Purdue News

March 26, 1993 Experts: Lumber Prices Caused By Limited Supply, Not Just Owls WEST LAFAYETTE, IND. – The recent rocketing of softwood lumber prices – up 70 percent since October – is due more to the anticipated economic recovery in the housing industry than to the spotted owl, Purdue University forestry experts say. Furthermore, they contend, prices for lumber will only increase in the future, which will most likely mean that alternatives to traditional cut lumber – such as composite lumber – will be used more frequently. "It is an error to say that the reason lumber prices have gone up is because of the spotted owl," says Dennis Le Master, head of the Department of Forestry and Natural Resources. "Measures to protect the spotted owl do exacerbate the situation, but they are not the underlying cause of it." Le Master was co-author of a 1992 report on the spotted owl controversy that was presented to Congress. The chief reason for the increased prices, Le Master says, is an increased demand for lumber caused by the expected surge in new housing construction, encouraged by low interest rates. "There is an insufficient volume of timber in the Pacific Northwest to support the current demand," he says. Prices for lumber have reached record high levels this month at the Chicago Board of Trade, rising from $236 for a future contract for 1,000 feet of board in October to a high of $480 per 1,000 feet of board in mid-March. According to the National Association of Home Builders, the increased lumber costs have raised the price of building a new 2,000-square-foot home by as much as much as $5,000. This is enough of an increase to largely offset the savings brought on by the recent lower interest rates in some areas, the association says. The conflict reportedly has resulted in harsh words and finger-pointing from both environmentalists and those in the timber industry, with each side blaming the other for the record-high lumber prices. The conflict between the timber and building industries and environmentalists has reached such a pitch that President Clinton and Vice President Gore will try to broker an end to the controversy at a conference in Portland, Ore., on April 2. A recent Congressional Research Service memorandum stated that although lumber has had a dramatic price increase in the last six months, historically it is not out of line. "It's interesting to note that when you look at prices in real dollars, the prices are less than existed in 1977-79," Le Master says. "In absolute terms the prices are at an all-time high, but in real dollars they're not." According to the Congressional Research Service memorandum, the region affected by the measures designed to protect the spotted owl provides about 10 percent of domestic timber supplies. The memorandum says the measures have resulted in a 5 percent decline in timber production in the region, which has increased lumber prices by about 10 percent, assuming other factors are equal. Other factors, however, also contribute to the higher prices. "Prices typically go up this time of year because the supply of lumber is lower," Le Master says. "Weather is usually a contributing factor in the winter, as are forest fires in the late summer. Both impact the harvest of timber." Another culprit in the price increase, Le Master says, is a 6.51 percent countervailing duty placed on imports of Canadian softwood lumber by Congress in May of 1992. According to the Congressional Research Service, Canada supplies approximately 30 percent of the lumber used in the United States. Michael Carliner, an economist with the National Home Builders Association, says that still yet another factor for the price increase is financial speculation. "I think we've had an overreaction in the price caused by speculative behavior in the market place," he says. If the good news is that environmental protection measures are to blame for only a small portion of the rapid rise in lumber prices, the not-so-good news is that lumber prices aren't expected to come down by any significant amount. "Apart from short-term variation, you'll see over time that the price of softwood lumber will continue to rise," Le Master says. "It is truly a scarce resource in the economic sense. The low prices of the 1980s were an aberration." Carliner says, "Lumber at this point is still competitive in price for home builders, but if it gets any higher, alternative materials will become competitive." Michael Hunt, professor of wood science and director of Purdue's Wood Research Laboratory, says the best alternative to wood is wood, or using composite lumber to replace cut lumber. "Although composite lumber is more expensive than cut lumber – right now, a composite I-joist is about 5 percent more expensive than one made from cut lumber – it is actually cheaper because of lower labor costs." "Composite materials make big things out of little things," Hunt says. "Plywood is an example of composite wood. In the latest generation of composite lumber, engineered-strand lumber, we are making lumber from laminated strips of wood that are twenty-five thousandths of an inch thick" For builders using joists or rafters that are 2-by-8, or -10 inches, Hunt says that composite lumber is the most common option today for those wanting to use wood. "The Southern pine forests are being harvested for economic reasons when the trees are just nine-inch logs," Hunt says. "It would be impossible to get a 2-by-10 out of them, and most people don't try to get a 2-by-8 out of them either. " According to Hunt, composite lumber also offers these advantages over other building materials: • It can be made to match design specifications. "You can't tell God to manufacture a specific piece of wood," Hunt says, "For example, if you need a 14-inch joist 60 feet long – something you can't buy from sawn timber – a composite wood manufacturer can make it for you." Hunt says this is especially important for today's office buildings and homes, because many are being built using an "open" floor plan. • It has a more consistent quality than sawn lumber. "There are quality problems with today's lumber since most of it is from fast-growth trees," Hunt says. "The quality and the species aren't the same as the wood that was used several generations ago. But composite lumber is as high of quality, if not higher quality, as the wood that was used in years past." • Composite lumber has more consistent load-strength values than cut lumber, which is important to engineers and architects. "This is extremely important in today's litigious society," Hunt says. "Many of the phone calls I get aren't about wood research, but from people asking me to be an expert witness in court cases where wood products have failed." • It uses wood more efficiently, since smaller pieces of wood and species not normally harvested can be used. • It has environmental advantages over other types of building materials. "Since composite lumber uses the wood that is harvested more efficiently, fewer trees have to be cut," he says. "Also, some people are looking at plastic or steel studs for building construction, but not only are these materials more expensive to buy, the manufacturing process used to make them uses up much more energy than is needed to produce composite lumber. It takes more than nine times more energy to produce an eight-foot steel 2-by-4 than one made out of composite wood." One drawback to composite lumber is that the glue that holds the wood chips together, phenolic formaldehyde, is made from petroleum products, and therefore isn't environmentally friendly and is affected by the price changes of oil. Hunt is working with Li Fu Chen, associate professor of food science at Purdue, to come up with a new type of adhesive made from lignin, the substance that gives wood its rigidity. Lignin would have the advantage of being much more environmentally safe since it is a naturally occurring poly-phenolic thermoplastic. Lignin is most often found in the paper industry as a waste product. 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