Hardwood Veneer and Plywood

SIC 2435

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in producing commercial hardwood veneer and those primarily engaged in manufacturing commercial plywood or prefinished hardwood plywood. This includes non-wood backed or faced veneer and nonwood faced plywood, constructed from veneer produced in the same establishment or from purchased veneer. Establishments primarily engaged in the production of veneer that is used in the same establishment for the manufacture of wood containers, such as fruit and vegetable baskets and wood boxes, are classified in various wood container manufacturing industries.

Industry Snapshot

This industry primarily serves the building, construction, and home improvement industries, which set the pace for its growth or decline. In the late 2000s, the United States began to emerge from a housing slump that struck during the 1990s and early 2000s, fueling a modest recovery in the building products industries. Nevertheless, hardwood veneer and plywood producers continued to face challenges. Imports, particularly from China, severely dampened domestic sales by U.S. manufacturers, who protested both the quality and legality of Chinese products in the U.S. market. Heightened environmental standards also posed a threat to manufacturers, many of whom struggled to comply with regulations while remaining viable in a competitive market. Finally, the increased competition from engineered wood products such as oriented strand board (OSB) cut into the industry's market share in the late 2000s.

Background and Development

According to the U.S. Department of Commerce, nearly half of veneer and plywood output goes to construction, mainly residential. Roughly a quarter of the output is used in other lumber and wood products industries, with the remainder primarily used in furniture and fixtures.

Veneer consists of layers of wood peeled from logs. Plywood can then be made by gluing these veneer sheets together, alternating the direction of the grain for each sheet. Typically, plywood sheets measure 4 feet by 8 feet. Veneer also is glued to lumber, fiberboard, and medium density fiberboard, and is used in the production of oriented strand lumber and other engineered woods.

Plywood manufacturing and its related industries experienced hard times during the 1990s and 2000s. A shortage of lumber increased operating costs, while a general economic decline resulted in numerous plant closings and lost jobs. Many small firms in the Pacific Northwest that were dependent on timber from federal lands were especially affected. According to Forest Industries, 133 sawmills, plywood, and veneer plants, representing 20 percent of the mills in the Pacific Northwest, closed between January 1990 and May 1992. This was an acceleration of a trend that saw 145 mills close in the 1980s. On the other hand, plywood firms with unlimited access to timber, including in the South, and large firms with private sources of timber all profited from the soaring prices of plywood. According to a report by S.G. Warburg & Co. Inc., plywood prices rose 67 percent between 1991 and 1993.

To cope with supply pressures, firms developed new products such as engineered woods. Some observers expected this trend to shift the composition of output in the industry. As predicted, the plywood and veneer hardwood industry lost market share to establishments involved in the manufacture of reconstituted panel products, which included particleboard, medium density fiberboard (MDF), and oriented strand board (OSB), among other products. According to Wood Technology, the number of plywood plants decreased 28 percent between 1987 and 1995, while OSB plants increased 37 percent. Some industry experts predicted that plywood mills would have to produce less plywood and more specialties and veneer for laminated veneer lumber (LVL) in order to remain competitive.

Construction was hard hit by the early 1990s recession and did not rebound as quickly as it had in the past, despite low interest rates. Residential construction did not return to 1989 levels until late 1993, while the overall economy had surpassed 1989 levels by mid-1992. Nonresidential construction continued its recession well into 1993. Both residential and nonresidential construction eventually recovered, with residential construction increasing 8.9 percent in 1996 and nonresidential construction growing 5.4 percent, according to Cahners Building & Construction Market Forecast.

In 2005, one of the biggest challenges facing the industry was locating good hardwood. Many of the popular wood species, such as cherry, were becoming increasingly difficult to find in good quality, according to Bill Altman, president of the Hardwood Plywood and Veneer Association (HPVA).

Environmental Issues.
During the 1990s, logging restrictions on federal lands, coupled with export restrictions on tropical hardwoods, affected the supply of raw materials for the industry. Legislation in the Pacific Northwest was designed to protect the spotted owl. Concerns regarding levels of dust, formaldehyde, and noise in plywood and hardwood veneer production also became an issue. In response, the U.S. industry set voluntary formaldehyde emission standards.

This concern was not limited to U.S. manufacturers. The Dutch adopted strict dust level restrictions of 1.7 parts dust per million parts air (by weight). They set formaldehyde at 0.3 parts per million of air and noise exposure to 90 dbA with hearing protection. The Germans implemented similar limits. The Environmental Protection Agency (EPA) drafted a catalog of indoor air pollutants, including formaldehyde and other volatile organic compounds, that result from the production of plywood, particleboard, medium density fiberboard, oriented strand board, and other engineered wood products.

In the early 1990s, the EPA launched a nationwide investigation of outdoor air pollutants generated by the industry. As a result, Weyerhaeuser Co. paid more than $1.5 million in state fines and agreed to install millions of dollars worth of controls in its plants. Louisiana-Pacific pledged to install $70 million in control devices and paid $11 million in federal fines. However, Georgia-Pacific lobbied to curtail the EPA investigation in order to avoid fines and costly upgrades. Executives at Weyerhaeuser estimated that controls added an additional $1 million a year to plant operating costs.

The plywood industry experimented with several means to reduce these emissions. One was to use other chemicals to bond particleboard, plywood, and other products. Another possible solution was to treat the product with ammonia after it had been glued with traditional compounds. Further complicating efforts to address these environmental concerns, however, was the increasing emphasis on engineered wood production, which required the use of volatile organic compounds.

A decline in new housing construction started in the United States in the 1990s and continued through the mid-2000s. Even though low mortgage rates encouraged buyers, a glut of existing housing slowed construction, along with decreased consumption of building products.

However, the greatest challenge to U.S. manufacturers in the md-2000s was not depressed demand but increased competition from overseas, especially China. Phil Guay, vice-president at Columbia Forest Products, reported in Wood & Wood Products that imports of hardwood plywood by the U.S. nearly doubled between 2002 and 2006 to 4.4 million cubic meters. China's share of those imports jumped five-fold, from 10 percent to 50 percent, during that period, while imports from Indonesia, Malaysia, Vietnam, and Europe remained flat. "Absolutely," said Guay, "we believe imports have done far more damage to our industry than the current housing slump." By the late 2000s, China had become the largest manufacturer and exporter of plywood in the world.

U.S. manufacturers asked the International Trade Commission to investigate the possibility of fraudulent labeling and unfair trade practices committed by China. Their allegations included failure to comply with the same quality and environmental standards that dictate domestic manufacturers; misclassifying products to avoid higher tariffs and to disguise those harvested illegally; and unfairly undercutting competition by selling below cost, a practice subsidized by the Chinese government. Curt Alt, director of the Hardwood, Plywood & Veneer Association, appealed for a level playing field. "We encourage healthy competition with any competitor, as long as that competition is asked to play by the same rules as domestic manufacturers and any advantages are not based on artificial and unfair trade practices," he said in Wood Digest. "

At the same time that domestic manufacturers were struggling to force competitors to comply with existing U.S. environmental standards, they found themselves facing even more rigid regulations on their home turf. In April 2007, the California Air Resources Board (CARB) approved a mandate to lower formaldehyde emission levels on all composite wood products made or sold in that state. Responding to a classification by the International Agency for Research on Cancer of urea formaldehyde, used in the majority of hardwood plywood, as "carcinogenic to humans," the Composite Wood Air Toxic Control Measure called for lower emission levels starting 1 January 2009. Manufacturers pointed out that the levels demanded are lower than those naturally found in all living things, including the human body. They also opposed the increase in costs that would be passed on to consumers, potentially fueling an even sharper decline in demand. As reported in Wood & Wood Products, the Composite Panel Association objected that the rule will add an "annual cost of $2.5 billion on the domestic economy while returning negligible health benefits to the citizens of California."

Current Conditions

In 2009, approximately 373 hardwood veneer and plywood manufacturers operated in the United States, according to Dun and Bradstreet's (D&B) Industry Reports. The industry employed about 22,919 people and brought in revenues of $929.7 million in 2008. D&B reported that North Carolina had the highest number of establishments in the industry, with 48, and Michigan was the number-one state in terms of sales, with $129.7 million. Other top states in terms of revenues were Washington ($122.7 million), Indiana ($95.5 million), California ($95.1 million), and North Carolina ($85.5 million).

Industry Leaders

One of the largest companies that made products in this category as their principal business was SierraPine Limited, a partnership between Sierra Pacific Industries and the Timber Products Co.. Based in Roseville, California, SierraPine specialized in medium-density fiberboard (MDF) and had plant operations in California, Georgia, Oregon, and North Carolina.

Other industry leaders included Ply Gem Industries Inc. (a subsidiary of CI Capital Partners) of Kearney, Missouri; Roseburg Forest Products Co. (Dillard, Oregon), which made a variety of wood products and posted sales of $1.3 billion in 2007; and Columbia Forest Products Inc. (Greensboro, North Carolina), which made hardwood plywood, plywood, and veneer and related products and had 2007 sales of $1.0 billion.

Numerous large, diversified companies also competed in this category, including Georgia-Pacific LLC (Atlanta, Georgia); Boise Cascade Holdings LLC (Boise, Idaho); Temple-Inland Inc. (Austin, Texas); Louisiana-Pacific Corp. (Nashville, Tennessee); and Herman Miller Inc. (Zeeland, Michigan).

Workforce

According to the Bureau of Labor Statistics, 98,700 people were employed by veneer, plywood, and engineered product manufacturers in 2008. About 53 percent of these were production workers earning a median hourly wage of $13.05. The U.S. Equal Employment Opportunity Commission reported that men outnumbered women by a ratio of approximately four to one in the hardwood veneer and plywood manufacturing industry. The ratio of white to minority workers was closer to three to one.

Workers in the plywood manufacturing industry often participate in management or own an interest in the company. For nearly three-quarters of a century, many plywood mills in the Pacific Northwest have been operated by worker cooperatives. The workers own and control these firms. Major decisions are made, policy is developed, and a board of directors is chosen democratically at the quarterly or semiannual meeting of the general membership.

A study of Pacific Northwest plywood cooperatives published in Economic Analysis and Workers' Management noted that proceeds from this type of enterprise are generally distributed according to work performed rather than on an equal basis or by capital stake. Members usually prefer to forgo earnings rather than suffer unemployment. These enterprises tend to use raw materials efficiently and are less capital intensive than conventional mills. Some conventionally owned mills also encourage workers to participate in management. For example, workers sometimes influence a mill's production or the hiring of employees.

According to statistics from the U.S. Department of Labor, the hardwood veneer and plywood manufacturing industry has a high injury and illness rate that is approximately 50 percent higher than for general manufacturing.

Research and Technology

The emphasis in new technology shifted from labor-saving innovation to material-saving innovation. To get more lumber from wood pulp, producers developed engineered wood products such as laminated veneer lumber, particleboard, medium density fiberboard, and oriented strand board. This trend represented a shift out of this industry and into engineered and reconstituted panel products (see SIC 2493: Reconstituted Wood Products). According to the APA-Engineered Wood Association in the late 2000s, "the North American wood products industry [is] becoming the engineered wood products industry." The organization predicted U.S. manufacture of engineered wood products would increase significantly by the middle of the 2010s.

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