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Survey
of International Opportunities for
Alaska Softwood Producers
by Ivan Eastin
and Rosemarie Braden
C I N T R A F O R September
2000 Prepared
for the Alaska Department of Community and Economic Development
through
it's membership in the Softwood Export Council and in cooperation
with the USDA Foreign Agricultural Service, Market Access
program. CENTER FOR INTERNATIONAL
TRADE IN FOREST PRODUCTS
UNIVERSITY OF WASHINGTON
COLLEGE OF FOREST RESOURCES
BOX 352100 SEATTLE, WASHINGTON 98195-2100
Executive
Summary
The export segment
of Alaska's forest products industry is characterized by
its supply of high-quality Sitka spruce, western hemlock,
western red cedar, and Alaska (yellow) cedar, all highly
valued in domestic and export markets. The industry, however,
is also characterized by its limited in-state and out of
state transportation infrastructure, low economies of scale
at most processing facilities, and harvest regulations that
threaten the consistent supply of timber.
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Alaska firms have clearly been dependent
upon exporting primary wood products, deriving over $660
million in revenue in 1993, the industry's peak. However,
by 1998 export revenue had dropped below $200 million.
This sharp decline is due to a variety of factors including
the
Asian economic crisis, declining international timber prices,
lower cost competitors, changes in forest harvest regulations
that led to a decline in Alaska's timber harvest, rising
domestic processing costs, and expensive and time consuming
shipping logistics to export markets.
Alaska
producers must confront several challenges in order to
survive and expand their role as a competitor in the
international timber market. An important aspect of succeeding
in an
increasingly
competitive market is product differentiation. Alaska
suppliers must identify what products are in high demand
in which
markets and effectively match their production capabilities
with specific
product/market opportunities. This report describes some
market opportunities for Alaska wood products and evaluates
the ability
of Alaska firms to compete in these product markets.
The markets examined were: 1) Japan, 2) Korea, 3) China,
and
4) Western
Europe.
Japanese Market Market opportunities
exist for Alaska producers in supplying both structural and
non-structural wood products into Japan. The Japanese market
is experiencing a period of transition due to regulatory changes
and new construction technologies. With regard to structural
lumber, the Japanese market is transitioning from a green
lumber market towards kiln dried lumber. Taking advantage
of this transition will require a substantial investment in
kiln drying facilities on the part of Alaska sawmill operators.
In particular, Alaska producers should be able to take advantage
of the preference for Sitka spruce in Hokkaido to supply kiln
dried dimension lumber for the 2x4 market and kiln dried baby
squares for the post and beam market (90mm, 105mm, 120mm,
130mm, and 150mm squares). Two other products that should
be of interest to Alaska sawmillers are non-structural studs
(mabashira) and sill plates (dodai) for post and beam homes.
The precut industry provides an opportunity for Alaska sawmillers
to export kiln dried lamstock to precut component manufacturers. Perhaps the greatest
market opportunity for Alaska softwood lumber exists in the
market for non-structural lumber products. Japanese shoji
manufacturers have a long history of utilizing Alaska Sitka
spruce, western red cedar, and Alaska (yellow) cedar in the
manufacture of a wide variety of products. Clearly there is
already a strong market for logs and waney cants in the shoji
industry. However, the opportunity exists to supply both green
and kiln dried lumber to shoji manufacturers. Shoji manufacturers
have already shifted towards using white spruce in their products,
and they indicated that price is an important consideration. Korean Market
The market for
Sitka spruce logs and lumber is the most promising market
for Alaska suppliers in Korea. Korea imports more Sitka spruce
lumber from the US than any other softwood species. Exports
have been variable during the past eight years that export
data are available, and exports plummeted in 1998 as the Asian
recession slowed production and consumption in Korea. However,
1999 statistics show that Sitka spruce lumber export volume
has doubled since 1998. Since other species cannot rival the
suitablity of Sitka spruce as a superior wood for musical
instruments, and Alaska has the largest supply of Sitka spruce
in the world, Alaska suppliers have a comparative advantage
in the Korean wooden musical industry.
Korea also has
a growing market for dimension lumber for 2x4 construction,
although this market is still small and faces several obstacles
related to 2x4 technology transfer and building codes, which
currently limit the widespread adoption of 2x4 housing. Rather
than focus on Korea for higher processed wood products, such
as lumber, it may be more appropriate for Alaska producers
to focus on maintaining their share of the Korean market for
pulp logs and Sitka spruce logs or non-commodity specialty
wood products, such as wood for musical instrument manufacturing.
Since the price for premium Sitka spruce is higher than the
price for dimension lumber or wood that is used in plywood
manufacturing, the musical instrument makes more sense for
Alaska firms. Western European Market
for Naturally Decay Resistant Alaska Species
While there are
markets in the EU for naturally decay resistant wood products,
Alaska species such as western red cedar and Alaska (yellow)
cedar face five basic obstacles: 1) the niche markets where
they could be used are very small, 2) The end-uses for these
species are dominated by lower cost domestic species, 3) in
high-end niche markets where Alaska species could be used,
tropical species dominate, 4) the cost of transporting products
from the Western US to Europe is high 5) the US dollar has
been strong and exchange rates have fluctuated, making prices
for US products less competitive and stable compared to European
wood products. The markets where naturally decay resistant
species could be used include the decking market in the UK
and the siding market in Denmark, which utilize western red
cedar and lesser amounts of Alaska (yellow) cedar. However,
Alaska species encounter formidable competition from lower
cost European redwood and European whitewood and tropical
hardwoods. The UK decking market is dominated by lower priced
domestic redwood and whitewood, and tropical wood dominates
the high-end decking market.
Another promising
market for western red cedar products may be the US Pacific
Northwest where red cedar is used for exterior decking and
siding. Current estimates indicate that over 6.5 million decks
are constructed on U.S residential structures on an annual
basis at a cost of $1.9 to $3 billion. Slightly over 47.4
of new home decks were found to be constructed with pressure
treated lumber, followed by western red cedar, concrete, and
redwood representing 18.5, 14.1, and 11.1 percent of the market,
respectively (Shook and Eastin 2000). Increasingly strict
harvest regulations about allowable harvest areas in the US
PNW coupled with the increasing demand for western red cedar
decking and siding may present an opportunity for Alaska suppliers.
Harvest volumes in British Columbia are also declining. Finally,
the logistics of servicing a regional as opposed to international
market are numerous. Regional markets are easier to access
because there are no differences in language or consumer preferences,
and they are closer, making shipping, establishing contracts,
and providing after sales service easier. The PNW market is
particularly suited to Alaska western red cedar producers
because products often go through Seattle en-route to international
destinations and therefore the distribution channels have
already been established. |
