Structural Wood Members, NEC

According to the U.S. Census Bureau, engineered wood member manufacturers operating in the United States shipped $1.797 billion worth of goods in 2008 and U.S. manufacturers of wood trusses shipped $3.5 billion in goods. Sales for both industry segments had grown steadily throughout the late 1990s and early years of the first decade of the twenty-first century, boosted first by U.S. economic prosperity and then by brisk housing starts, the result of historically low interest rates. However, a banking crisis precipitated by wide-ranging poor lending policies led to record high foreclosures and a sudden crash of new housing starts, which dropped from record highs of more than two million in 2005 to a record low of just 566,000 in 2009.

Most of this industry's products are used in new construction, with a fairly even distribution between residential and nonresidential markets. Although both markets declined during the late 2000s, the residential market decline was more significant, making a bigger impact on the overall industry.

The industry faced the same supply constraints as did other wood-working industries. This was largely the result of environmental pressures, particularly the efforts to save the endangered spotted owl in the Pacific Northwest and to save tropical rain forests abroad.

Traditionally, mills in this industry cut joists, beams, and other structural members from large logs, but during the 1990s and the first decade of the 2000s, engineered wood products became increasingly popular. These innovative building materials could be made from small young trees instead of the large old trees where endangered owls lived. Moreover, these new products were often stronger than a product sawed from a single piece of lumber.

One engineered product, laminated veneer lumber, was made by using adhesive, heat, and pressure to glue together numerous layers of high-grade veneer. It was used both for the flanges of I-joists and for the construction of beams. The production of laminated veneer lumber, and a similar product, glulam timber, increased throughout the 1990s and 2000s.

Engineered wood products such as parallel strand lumber and laminated strand lumber were made with strands of wood coated with adhesive and pressed into boards. When oriented strand board (OSB) was introduced during the 1980s, it was often mistaken for an inferior nonstructural panel, but by the late 1990s, the production of OSB was one of the most rapidly expanding segments of the engineered wood products industry. OSB costs less than plywood but met the same structural performance standards. OSB continued to increase its market share throughout the 2000s.

Other engineered wood products included series joists, which were used to support floors or ceilings. Floors made with series joists were less apt to squeak, because they were less prone to warping. Similarly, wooden I-joists were so strong that they competed with steel I-beams in small buildings where building codes allowed the use of wood.

In 1999, the Structural Board Association reported that OSB was the leading structural panel in North America used for residential sheathing. About 20 mills that made OSB had been started during the mid-1990s, and at the turn of the twenty-first century, at least nine firms were planning to either open new OSB mills or increase the capacity of existing operations. The increased production, however, created a temporary oversupply of the product. At the same time, demand decreased because of a financial crisis in Asia. Although prices dropped, the continuing strength of the U.S. housing market supported the industry until prices rose again. OSB was expected to become increasingly popular for use in floors and in commercial and industrial applications. New resins and additives were being tested to increase the durability of OSB, and some types of OSB were being manufactured to resist moisture and intrusion by insects.

Because residential construction accounts for nearly half the market for engineered wood products, this industry is closely tied to U.S. housing starts. As a result, the strong economy of the mid- to late-1990s brought rising revenues. Even when the economy declined in the early years of the 2000s' first decade, housing starts remained strong due to record low interest rates. In fact, housing starts reached a 25-year high of 1.84 million units in 2003, according to the National Association of Home Builders. This trend bolstered many segments of the construction industry, including structural members. Another trend propelling the growth in this industry was the tendency for new houses to be bigger than those built in the early 1990s. The average square footage of a new home in 2002 was 2,230, compared to 2,080 in 1990. Consequently, the value of shipments for wood members, except trusses, grew from $1.32 billion in 1997 to $1.83 billion in 2001. The value of shipments for wood trusses grew from $3.4 billion to $4.2 billion over the same period.

By 2005, nearly 90 percent of North American OSB demand was being used in residential construction and remodeling, with the additional 10 percent shared between the industrial and non-residential industry sectors. Thus, when residential construction plummeted from a high of 2.06 million units in 2005 to 1.48 million units in 2007, so did OSB production and its counterparts. That trend continued into 2008 when housing starts declined 33 percent in August 2008 compared to August 2007, a clear indication of the challenged housing market with the lowest figures in more than 17 years, according to the National Association of Realtors (NAR).

In 2008, both plywood and OSB production reached about 31.66 billion square feet, down 18 percent compared to 2007's production and 26 percent from a record 43.1 billion in 2005, according to The Engineered Wood Association. Based on the continued decline of housing starts and multifamily construction, production was expected to decline another two to three percent the following year. Consequently, the engineered wood framing products, such as glulam timber, wood I-joists, and laminated veneer lumber (LVL) were projected to decline as well. Production of glulam lumber was projected to decline 22 percent to 300 million board feet, wood I-joist production by 30 percent to 675 million linear feet, and laminated veneer lumber (LVL) production by 27 percent to 55 million cubic feet.

Despite the overall dim outlook for the structural members industry sector, the anticipated Housing Recovery Act of 2008 had "the desired effect of stemming 400,000 foreclosures, perking up the credit system and getting more buyers to the market," reported an article published by the North American Retail Hardware Association in September 2008, adding, "there may be 100,000 additional single-family and multi-family housing starts, resulting in almost one billion square feet of additional structural wood panel demand."

Current Conditions

In 2009, this industry was composed of 1,237 firms that employed 32,400 people. According to Dun and Bradstreet, these firms generated sales of $2.24 billion. Despite the influx of funds into the economy from the American Recovery and Reinvestment Act of 2009, new housing starts in 2009 only reached 566,000, which were the lowest they had been since the federal government had begun keeping track of such statistics in 1959. Although the housing industry was expected to recover, recovery was projected to be slow. According to projections by the American Plywood Association in mid-2010, single and multi-family housing starts were expected to increase by a healthy 19 percent during 2010 to 665,000 units in 2010, yet still well below historic annual averages.

The structural panel production showed some signs of improvement during the second and third quarters of 2009 but then fell by nearly 15 percent during the fourth quarter. In all, in 2009, total U.S. structural panel production fell by 21.7 percent to 18.2 billion square feet. OSB production also suffered a poor year in 2009. U.S. production fell by 25.2 percent to 9.60 billion square feet.

In addition to weak demand, certain segments of the industry were under pressure from rising costs. According to a March 2010 report published by TTJ, roof truss manufacturers were feeling the effects of rising timber prices. In particular, the cost of Scandinavian TR26 timber, used to make roof trusses, rose as much as nine percent. When demand is weak, producers have a difficult time passing increased costs onto customers.

Industry Leaders

Weyerhaeuser Company, headquartered in Federal Way, Washington, was a leader in the forestry industry, including engineered wood products. Besides its wood-related products endeavors, Weyerhaeuser owns or manages over six million acres of U.S. forestland and some 15 million acres of Canadian forestland. The company, which had 14,900 employees, reported revenues of $5.53 billion in 2009.

Various large diversified companies also made products in this classification. Georgia-Pacific LLC, based in Atlanta, Georgia, posted 2009 sales of $12.58 billion. International Paper, located in Memphis, Tennessee, had sales of $23.37 billion in 2009. Other companies included Masco Corp. (Taylor, Michigan), which had sales of $7.79 billion in 2009, and Boise Cascade Holdings, L.L.C., which posted revenues of $2.98 billion in 2009