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Like most other sectors that rely to some degree on residential construction in the United States and Canada, there have been some significant hits. But nonresidential construction is a bright spot for members of the APA.

Jack Merry, APA director of communications, says the recent slump has been tough on producers of structured engineered wood products, who make up the association’s membership in North America.

“Residential construction is far and away the single largest market for structural wood panels and also the largest market for engineered wood framing products, so the current housing market slump is a significant challenge,” Merry says. “The problem is more acute for OSB than for plywood since so much more of OSB production goes to construction. Conversely, plywood manufacturers supply a greater percentage of their production to industrial markets, which remain relatively strong. Those markets include, for example, crates, shipping containers, agricultural bins, pallets, truck trailer linings, shelving, cabinetry, etc.

“The structural wood panel industry’s other major domestic markets — nonresidential construction and remodeling — also have remained relatively strong. As would be expected, with industry capacity now substantially higher than market demand, companies have delayed or indefinitely postponed new mill start-ups, and many mills have temporarily reduced or curtailed production until conditions improve.”

APA is a nonprofit trade association that represents U.S. and Canadian manufacturers of structural engineered wood products, such as plywood, oriented strand board (OSB), glulam timber, wood I-joists and laminated veneer lumber. It has approximately 160 member mills in 22 states and seven provinces. APA’s primary functions are quality auditing and testing, applied research and market support and development. This year is APA’s 75th anniversary

Merry was asked about how the APA is dealing with some other issues.

Wood Digest: In general, what was 2007 like for the engineered wood industry?

Merry: 2007 was a down year for the industry. United States and Canadian structural wood panel production totaled 38.51 billion sq. ft. (3/8 in. basis), down from almost 42.4 billion ft. in 2006 and a record 43.12 billion ft. in 2005. Glulam, wood I-joist and LVL production also declined substantially. These declines are a direct function of the weak housing market.

WD: What’s the outlook for 2008?

Merry: We expect further declines in U.S. housing starts and therefore additional drops in industry production. Our housing starts forecast right now is around 1 million units this year, compared with 1.35 million in 2007 and 2.068 million in the banner year 2005. Industry panel production is forecast to decline this year to 33.84 billion sq. ft., down 12 percent from 2007. Production of engineered wood framing products is also expected to decline.

WD: Has the low dollar helped producers in international markets?

Merry: Yes. The low U.S. dollar has had a positive effect for the U.S. industry in terms both of higher panel exports and lower panel imports. U.S. structural wood panel exports are forecast to total 781 million ft. this year, up from 587 million in 2005. Excluding Canada, U.S. structural wood panel imports, conversely, have declined from 2.65 billion sq. ft. in 2005 to just 770 million ft. last year; so the change in imports is of even greater significance. The situation is reversed in Canada, where the high Canadian dollar has hurt exports.

WD: Is foreign competition a concern?

Merry: Exports have never been a big percentage of market demand for the industry as a whole, although some producers have sought to cultivate and have had success in some export markets. Given the current exchange rates and high transport (fuel) costs, imports are of less concern right now than in the past. What is of concern is the import of panels that do not meet domestic standards, or that in some cases are improperly or even fraudulently labeled, particularly from China. In addition to structural performance (particularly stiffness) and durability (glue bond issues), many of these imports are exhibiting extraordinarily high levels of formaldehyde off-gassing, which is coming under increasing regulation throughout North America, Europe and elsewhere.

WD: Is domestic capacity still rising?

Merry: No, not at present, at least not by much. We’re working on revised capacity figures, but industry capacity has leveled off as a result of the substantially lower market demand. In 2005 at the height of the housing boom, the industry was operating at nearly full capacity, compared with a production to capacity ratio of 89 percent in 2007. The ratio will likely be lower this year, depending on whether and how many additional facilities cease or curtail production because of weak demand.

WD: What about nonresidential construction?

Merry: Yes, nonresidential construction is a major market development emphasis, with an industry-wide, multiyear initiative now underway that is supported in part by the Binational Softwood Lumber Council (which was created under the U.S.-Canada Softwood Lumber Agreement).

WD: Are mills shifting their focus from one material to others, like OSB?

Merry: If you mean mill conversions, no. But there continues to be longer-term industry trends at work, such as increasing production of OSB vs. plywood, and increasing demand for and production of wood I-joists and LVL, for example. Plywood production, interestingly, is expected to remain relatively stable in the foreseeable future after years of decline, due in part to the substantial market share gains that have been made in the industrial markets. Demand for veneer, in addition to plywood, is now also coming increasingly from the LVL sector. There is also expected to be growing production of other structural composite lumber products, such as oriented strand lumber (OSL).

WD: What value-added markets are producers looking at besides nonresidential?

Merry: For plywood producers, their value-added markets are industrial, where they can provide special niche market product features, benefits, etc. Our web site at www.performancepanels.com has more information. Among other products, continued product refinements, such as treatments to resist moisture and mold and fiber reinforced polymer (FRP) glulam beams, continue to be researched and developed.

WD: Has the rising cost of fiber significantly hurt your members?

Merry: As for manufacturer costs, wood fiber supply costs can vary from market to market. The costs of adhesives and transport — since both involve fossil fuel products — are an obvious concern. The industry is substantially consolidated from what it was a few years ago, and the companies now in the business are very good at marshaling technology for improved efficiency. The industry also, of course, like other industries, has to make some difficult cost cutting choices under the present business conditions.