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Many of the key location factors have been touched upon in the previous discussion and are reviewed below:
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Raw material supply – Although the region has ample volumes of timber and lumber, and significant quantities of wood waste, the sourcing of raw materials by prospective EWP producers would be difficult. The region has yet to developed significant value-added production of any size, despite the apparent availability of wood. There are likely several explanations for this, including a lack of very high value species like Douglas fir, and the historic lack of integration and synergy between primary and secondary/value-added producers in the region.
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Wood costs – Wood costs in the region are competitive with some jurisdictions, but not Alberta, where many BC-based companies have established EWP plants in recent years. Delivered wood costs in the Interior make it a medium-cost producer in a world context.
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Scale - Structural EWP production tends to be undertaken by large-scale, global players providing low unit cost, high volume products for export. Facilities are capital intensive, requiring significant technology inputs and skilled personnel. The business model is much more difficult to establish than smaller custom manufacturing enterprises (e.g. log homes, cabinets) and medium-sized batch processing (e.g. reman, RTA furniture).
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Industry investment climate – This is a deterrent to new investment attraction for EWP production particularly in areas like the Northwest where the wood supply is dominated by primary producers. At one time, BC forest companies held leadership positions in many product areas and developed strong technology development capabilities. Ironically, several engineered wood products were developed in BC and gave the industry a strong competitive footing. Trus-Joist MacMillan controlled 40% of the US market for LVL and I-beams before it was bought out by Weyerhaeuser, yet none of its facilities were based in BC. Once prominent capabilities have all but evaporated over the last 10 years as the industry lost its competitive advantages.
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Skilled labour – Skilled labour availability and flexibility are a development constraint. The labour force in the Northwest is highly unionized and highly paid, whereas many value-added facilities in the province have below union wage scales and more flexible work arrangements. On a positive note, unions such as IWA-Canada have now begun to negotiate collective agreements for value-added firms separate from primary producer agreements.
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Cluster Activity - There is no cluster of value-added activity in the Northwest and there are few public sector incentives aimed at generating these. Moreover, there is only moderate interest among primary producers for seeking linkages with prospective EWP producers. BC as a whole has a poor track record of integration and lags other jurisdictions such as Alberta, Quebec and Oregon where synergies are actively pursued. Successful manufacturing firms tend to have a customer-centred focus or at least a strong market focus. There is reasonably good research and institutional support for EWPs in BC, but these are concentrated in the Lower Mainland.
Market Analysis
There are several forces driving demand for EWPs in North America:12
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The dominance of wood frame construction and the changing nature of the softwood fibre supply. North American production has grown rapidly during the 1990s and currently constitutes five percent of North American softwood dimension/structural lumber (sawnwood) consumption. The level of housing starts and the fact that 90 percent of the homes built in North America are wood frame, dominate engineered wood product use in North America. European housing, by contrast, is only 10 percent wood based and 90 percent steel/concrete. In Japan, housing is about 50 percent wood-based and 50 percent steel or steel and concrete. Conversely, the performance properties and good value of EWPs make wood-frame housing attractive.
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The North American population is aging. Builders are now being forced, because of skilled labour shortages, to switch to labour saving materials and construction techniques, many of which involve EWPs. The wood products industry’s strong desire to maintain its key market – residential construction – has stimulated investment in EWP facilities. EWPs will also have a good chance at penetrating non-residential construction markets which are currently using primarily steel and concrete.
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The volume of quality softwood lumber is declining. As “old growth management” increases in the US and harvests turn to 2nd and 3rd growth the sawnwood produced from the smaller diameter trees has more juvenile wood, more knots, diminished strength properties and reduced in-service performance. These factors have helped direct vast volumes of underutilized, fast growing, relatively inexpensive fibre into the EWP industry.
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EWP prices have remained relatively stable over time, a factor favoured by large builders who pre-sell many of their homes.
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Home and house construction utilizing EWPs can extract labour cost savings versus conventional lumber. Fewer pieces of uniform size means less labour is needed for projects. Hence, EWPs are often a better value.
Production
Figure 5 shows that, while EWPs have a very small fraction of major use markets, its share growth is rapid as it gains more acceptance among key construction markets.
A recent US study by the Center for International Trade in Forest Products identified trends in material substitution for softwood lumber in US home construction.13 Between 1994 and 1998, an increasing number of builders were experimenting with substitute materials such as engineered wood products. In flooring, I joists and LVL were taking significant share from softwood lumber, with little threat from steel. In fact, during the study period, the only material that saw significant reduction in material use was softwood lumber. Key product attributes that were influencing substitution were strength, straightness, availability, lack of defects, and price stability. Importantly, most alternative materials were considered to be more environmentally friendly than wood.
Figure 5: US Consumption of Lumber and Direct Substitutes
Source: RE Taylor and Associates
Production, consumption and trade statistics balance each other out as international trade in LVL and I-beams is minimal. The only measurable trade flows are between the United States and Canada. In 1999, approximately two million m3 of I-beams were produced worldwide with 95 percent produced and consumed in North America. I-joists now make up 40 percent of above ground, raised wood floors (excludes ground level concrete floor area) in the United States single family housing market and are expected to grow to as much as 80 percent market share in ten years. The other major end use is for roof trusses, although market penetration to date has been lagging the success in the flooring market. In North America 95 percent of the LVL is from softwood species such as southern yellow pine and Douglas fir because of their good strength to weight ratios.
Market Outlook14
The outlook for EWPs is excellent with much of the impetus coming from the global need for efficient construction techniques, growing environmental concerns, and the universal requirement for affordable shelter. EWPs will continue to evolve and capture market share from maturing conventional building materials.
Rapid technological developments in various production technologies, the trend toward performance-based codes in lieu of the older “product-based” codes, and the continuing decline of quality old-growth softwood lumber will also drive demand.
EWPs are the product of the future as far as wood-based building materials are concerned. This is true whether referring to North America, Europe or Japan. Continuing evolution of all types of EWPs is expected.
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