Lumber Prices in USA - North American Timber Market

North American Lumber Market

1-15th March 2006

Trends in the US furniture market
The 2006 outlook of the furniture market in the USA appears positive. This conclusion is based on the economic fundamentals that affect the consumption of durable goods in the country.

Fundamentals of household furniture consumption
The US economy is still performing fairly well. Real GDP grew 4.2% in 2004 and a still healthy 3.6% in 2005. Aktrin predicts that the GDP will grow only 3% in 2006 and 2007. Personal income, which grew 5.9% in 2004 and 5.3% in 2005, could grow in excess of 5% during the next two years. After taking inflation and taxes into account, real disposable income could grow only about 2.5%, close to the expected growth rate of real disposable income. Accordingly, durable good consumption is anticipated to grow only 2.3% in 2006 and 2007. The housing market, which grew 10.3% in 2004 and 7.3% in 2005, is now slightly oversupplied and forecast to grow below 3% in 2006 and 2007. In volume terms, this translates to approximately 1.80 million new housing units in 2006, down from about 2.04 million in 2005.

US household furniture consumption to grow 4.3%
US household furniture consumption was weak during the first three years of this decade, grew 7.9% in 2004 and 3.8% last year. Based on the above economic fundamentals, Aktrin forecast a faster growth rate of 4.3% in 2006, bringing the market value of household furniture to about $82 billion.

Fundamentals of office furniture consumption
Following several years of poor profitability, the US pretax corporate profits advanced by 12.6% in 2004 and 13.4% last year (after-tax profit growth was only half those rates). However, excessive inventories suggest a pre-tax profit growth of about 6.6% in 2006 and only 4.6% in 2007. US Office Furniture Consumption, 2003 to 2007.

Private investment also expanded at a vigorous rate of 9.4% in 2004 and 8.8% in 2005, up from only 1.3% in 2003. Accordingly, with the declining corporate profitability, Aktrin forecast private investment to grow by about 5.9% and it is likely that the declining trend will carry over to 2007. Consequently, investment in machinery and equipment (which includes office
furniture) will probably be only 6-7% in 2006. If interest rates continue to rise and if the US dollar strengthens, the growth of business investments in machinery and equipment will further decline in 2007. With regards to government spending, it is likely to slow down from the recent 2% per year due to the record US budget deficit.

The employment market is not contributing much to the office furniture demand and is likely to remain below the 1.5% mark. Expenditure on non-residential construction (including office space), which was frail during the past few years, is anticipated to grow 2.4% this year and 3.3% in 2007.

US office furniture consumption to grow 4.5%
After showing mixed trends in the first four years of this decade, business outlays for office furniture (evaluated at end-user prices and including recycled furniture) rose 11.4% to an estimated $38.8 billion in 2005. With most of the pent-up demand being satisfied now, Aktrin predict growth to slow to 4.5% in 2006. This would bring this year's market size to a value in excess of $40 billion for the first time.

W. African species dominate US tropical log imports
US imports of tropical log stood at only 1,279 m3 ($662,000) in 2005. This is comparatively small with US imports of tropical lumber which amounted to almost 355,000 m3 ($252 million) in 2004. US tropical log imports have been on a log-term downward trend for several years. Both the volume and value of tropical log imports in 2005 were 30% down from 2000 (1,818 m3 worth $942,000).

US main sourcing region for tropical logs was West
Africa (Ghana and Cameroon), supplying predominantly African mahogany. Ghana alone shipped 22% of the total imported volume (26% of the value). The West African region recorded a significant increase in the volume of its timber exports to the USA during the past 5 years. As prices for African mahogany advanced, the increase in value terms was even more pronounced. Apart from West Africa, Ecuador and Brazil are also suppliers of a small quantity of tropical logs to the USA.

US home boom has peaked
The five-year US housing boom seems to be over, judging from some indicators and the performance of leading builders. In January, sales of single-family homes fell 5% (the fourth decline in 7 months) while the backlog of unsold new homes hit a record. The used home sales slipped 2.8% in January, the fourth consecutive drop.

Builders also reported contractions. Upscale Toll Brothers Inc. reported a 21% decline in signed contracts in the November-January period. KB Home reported more buyers backing out of contracts. The Pending Home Sales Index declined to 116.3, down 1.1% from December and 4.8% from a year ago. However, the new US Fed Chairman, Ben Bernanke, indicated that the US housing would enter a moderate slowdown but not a crash.

Abbreviations

LM Loyale Merchant, a grade of log parcel	Cu.m Cubic Metre
QS Qualite Superieure	Koku 0.278 Cu.m or 120BF
CI Choix Industriel	FFR French Franc
CE Choix Economique	SQ Sawmill Quality
CS Choix Supplimentaire	SSQ Select Sawmill Quality
FOB Free-on-Board	FAS Sawnwood Grade First and
KD Kiln Dry	Second
AD Air Dry	WBP Water and Boil Proof
Boule A Log Sawn Through and Through	MR Moisture Resistant
the boards from one log are bundled	pc per piece
together	ea each
BB/CC Grade B faced and Grade C backed	MBF 1000 Board Feet
Plywood	MDF Medium Density Fibreboard
BF Board Foot	F.CFA CFA Franc
Sq.Ft Square Foot	Price has moved up or down

Source: ITTO' Tropical Timber Market Report