Wood Industries

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35-250-XIE

WOOD INDUSTRIES

Gilles Simard

A rapid drop in interest rates, which paved the way for growth in the domestic market, marked 1996. After several gloomy years, Canadians started to spend again in 1996, stimulating the housing construction industry, which had a positive effect on the Canadian Wood Industry.

Canadian wood manufacturers’ shipments increased by 6.5% in 1996 and 9.7% in 1997, following only minimal growth in 1995. This was a better performance than most other industrial groups: the manufacturing sector overall had an increase in shipments of 2.6% in 1996 and 6.6% in 1997.

The good performance of Canadian wood manufacturers was due to rate of growth in housing starts(1) , both in the domestic market and in the United States. In Canada, there was a 9.6% increase in housing starts in 1996 compared to the preceding year. Lower interest rates made their full effect felt in 1997, when housing starts leapt by 20%. In the United States, housing starts progressed at almost the same rate as in Canada, with an increase of 8% in 1996. Contrarily, they increased by only 0.6% in 1997.

Thus, the contribution of the wood sector to total GDP went from 0.9% to 1.0% in 1996. Value of shipments in constant dollars(2) however, increased by 1% to $17.5 billion. Chart1. Value of Shipments, Wood Industries, 1982-1996 shows trends in manufacturing shipments in the Wood Industry since 1982, in current and constant dollars.

However, figures do not appear to be as good for 1998 because of the decline in the Asian economy. Preliminary estimates for the first six months indicate a drop of about 6% compared to the first six months of 1997.

This article briefly describes developments in the industry in 1996 and 1997, and briefly looks at the most recent events in 1998. This analysis gives a picture of production, trade, the regional aspect, and employment in the Wood Industry from results of the 1996 Annual Survey of Manufactures.

Strength of the domestic market combined with the signing of the Canada-USA Agreement on softwood lumber(3) , which came into effect on April 1, 1996, offset Canadian manufacturers’ increasing difficulty in exporting to Japan. This agreement put an end to the dispute between the two countries, making for a more stable context for trade. In addition, the demand for lumber on the American market continued strong in 1996 because of the sustained growth of our neighbours to the south. Value of lumber exports(4) to the United States increased by 24% in 1996.

Value of exports to Japan, however, decreased by 1% in 1996 following phenomenal growth since the beginning of the 90’s. With the slowing of the economies in other South-East Asian countries in 1997, and the Japanese economy sunk in a recession, figures for early 1998 indicate further decline.

The value of total exports by Canadian wood manufacturers increased by 13.8% in 1996. Increases were mainly seen in wood-frame, prefabricated buildings (+43.7%), wooden doors and windows (+38.7%) and wooden kitchen cupboards and bathroom vanities (+33.8%). Total imports of wood products increased by 5.3 %. The Wood Industries make a significant contribution to Canada’s balance of trade. In 1996, trade surplus leaped from $1.9 billion to $15.0 billion, an increase of 14.7% over the preceding year

Total value of exports increased by 7.6% in 1997, while imports increased by 29.1%. Nevertheless, there was an appreciable increase in the balance of trade, established at approximately 16 billion dollars.

There was sustained growth (over 10%) in all provinces in 1996, except for British Columbia, where there was almost no increase (+0.4%). Because British Columbia accounts for close to half of the sector, national growth was limited to 6.5%. British Columbia’s performance was affected by the slowdown in Japan and, to a certain extent, by the lumber Agreement. Exports of Canadian wood to the United States were limited for four provinces under the Agreement (Ontario, Quebec, Alberta and British Columbia), but not for the other provinces

Over the last few years, British Columbia producers have had to pay increasingly higher stumpage fees, which means that BC wood manufacturers have become increasingly less competitive. The BC government has recently dropped fees to stimulate the wood industry, which represents a significant portion of its GDP.

While British Columbia provided 50.5% of Canadian wood shipments in 1993, this share was reduced to 45.5% in 1996 and decreased again in 1997. Quebec and Ontario were the two other heavy producing areas, representing 23.9% and 15.5% respectively, up from 1995. These three provinces ship close to 85% of total shipments. Chart 2. Distribution of Shipments by Region, Wood Industries, 1995 and 1996 shows the regional distribution of shipments.

INDUSTRY GROUPS

The Wood Industry is composed of six sub-groups: Sawmill, Planing Mill and Shingle Mill Products Industries (SIC 251); Veneer and Plywood Industries (SIC 252); Sash, Door and Other Millwork Industries (SIC 254); Wooden Box and Pallet Industry (SIC 256); Coffin and Casket (SIC 258); and Other Wood Industries (SIC 259).

The Wooden Box and Pallet Industry (SIC 256) had the best performance, with shipments increasing by 11.6%, followed by Sash, Door and Other Millwork Industries (SIC 254) with an increase of 11.3%. Contrarily, manufacturers in Other Wood Industries (SIC 259) saw shipments decrease by 5.8%, and Coffin and Casket (SIC 258) by 3.2 %.

The drop in shipments of Other Wood Products manufacturers can be attributed to lower prices for oriented strand-board (OSB). While there is high demand for this product (there seems to be a tendency to replace the traditional plywood in residential construction), there is now an excess of supply over demand because several new plants have started up.

Shipments from Sawmills, Planing Mills and Shingle Mills (SIC 251) increased by 7.7% to $16.6 billion, which represents more than two-thirds of the Wood Industry. Over three-quarters of all production in this sector is exported. Chart 3. Components of Wood Industry by Percentage, by 1996 shows the various components of the Wood Industry.

Canadian wood manufacturers posted more profits in 1996 than in 1995. While shipments increased by 6.5%, costs of raw materials and supplies increased by 3.2%, so that value added on their operations rose to 13.1 % more than in 1995.

In 1996, total cost of raw materials and supplies increased to $14.5 billion, $1.2 billion of which was accounted for by small establishments not accounting detail. The main inputs were logs ($6.3 billion) and softwood lumber ($1.1 billion). These two product groups accounted for more than 70% of all reported input commodities.

The manufacturers in this sector make a broad range of products, the most important of which with regard to value, are softwood lumber ($12.7 billion), woodchips ($2.2 billion), plywood ($893 million), wooden cabinets ($657 million), doors ($482 million) and windows ($369 million). These six groups combined represent over 70% of reported outputs. Softwood lumber alone accounted for more than half of all reported outputs.

Employment increased by approximately 1,600 workers (+1.3%) to 119,800 workers. This was the fifth consecutive annual increase. However, the 1988 peak (approximately 124, 000 workers) has yet to be reached. Production per worker increased by 6.4%, while wages increased by 1.3% compared to 1995.

The Wooden Box and Pallet Industry saw the strongest growth in 1996 (+12.1%), while the Sash, Door and Other Millwork Industries had an increase of +6.5%. Employment in the Sawmill, Planing Mill and Other Millwork Industries decreased by 1.7%.

In 1996, the largest employers were still the Sawmill, Planing Mill and Shingle Mill Products Industries and the Sash, Door and Other Millwork Industries, with 63,500 and 34,800 workers respectively. Together, these two industry groups represented 82.1% of total manufacturing employment in Wood Industries.

In 1996, the Wood Industries spent approximately $1.9 billion on capital and repair expenditures(6) , down 23% from the previous year. This was a break after three consecutive years of substantial increases (over 25%) over the preceding year. Machinery and equipment accounted for more than 85% of the total.

In spite of the obstacles it has faced over the last few years, the Wood Industry has had relatively sustained growth. However, quotas imposed under the Canada-USA agreement, as well as the growing increase in prices for raw materials, has led to development of a number of value-added products. Thus there is increasing use of oriented strand-board (OSB), and what is known as engineered wood, such as floor girders.

References

(1) Cansim, matrix # 80, Housing Starts and Completions, Canada and Cansim, matrix # 2541, Private Housing Starts, USA

(3) Agreement between Canada and USA on softwood lumber. Effective for 5 years from April 1, 1996

(4) Statistics Canada, International Trade Division, Imports and Exports by Industry

(5) Cansim, matrix # 3140, Capacity Utilization Rates in Canadian Manufacturing Industries

(6) Catalogue No. 61-205-XPB, Private and Public Investment in Canada, intentions, 1998

This article was written by Gilles Simard. Gilles is a Statistics Canada economist in the Manufacturing, Construction and Energy Division.

Further information on Canadian manufacturing can be found in the publications Manufacturing Industries of Canada: National and Provincial Areas (Catalogue 31-203-XPB), available annually for $68 per issue in Canada and for $68 U.S. outside Canada, and Products Shipped by Canadian Manufacturers (Catalogue 31-211-XPB), available annually for $67 per issue in Canada and for $67 U.S. outside Canada. Order this publication and other Statistics Canada publications by telephone, dial 1-800-267-6677, by fax: 1-800-889-9734, or by Internet.

For more information about manufacturing data or time-series, call the Disclosure and Dissemination Unit, Manufacturing, Construction and Energy Division at (613) 951-9497 or by Internet: manufact@statcan.gc.ca. For information from International Trade Division telephone 1-800-294-5583 or by Internet:trade@statcan.gc.ca.