Morice Land and Resource Management Plan

Engineered Wood Products Overview

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Engineered Wood Products

Overview

Engineered wood products (EWPs) are primarily used as substitutes for conventional softwood dimension lumber among structural markets. This would encompass products such as “engineered lumber” (laminated veneer lumber [LVL], structural wood I-Beams, glued laminated timber (glulam), machine stress rated [MSR] lumber, finger jointed lumber), and proprietary products such as parallel strand lumber (Parallam™) and oriented strand lumber (Timberstrand™).

Although not a not a new concept (plywood being one of the earliest product innovations), EWPs have only breached mainstream markets in the last 20 years. Originally designed to replace traditional wood products (panel products for planks, laminated beams for large sections), companies quickly realized they could use EWP in design systems that made better use of available resources while providing products better suited to market demand.
T

hree EWP products dominate worldwide production capacity - LVL, I–beams, and glulams. The production of, and markets for, EWPs are primarily a North American phenomenon. I-beams and LVL are primarily produced and consumed in North America, although Glulam demand in Asia and Europe exceeds North American demand. LVL is used mostly as flange material for I-beams (60%) with the remainder being used primarily in structural beam applications including garage door headers, purlins, supporting beams, and the like. I-beams are used primarily in floor joist and roof rafter applications in North American platform frame construction.

Opportunity Analysis

As of 2001, there were 48 EWP firms operating in the province, mostly small-scale producers of specialty products. According to the Canadian Forest Service, 36 per cent of all wood value-added firms in the Interior are in the EWP category. Almost half of EWP firms were in the low value area of finger-joint lumber. There are another approximately 15 firms, again mostly smaller to medium-size operations, making laminated products. In terms of large-scale operations, there is only one in the province, LP Engineered Wood Products of Golden, the sole manufacturer of LVL. There are no large-scale manufacturers of either I-beams or glulam.

In a 1999 survey of northern^⁸ value-added producers, the Canadian Forest Service found that there had been almost 100 percent growth in the number of EWP manufacturers between 1991 and 1997 (Table 9). EWP products trailed only remanufacturing in terms of number of companies in production. However, based on a review of the latest BC value-added directory of companies, almost all of this production was finger joint and MSR lumber produced by primary mills along Highway 16 between Smithers and Prince George. It is clear that some primary manufacturers are moving up the value chain with a variety of EWP items but in most cases, these are small-scale operations managed as an accessory of the primary mill.^⁹ Average sales for these operations were low (around $335,000 annually), and capacity utilization was low, around 75 percent for EWP producers.^¹⁰
Table 9: Number of Secondary Manufacturers in the North

Business Type	Number of Establishments 1991 Survey	Number of Establishments 1997 Survey
Remanufacturing	13	22
EWP	7	13
Millwork	4	4
Cabinets	2	2
Furniture	1	2
Other Wood Products	2	2
Pallets and Containers	0	1
Panel Products	0	3
Shakes and Shingles	0	4
Total	29	53
Source: Bill Wilson December 1999.

Competitive Analysis

Several studies in recent years have attempted to shed light on the past performance and future outlook of the BC value-added sector. The results have been mixed, although there is some agreement that some competitive advantages could be deployed and turn around the industry’s competitiveness. Some general observations include the following:

Growth rates - A recent study found that eastern Canada, Wisconsin, the US South, Finland, Sweden, Germany, Austria and Japan all have comparatively strong value-added wood products manufacturing sectors. BC was classified as having a low percentage of value-added processing in its wood products sector, with only a moderate rate of growth.^¹¹
Wood costs - There is a strong link between the cost competitiveness of EWP manufacturers and the primary producers on which they rely for their raw material inputs. When analyzed on a global scale, BC’s wood costs appear in the middle of the pack. With wood costs accounting for the largest percentage of a firm’s total costs, it is important to have a low cost source of supply. Table 10 compares wood costs from various competing producer regions, using the BC Interior as the benchmark. The Interior is competitive with the US, New Zealand and Chile, but not Alberta or Ontario.

Table 10: Wood Costs Benchmarked Against BC Interior (BC Interior = 100)

BC Interior	BC Coast	Alberta	Ontario	US Inland	US South	Chile	New Zealand
100	171	81	74	113	113	100	94

Competitive ranking – In spite of its disadvantages compared to Alberta, a recent study did state that BC fared moderately well compared to neighbouring regions when it came to EWP processing (Table 11). One of the advantages from a local perspective is that EWP products are exempt from the punishing CVD/AD actions of the US.

Table 11: Interior Value-added Wood Association 2002 Competitiveness Rankings

Rank	Lumber Remanufacturing		Structural EWP	Structural Systems (Wood Trusses)		Housing Type
Rank	Lumber Remanufacturing		Structural EWP	Structural Systems (Wood Trusses)		Manufactured	Factory Built	Log & Timber Frame
	Without Duty	With 27% Duty		Without Duty	With 27% Duty
1	Idaho	Idaho	Oregon	Arizona	Arizona	Arizona	Colorado	BC
2	Alberta	Colorado	Wash	Colorado	Colorado	California	Arizona	Washington
3	Colorado	Alberta	BC	California	California* BC* Alberta*	Oregon	Alberta	Oregon* Montana*
4	BC	California	Idaho	BC* Alberta*		Colorado	BC	Oregon* Montana*
5	Oregon	Oregon	Alberta	BC* Alberta*		Idaho	California	California
6	California	Wash		Oregon	Oregon	Washington	Oregon	Colorado
7	Wash	BC		Idaho	Idaho	Alberta	Washington	Arizona
8				Wash	Wash	BC	Idaho
9							Montana

Source: Peter Woodbridge & Associates Ltd.

Note: * denotes a tie.

US competition - BC and Interior firms face intense competition from the US EWP firms in the key US market. Table 12 shows the size of the EWP manufacturing sub-sector in the United States and highlights the concentration of total sales amongst the largest firms. The 32 EWP firms are large-scale, capital intensive industries averaging $45 million annually in sales. As seen in Table 13, most of these operations are in the western US, primarily Oregon.

Table 12: US Share of Value of Shipments Accounted for By the Largest Firms in Specific Value-added Wood Sectors (1997)

NAICS	Industry	Companies	Value of Shipments	4 largest Companies	8 largest Companies	20 largest Companies
		(Number)	($ 1000 US)	Percentage of Value of Total Shipments
321213	Engineered wood (excl. truss)	32	$1,431,123	77.1%	86.9%	96.6%

Source: US Census Bureau.

Table 13: Establishment Count and Value of Shipments of Value-added Wood Manufacturing Firms in Washington, Oregon, and California (1997)

NAICS	Industry	Washington		Oregon		California
NAICS	Industry	Est. #	Shipments ($US 1000)	Est. #	Shipments ($US 1000)	Est. #	Shipments ($US 1000)
321213	Engineered wood (ex. truss)	3	$26,810	15	$619,581	2	---

Source: US Census Bureau.

Supply Analysis

The Northwest in general and the Morice region specifically, is well-positioned in terms of raw materials supply for EWP products. As previously stated, there are already numerous companies producing low-value finger-joint products, although there are as yet no large-scale EWP facilities.

The costs shown in Table 14 represent broad averages for the value-added manufacturers involved in Peter Woodbridge’s competitiveness 2001 survey of firms throughout the US West. Wood and labour are the largest cost factors for the EWP sub-sector.
Table 14: Factor Cost Significance – Percentage of Manufacturing Costs (Prior to 27% Tariff)

Cost Components	Lumber Reman	Structural EWP	Structural Systems (Trusses)	Manufactured Homes	Factory Built Homes	Log Homes & T Frame
Wood Costs	63	65	37	20	57	22
Other Materials	63	4	9	40	57	5
Direct Labour	19	18	16	15	14	40
Other Production Costs	19	8	6	15	15	14
G & A & Other Unallocated	10	8	22	13	15	14
Operating Profit	8	5	10	12	14	19
Net Sales Value (FOB)	100	100	100	100	100	100

Source: Peter Woodbridge & Associates Ltd., 2001.
As seen in Table 15, SPF, pine and spruce species are favoured by EWP producers in BC, each of which is available locally and regionally. Input requirements are usually in the form of lumber, also a plentiful commodity in the region.
Table 15: Top Species Utilization by Business Type in the BC Value-added Sector

Business Type	Cedar	Douglas Fir	Spruce	Lodge Pine	Hemlock	SPF	Hardwood
Engineered Wood	4%	9%	16%	25%	7%	37%	2%

Source: Canadian Forest Service. Only dominant use species are listed so total may not add to 100.
The forest stands within the region contain mostly coniferous trees with some deciduous stands at lower elevations. There are more than six million cubic metres of annual allowable cut in the Lakes, Bulkley and Morice TSAs, with significant recent additions to the harvest for mountain pine beetle programs. Species mix is primarily lodgepole pine, spruce and balsam. The further north one goes in the region, the more coastal conditions and balsam predominate. Balsam is not a favoured species for EWP. One species that does favour the production of strength-related EWPs like LVL is Douglas fir, which is not harvested in the Bulkley-Nechako basin.
Most (in the neighbourhood of 80 to 90 percent) of the harvest in the region is processed locally, and could be made available for EWP inputs. Processing facilitates in the TSA include seven large (one idle) and two small sawmills plus a remanufacturing plant.
The Ministry of Forests estimates that there is sufficient regional mill capacity to process a large increase in volume associated with the uplift for the beetle-wood in the Lakes. Local interest has been expressed in processing an additional 330,000 of beetle-killed timber by area value-added manufacturing, dimensional lumber and house-building logs, and area First Nations.