in the air for the wood flooring market.
