THE PRICE EFFECT OF CANADIAN LUMBER IMPORTS TO THE U.S. -26 REAL PRICES FOR LUMBER IN THE U.S. HAVE DROPPED DRAMATICALLY OVER THE PAST Between 1978 and 1984 (both cyclical lumber peaks) the U.S. lumber industry was able to reduce costs per MBF significantly in real terms in all producing regions. These cost reductions ranged from 3.2%/year in the South, to 5.3%/year in the Inland states to 9.6%/year in the West. However, due to Canadian supply pressure ALL of these cost gains had to be passed through into product price, thereby causing deteriorating profit margins and eliminating any returns on the capital invested to improve efficiencies. This phenomena is readily apparent from the fact that the real price decline during the period exceeded the manufacturing cost reduction in each producing region. For example, real prices dropped in the South by 6.5% between 1978 and 1984, while costs were dropping by 3.2%. The current effect is that the industry experienced a huge loss in 1984, estimated at approximately $300 million, and was forced to take asset writedowns totalling over $600 million. Longer term, continuation of this trend has led and will continue to lead to a deteriorating asset base and discontinuance of investment in plant improvements and efficiency projects. Ironically, this is in spite of superior cost performance in the past on the part of the domestic lumber industry. THE PRICE EFFECT OF CANADIAN LUMBER IMPORTS TO THE U.S. RETURN ON INVESTMENT FOR CAPITAL EXPENDED TO IMPROVE EFFICIENCY AND REDUCE COSTS 1978 to 1984 "Real" Domestic Lumber 1978 to 1984 "Real" Manufacturing are those in which the effects of inflation have been -28 THE CANADIAN MARKET SHARE IN THE U.S. CANADIAN LUMBER HAS CAPTURED OVER HALF OF THE LUMBER MARKET IN 16 STATES, OVER ONE-THIRD OF THE MARKET IN 28, AND HAS GROWN IN MARKET SHARE IN NEARLY TWO-THIRDS OF THE STATES Canadian lumber producers have captured over 1/2 of the market in the entire Northeast, in Minnesota and Michigan and surprisingly in the Southern states of Georgia, Florida and West Virginia. In all, the Canadians have over 1/2 of the market in 16 states. Canadian lumber has over 1/3 of the market in 28 states, adding twelve more between 33 and 50%, mostly in the Midwest, but again surprisingly in the lumber producing states of North and South Carolina in the South and Montana in the Inland area. |