EPA 230/1-74-049
AUGUST 1974
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
THE TIMBER PROCESSING INDUSTRY
PHASE II
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 2O460
\
UJ
O
^
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This document is available in limited quantities through the
U. S. Environmental Protection Agency, Information Center,
Room W-327 Waterside Mall, Washington, D. C. 20460.
The document will subsequently be available through the
National Technical Information Service, Springfield, Virginia
22151.
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EPA 230 1-74-0/j.-)
ECONOMIC ANALYSIS
of
PROPOSED EFFLUENT GUIDELINES
THE TIMBER PROCESSING INDUSTRY
PHASE II
Report to
U.S. Environmental Protection Agency
Office of Planning and Evaluation
Washington, D.C. 20460
August 1974
U.S. Environmental Protection Agency
Region V, Library
230 South Dearborn Street ,x"
Chicago, Illinois 60604
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This report has been reviewed by the Office
of Planning and Evaluation, EPA, and
approved for publication. Approval does not
signify that the contents necessarily reflect
the views and policies of the Environmental
Protection Agency, nor does mention of trade
names or commercial products constitute
endorsement or recommendation for use.
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PREFACE
The attached document is a contractors' study prepared for the Office of Planning and
Evaluation of the Environmental Protection Agency ("EPA"). The purpose of the study is
to analyze the economic impact which could result from the application of alternative
effluent limitation guidelines and standards of performance to be established under Sections
304(b) and 306 of the Federal Water Pollution Control Act. as amended.
The study supplements the technical study ("HPA Development Document") support-
ing the issuance of proposed regulations under Sections 304(b) and 306. The Development
Document surveys existing and potential waste treatment control methods and technology
within particular industrial source categories and supports proposal of certain effluent
limitation guidelines and standards of performance based upon an analysis of the feasibility
of these guidelines and standards in accordance with the requirements of Sections 304(b)
and 306 of the Act. Presented in the Development Document are the investment and
operating costs associated with various alternative control and treatment technologies. The
attached document supplements this analysis by estimating the broader economic effects
which might result from the required application of various control methods and tech-
nologies. This study investigates the effect of alternatee approaches in terms of product
price increases, effects upon employment and the continued viability of affected plants,
effects upon foreign trade and other competitive effects.
The study has been prepared with the supervision and review of the Office of Planning
and Evaluation of EPA. This report was submitted in fulfillment of Task Order No. 17,
Contract 68-01-1541 by Arthur D. Little, Inc. Work was completed as of August 1974.
This report is being released and circulated at approximately the same time as
publication in the Federal Register of a notice of proposed rule making under Sec-
tions 304(b) and 306 of the Act for the subject point source category. The study is not an
official EPA publication. It will be considered along with the information contained in the
Development Document and any comments received by EPA on either document before or
during proposed rule making proceedings necessary to establish final regulations. Prior to
final promulgation of regulations, the accompanying study shall have standing in any EPA
proceeding or court proceeding only to the extent that it represents the views of the
contractor who studied the subject industry. It cannot be cited, referenced, or represented
in any respect in any such proceeding as a statement of EPA's views regarding the subject
industry.
111
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TABLE OF CONTENTS
Page
List of Tables ix
List of Figures xjij
I. EXECUTIVE SUMMARY 1
A. SCOPE OF WORK 1
B. CONCLUSIONS 1
1. Industry Segments 2
2. Financial Profiles 3
3. Pricing 3
4. Methodology 4
5. Costs of Compliance ' 4
6. Economic Impact Analysis 5
7. Limits to the Analysis 10
II. INDUSTRY SEGMENTS 13
A. INSULATION BOARD 13
1. Industry Structure 13
2. Industry Segments 19
3. Types of Firms 19
4. Types of Plants 20
5. Financial Profile 22
6. Pricing 24
B. PLYWOOD AND VENEER 25
1. Industry Structure 25
2. Types of Firms 33
3. Types of Plants 35
4. Financial Profiles * 38
5. Pricing 42
C. SAWMILLS AND PLANING MILLS, GENERAL 44
1. Industry Structure - General 44
2. Softwood Lumber 48
3. Hardwood Lumber 70
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TABLE OF CONTENTS (Continued)
Page
II. INDUSTRY SEGMENTS (Continued)
D. HARDWOOD DIMENSION AND FLOORING MILLS 77
1. Industry Structure 77
2. Types of Firms 81
3. Types of Plants 81
4. Financial Profiles 84
5. Pricing 85
E. SPECIAL PURPOSE SAWMILLS 86
1. Industry Segments 86
2. Shingle Producers 86
3. Cooperage Producers 88
F. PARTICLEBOARD 91
1. Industry Structure 91
2. Types of Firms 96
3. Types of Plants 96
4. Financial Profiles 103
5. Pricing 103
G. MILLWORK 106
1. Industry Structure 106
2. Types of Firms 108
3. Types of Plants 111
4. Financial Profiles 111
5. Pricing 113
H. PREFABRICATED WOOD STRUCTURES 113
1. Industry Structure 113
2. Types of Firms and Plants 114
3. Financial Profiles 115
4. Pricing 115
VI
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TABLE OF CONTENTS (Continued)
Page
III. METHODOLOGY 117
A. SURVEY TECHNIQUES 118
1. Insulation Board 118
2. Hardwood Plywood and Veneer 118
3. Softwood Plywood and Veneer 119
4. Sawmills and Planing Mills — General 119
B. PRICE EFFECTS 121
C. PLANT CLOSURE EFFECTS 122
IV. COSTS OF COMPLIANCE 125
V. ECONOMIC IMPACT ANALYSIS 127
A. INSULATION BOARD 127
1. Costs of Compliance 127
2. Price Effects 128
3. Financial Effects 130
4. Production Effects 131
5. Employment and Regional Effects 131
6. Balance of Payments Effects 131
B. HARDWOOD PLYWOOD AND VENEER 132
1. Costs of Compliance 132
2. Price Effects 134
3. Financial Effects 137
4. Production Effects 140
5. Employment Effects 144
6. Resultant Regional Effects 145
7. Balance of Trade Effects 146
C. SOFTWOOD PLYWOOD AND VENEER 147
1. Costs of Compliance 147
2. Price Effects 149
3. Financial Effects 151
VII
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TABLE OF CONTENTS (Continued)
Page
V. ECONOMIC IMPACT ANALYSIS (Continued)
C. SOFTWOOD PLYWOOD AND VENEER (Continued)
4. Production Effects 152
5. Employment Effects 153
6. Resultant Regional Effects 153
7. Balance of Payments Effects 153
D. SAWMILLS AND PLANING MILLS, GENERAL-SIC 2421 154
1. Costs of Compliance 154
2. Price Effects 161
3. Financial Effects 161
4. Production Effects 167
5. Employment Effects 167
6. Resultant Regional Effects 167
7. Balance of Payments 167
E. OTHER SECTORS 168
1. Hardwood Dimension and Flooring Mills 168
2. Special Product Sawmills 171
3. Particleboard 172
4. Millwork 172
5. Prefabricated Wood Structures 172
VI. LIMITS OF THE ANALYSIS 173
A. DATA LIMITATIONS 173
B. NATURE OF THE INDUSTRIES 174
C. RANGE OF ERROR ESTIMATES 175
APPENDIX A - SOFTWOOD PLYWOOD SURVEY FINDINGS 177
APPENDIX B - INDUSTRY, IMPACT, SUMMARIES 181
Vlll
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LIST OF TABLES
Table No. Page
S-1 Hardwood Plywood and Veneer - Plant Closure and Employ-
ment Effect for Varying Levels of Compliance Costs 7
II.A.1 Insulation Board Shipments, 1967 - 1973 14
II.A.2 Exports of Insulation Board, 1970-1972 15
II.A.3 Apparent Consumption of Insulation Board, 1964-1972 15
II.A.4 Production of Insulating Board 16
II.A.5 Insulation Board Plants in the United States 20
II.A.6 Summary of Insulation Board Plant Characteristics 21
II.A.7 Typical Financial Profile, Insulation Board Plant 22
II.A.8- Investment Profiles of Public Companies 23
II.B.1 New Housing Starts 27
II.B.2 Domestic Production of Softwood Plywood 30
II.B.3 Domestic Production and Imports of Hardwood Plywood 31
II.B.4 Hardwood Plywood and Veneer Production by Product Category 32
II.B.5 Plywood Industry (SIC 2432) Concentration Patterns 34
II.B.6 Plywood Industry Market Shares - 1972 35
II.B.7a Hardwood Plywood and Veneer Manufacturing Industry Structure 37
II.B.7b Size Distribution of Plants - Net Assets Basis 38
II.B.8 Financial ProVile: Softwood Plywood and Veneer Mill 39
II.B.9 Financial Profile: Veneer and Plywood Mill, 1971 40
II.B.10 Financial Profile: Hardwood Veneer Mfg. — Semi and
Specialty Grade 40
II.B.11 Financial Profile: Hardwood Veneer Mfg. — Container Grade 41
II.B.12 Financial Profile: Hardwood Plywood and Veneer Mfg. —
Stock Panels 41
II.B.13 Financial Profile: Hardwood Plywood and Veneer Mfg. —
Semi-Specialty and Specialty Products 42
II.C.1 U.S. Lumber Production 45
II.C.2 Imports and Exports of Lumber, 1965-1972 46
II.C.3 Value of Shipments of SIC 2421: 1971 47
II.C.4 U.S. Lumber Production by Region 1972 vs. 1955 48
II.C.5 1972 Distribution of Shipments — SIC 2421 Sawmills and
Planing Mills, General and SIC 2429 General Purpose Sawmills, Nee. 49
II.C.5A Value of Construction - 1972 53
II.C.6 New Housing in the United States, 1965-1972 54
II.C.7 New Housing Construction by Region - 1972 54
II.C.8 Lumber Used in Manufacturing by Region — 1960 55
II.C.9 Shipments of Lumber by Destination - 1972 56
II.C.10 Shipments of Softwood Lumber by Rail, Truck, and Water - 1972 57
II.C.11 Distribution Channels for Western Sawmills - 1972 57
ix
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LIST OF TABLES (Continued)
Table No. Page
II.C.12 Top Ten U.S. Softwood Lumber Producers - 1972 58
I1.C.13 Number of Establishments by Selected SIC Codes and States - 1971 59
II.C.14 Softwood Lumber Production by Mill Size - 1972 GO
11.C.15 Sources of Timber for Lumber Produced - Western Mills 61
II.C.16 Gross Inventories of Softwood and Hardwood Lumber at Year
End 1965-1972 62
II.C.17 Cost to Produce, Ship and Sell Southern Pine Lumber 63
II.C.18 Estimated Costs for a "Typical" Large Western Mill: 1970 and 1971 65
II.C.19 Corporate Profits After Taxes 66
II.C.20' Capital Expenditures for Sawmills and Planing Mills 67
II.C.21 Indexes of Wholesale Prices of Materials Used in Construction,
by Selected Groups and Commodities (1967 = 100) 68
II.C.22 Index of New Housing in the United States: 1966-1972 70
II.C.23 Hardwood Production by Principal Region and Species, 1972 71
II.C.24 Hardwood Lumber End-Use Markets 72
II.C.25 675 Hardwood Producers by Mill Size, 1972 73
II.C.26 675 U.S. Hardwood Lumber Manufacturers by State 74
II.C.27 Estimated Financial Strength of 104 Hardwood Lumber Producers 75
11.D.I Shipments of SIC 2426 Hardwood Dimension and Flooring Mills
1967 and 1971 77
II.D.2 1972 Distribution of Shipments SIC 2426 Hardwood Dimension
and Flooring Mills . 78
ll.D.3 Trend of Oak Flooring 79
II.D.4 Oak Flooring Shipments by Geographic Region 1971 80
II.D.5 Oak Flooring Manufacturers: Distribution of Production Capacity
and Current Operating Status 81
M.D.6 1972 Distribution of Plants and Employment SIC 2426 Hardwood
Dimension and Flooring 82
II.D.7 Estimated Financial Strength of Oak and Maple Flooring Manu-
facturers Who Also Operate Sawmills 84
11.E.I Distribution of Affected Shingle Mills by Estimated Replacement
Value of Total Plant Assets 88
||.E.2 Distribution of Shingle Mills by Estimated Replacement Value
of Principal Machinery and Total Plant Assets 89
II.E.3 % of 69 Cooperage Producers Making Selected Products 90
II.E.4 Estimated Financial Strength of 69 Cooperage Producers 90
H.F.1 Shipments of Particleboard, 1966-1972 92
II.F.2 Production of Particleboard by Region 1968-1972 92
II.F.3 Production of Partir -board by Type, 1968 & 1972 93
II.F.4 Exports and Import; of Particleboard 94
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LIST OF TABLES (Continued)
Table No. Page
II.F.5 Particleboarcl Plants (Mat Formed) - U.S.A. 97
II.F.6 Announced Additions and Expansions - Particleboard Plants 102
II.F.7 Geographic Distribution of U.S. Particleboard Plants 102
II.F.8 Financial Profile - Particleboard Plant 103
II.F.9 Particleboard Production and Values, 1972 105
II.G.1 Millwork Shipments by Type of Product: 1967 and 1971 106
II.G.2 1972 Distribution of Firms and Employment -- SIC 2431 Millwork
and SIC 2433 Prefabricated Wood Structures 107
II.G.3 1972 Distribution of Shipments - SIC 2431 Millwork 109
II.G.4 Distribution of Millwork Producers by Employment Size 111
II.G.5 Percent of 69 Woodwork Manufacturers Producing Various Products 112
II.G.6 Estimated Financial Strength of 69 Woodwork Manufacturers 112
II.H.1 Shipments of Prefabricated Wood Structures 1967 and 1971 114
II.H.2 Estimated Financial Strength of Producers of Prefabricated
Wood Structures 116
III.A.1 Survey Sample by Type of Mill and Location 120
III.B.1 Prica Increase Analysis Matrix 122
III.C.1 Plant Closure Analysis Matrix 123
IV.1 Potential Incremental Pollution Control Cost 126
V.A.1 Model Plant — Investment and Yearly Costs of Compliance 129
V.A.2 Summary of Economic Impact 129
V.B.1 Hardwood Plywood Mill Costs of Compliance 132
V.B.Ia Plywood and Veneer Log Handling Practices 133
V.B.Ib Price Increase Analysis Matrix 136
V.B.2a Financial Impact Assessment 138
V.B.2b Financial Impact Assessment 139
V.B.3 Plant Shutdown Analysis Matrix 142
V.B.4a Preliminary Plant Closure Analysis Matrix 143
V.B.4b Wet Plant Closure Analysis Matrix 143
V.B.5 Hardwood Plywood and Veneer — Plant Closure and Employment
Effect for Varying Levels of Compliance Costs 144
V.B.6 Potential Regional Employee Displacement Distribution 146
V.C.a Mills Expected to be Affected and Corrective Costs — Softwood
Veneer 150
V.C.I Price Increase Analysis Matrix for Softwood Plywood and Veneer 150
V.C.2 Plant Closure Analysis Matiix Softwood Plywood and Veneer 153
V.D.1 Survey Sample by Type of Mill and Location 155
V.D.2 Log Storage Methods Employed 156
V.D.3 Wet Deck Operations 157
V.D.4 Pond Operations 158
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LIST OF TABLES (Continued)
Table No. Page
V.D.5 Hardwood and Softwood Mills with Multiple Facilities at Site 159
V.D.6 1973 Reported Production 160
V.D.7 Capital Expenditures in 1973 162
V.D.8 Summary of Estimated Water Pollution Control Capital Expenditure
Requirements for Sawmill Industry 162
V.D.9 Financial Impact of Log Storage Regulations on Northwest
Softwood Sawmills 164
V.D.10 Financial Impact of Log Storage Regulations on Other U.S.
Softwood Mills 164
V.D.11 1972 Operating Results for 11 Southern Pine Mills Producing
0 to 10 Million Feet 165
V.D.12 Financial Impact of Log Storage Regulations on U.S. Hardwood
Producers 166
VI.C.1 Range of Error Estimates 175
XII
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LIST OF FIGURES
Figure No. Page
H.B.1 Plywood Distribution Patterns 28
V.B.1 Cost Burden Distribution Flow Chart 135
V.E.1 Plants Affected by Proposed Effluent Guidelines for Log
Handling and Storage — Hardwood Dimension Manufacturers 169
Xlll
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!. EXECUTIVE SUMMARY
This is a summary of the Contractor's final analysis of the economic impact on certain
Timber Products Processing Industry' sectors lo meet proposed 1977 and 1983 Effluent
Guidelines.
A. SCOPE OF WORK
The industry sectors analyzed include:
• Insulation Board (only - SIC-2661)
• Sawmills and Planing Mills, General (SIC-2421)
• Hardwood Dimension and Flooring Mills (SlC-2426)
• Special Product Sawmills (SIC-2429)
• Mill work (SIC-2431)
• Prefabricated Wood Structures (SIC-2433)
• Particleboard (SIC-2492)
In addition, since new proposed Guidelines for wet log handling and storage have been
developed which affect segments of this industry previously studied (Contractor's report to
the EPA of August 1973), the following two sectors were also analyzed to determine the
economic impact of these costs:
• Hardwood Plywood and Veneer (SIC-2435), and
• Softwood Plywood and Veneer (SIC-2436).
All of these sectors were studied to define the structure of the industry and to estimate
the nature and severity of the costs of compliance. Based upon estimated levels of costs, it
was clear that for five of the industry sectors effects of effluent abatement were minimal
and, thus, detailed analysis of economic impact was not warranted. Therefore, only the
following four sectors were analyzed in detail with regard to economic impact:
• Insulation Board
• Hardwood Plywood and Veneer
• Softwood Plywood and Veneer
• Sawmills and Planing Mills — General
B. CONCLUSIONS
It is necessary to consider the Timber Products Processing Industry not as a single
industry but rather as separate, only partially interrelated sectors. The products are gener-
ally noncompetitive; the sectors are in differing states of growth; and, the companies active
in one sector are not necessarily active in another. Thus, each of the sectors requires a
separate analysis of economic impact.
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In general, the costs of compliance as reported in the Development Document are not
overwhelming for these indu.stry sectors. Since those industry sectors do not utili/.e large
amounts of process water, the incremental capital and operating costs necessaiy to meet
abatement Guidelines are not large. However, within specific sectors the effect on opera-
tions can be significant, since certain sectors, such as hardwood plywood and veneer
manufacturing, are the province of the small, independent business which is quite sensitive
to relatively small cost increments. Further, unlike the other sectors, insuhtion board
manufacture does consume large quantities of process water and thus does face relative!.,
large costs of compliance.
Since small operators are so sensitive to modest cost increments, the analysis of
economic impact was performed via a series of iterative analyses to test the effect of
different Guidelines (and their attendant costs) on the most sensitive sectors. These
sensitivity analyses demonstrated the critical points at which minimal effects became plant
closures. Thus, it is important to note that the conclusions presented here are quite specific
to the particular levels of costs incorporated into the analyses.
There will be essentially no impact on total production in any of these industry
sectors. Where companies will close, they will be few in number, and will be smaller firms
with relatively little impact on total industry output. In addition, these industry sectors are
characterized by moderate levels of capacity utilization, e.g., 70-80% of total capacity.
Thus, any production deficiency resulting from plant closures will be offset by the
remaining facilities.
Excepting small price increases by insulation board (0.5-4.0%) and particleboard
(0.157c) manufacturers, prices will not be increased; rather, plants will absorb pollution
abatement costs. However, profit margins will not be significantly affected since costs of
compliance are generally not large.
Unemployment effects will impact mainly on the states of the mid-South and South^_
east. However, the total effect of unemployment will not be large; only two communities
within this region will be affected.
Abatement costs will not affect balance of trade; export trade is minimal. Imports are
significant only in the hardwood veneer and plywood and lumber sector. But, in those
sectors the balance of trade will be affected more significantly by other factors than by
abatement costs.
1. Industry Segments
The objective of segmenting the industry was to group plants into categories which
might be affected differently by effluent control requirements. For these industry sectors,
the costs ot compliance can be directly related to the type of process performed. Each of
the nine industry sectors studied performs different operations and has different effluent
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practices, and thus faces different costs of compliance. Therefore, our analysis focused on
each of the nine sectors as separate segments.
For insulation board manufacture, each of the eight plants was analyzed individually.
For the other eight major sectors segmentation was based on operating characteristics of
plants within subsectors. particularly focusing on those firms of small size with limited
financial capability to meet even modest levels of cost. Representative model plants were
developed for each of the operating subsegments.
2. Financial Profiles
More than 20 financial profiles were developed to represent model plants within the
various major segments. These model plants have widely-ranging characteristics as follows:
• Annual Sales: S100,000-S15MM+
• After Tax Income: S4,500-$1MM
• Net Assets: SI 00.000-S15MM+
• Number of Employees: 20-400+
3. Pricing
Pricing dynamics vary considerably within the various sectors. Basically, however, they
are characterized by nearly commodity product pricing with the marketplace setting price
levels in response to the total industry supply/demand balance.
For insulation board, regional pricing for standard products is practiced. The cost of a
standard product to a given buyer varies by location of supplier, among other factors, since
the supplier pays the end product freight charges. For hardwood plywood and veneer, prices
vary among the subsectors depending on the character of the product as a specialty or a com-
modity item. Commodity type products are priced in the marketplace, whereas specialties have
some degree of price stability and some brand loyalty can be maintained. However, prices of
domestic hardwood plywood products are basically influenced by the cost and availability
of imported product. Millwork products also have a degree of uniqueness to them and can
be value-priced; however, substitute materials such as plastics strongly affect millwork
suppliers' ability to maintain profit margins. Prelaminated wood structures also can be
specialty, differentiated products. Softwood plywood is almost the classic commodity
product in that it is traded on futures markets, and the prices respond very rapidly to total
supply/demand balance and cycle dramatically in response to shifts in that balance.
The remaining products represent sawmill products of varying degrees of specialness.
The products are all in a mature state of growth and significantly influenced by both
imports (primarily from Canada), and significant penetration of substitute products (e.g.,
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wall-to-wall carpeting over plywood replacing hardwood flooring). General purpose sawmill
products (softwood and hardwood) prices vary substantially depending on level of new
construction activity; in contrast, prices of the other special products are more stable.
4. Methodology
To accomplish the economic impact analysis we have developed data on the structure
of these industry sectors and an analytical model to focus on the following two centra!
issues:
• The probability that costs of compliance will be passed on to consumers via
increased end product costs or will be absorbed by operators, resulting in a
lower level of profitability; and
• If costs cannot be passed through, the extent to which the effect on financial
condition and limitations of capital availability will force plant closures, thus
causing unemployment and community effects.
Since there are many small, privately-held firms in this industry for which data is not
generally available on operations or financial position, we had to develop new data on the
various industry segments through a series of surveys of firms within the individual sectors,
plus interviews with industry associations and others knowledgeable of industry practice.
This was supplemented by background and interpretive data which we have accumulated
over time.
The conclusion that prices are likely (or not likely) to be able to be passed on is a
relatively straightforward economic analysis. Table III.B.I presents the price increase
analysis matrix which we used to derive price increase conclusions. However, even if prices
are not likely to be increased and costs are absorbed with relatively well-documented
financial effects, it is more difficult to reach conclusions regarding plant closures. The plant
closure analysis matrix which we used to structure these decisions is presented in Table
III.C.I. This analysis is complicated by the fact that small, family-owned and operated,
one-plant firms which are common in these industry sectors, show remarkable "staying
power" in the face of significant negative financial effects. The extent of subjective
commitment to the business is an extremely difficult factor to measure and assess. Standard
business reasoning, such as effect of abatement costs on key profitability ratios (e.g., return
on net assets, profit margin) can be used to focus on the key issues, but the factors related
to the nature of the small firms in this business were used necessarily as subjective elements
to supplement the objective analysis.
5. Costs of Compliance
Costs of compliance vary dramatically from sector to sector. Insulation board manu-
facture is a wet process, performed in large operations. Capital costs of abatement for
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plants in this sector run to S1.5MM; annual operating costs can lie more than $400,000. In
contrast, the estimated capital required to achieve BPT in the ply\\ood and sawmill sectors
is less than S15.000. and operating costs are less than $5.000. llo\\e\er, since many firms in
these categories are so small, the effects of the cost burden are as significant.
6. Economic Impact Analysis
a. Insulation Board
Although insulation board mills use large quantities of process water, the costs required
to meet effluent Guidelines will not cause a severe dislocation in the industry.
• Price Effects: Implementation of BPT Guidelines will result in price increases
ranging from 0% to 4% for eight (of 18) facilities. This will allow the plants
to maintain present rates of return on net assets. In addition, the equivalent
price increases to meet BAT Guidelines will be implemented and will range
from 1% to 4.5%.
• Financial Effects- Since price increases will be implemented, there will be no
effect on plant profitability. The availability of capital could make one
plant marginal, with a 50% probability of closure.
• Production Effects- The one marginal plant representing about 4% of indus-
try production might close (50% probability) by 1977. However, this loss in
capacity will be almost entirely counterbalanced by the addition of a
planned new facility in 1976.
• Employment Effects: From 0 to 200 workers could be unemployed.
• Regional Effects: The plant likely to close is located in an area of consider-
able forest products activity with reemployment options. Some retraining
will be required, presenting a more difficult situation for older workers, but
little long term unemployment should result.
• Balance of Payment Effects: Zero.
b. Hardwood Plywood and Veneer
This industry sector is typified by small operations, owned and operated by indepen-
dent businessmen. For example, a typical container-grade veneer plant employs 10-20
persons, has a net asset base of SI00-200,000, generates $100-150,000 of annual sales
revenues and an annual cash flow of less than 510,000. The small firms in all four subsectors
of this industry are in tenuous financial positions.
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• }}rii\' Effects: The costs of compliance will not be passed on through
increases in end product prices. Hnd uses are quite competitive, and abate-
ment costs fall unequally on firms within the sectors.
• Financial Effects: Absorption of the costs of compliance will not impact the
financial condition of most of the firms in this sector. However, manu-
facturers of container grade veneer (used in packaging) are in the most
tenuous financial condition and will feel a significantly negative fnrncial
effect.
• Product Effects/Plant Closures/Employment EJjects' Since many firms in
this sector are very small, they are particularly sensitive to small increments
of cost. In general, there is relatively little effect on the industry at levels of
capital .investment up to the SI0-15.000 range. Beyond that level, the effect
becomes severe. Similarly, the balance shifts toward significant impact at a
level of 55,000 incremental annual operating costs. Since the proposed
technologies have costs associated with them close to these balance points,
Table S.I is presented to demonstrate the effect on the industry of varying
levels of compliance costs. As the table demonstrates for the proposed
effluent regulation (Guideline Option II). 2 plant closures will result with 40
persons unemployed. The higher cost Guideline Option III, which was
evaluated during the course of this analysis, would represent a severe impact
on plants in sector (i.e., 20 plant closures, 990 persons unemployed).
However, even in that case, although 22% of the container grade veneer
manufacturers would withdraw from production, the remaining plants could
compensate for the lost production, since the industry is operating at about
75% of capacity.
• Regional Effects' Based on the relatively mature average age of employees,
we would expect that only 30% of the persons unemployed would be able
to find other comparable employment. These plants and the unemployed
persons are located
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TABLE S-l
HARDWOOD PLYWOOD AND VENEER - PLANT CLOSURE AND EMPLOYMENT EFFECT
FOR VARYING LEVELS OF COMPLIANCE COSTS
Guideline Option
I.- Process Changes Only
(Maximum Cost: capital = $5,500
yearly «= $3.0001
II. I + Recirculation from Wet Decks*
(Maximum Cost: capital = $14,100
yearly = $3,870)
III. II + Scieening from Wet Decks and Log Ponds
(Maximum Cost: capital = $24,100
yearly = $3,870)
Sector
V
0
Total
V
0
Total
V
0
Total
No. Plant
Closures
0
_0
0
2
0
2
11
_9
20
No. Employeas
Displaced
0
H
.0
0
40
i
0
40
220
770
990
No. Employees
in Sector
, _
0
4%
0 1%
22%
'*'•/:
24X
V * Commercial Grade Veneer
0 = Other Sectors
'Proposed Guideline
Source: Arthur D. Little, Inc., estimates.
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• Price Effects: Prices in this industry are established as a function of supply
and demand and are not directly impacted by shifts in cost of manufacture.
Thus, prices will not be increased to reflect incremental costs of effluent
abatement,
• Financial Effects: The average cost of compliance is minimal, e.g., incre-
mental annual costs are less than O.I// of annual sales. The industry will not
face a capital availability problem, since compliance can be reached by
expending approximately 1% of annual capital investment.
• Production Effects: There will be no plant closures or reduction in
production.
• . Employment Effects: Zero.
• Regional Effects: Zero.
• Balance of Payment Effects: Zero.
d. Sawmills and Planing Mills, General
Compliance with effluent Guidelines will not impact firms in this industry. The firms
are able to comply with Guidelines for mill operations with no additional capital invest-
ment; the investment necessary to meet the Guidelines for log storage activities is not severe.
• Price Effects: End product prices are highly competitive, and the costs of '
abatement are unequally distributed throughout the industry. Thus, the
industry will not pass on compliance costs through higher end product
prices.
• Financial Impacts: Absorption of costs of compliance will reduce profit-
ability between 2.8% and 8.6%, depending upon the size of the mill and its
operating characteristics. This is not a serious impact. Further, there will not_ ,
be a capital availability problem, since the necessary level of capital
expenditure represents approximately 5% of the annual capital expenditures
the industry will make for productivity improvements.
• Production Effects: Zero.
• Employment Effects: Zero.
• Regional Effects: Zero.
• Balance rf Trade Effects: Hero.
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e. Other Sectors
1. Hardwood Dimension and Flooring Mills
a. Hardwood Flooring
Firms in this sector will have to make effluent abatement investment only if they also
operate sawmills. Further, only those firms also utilizing wet deck log storage will have to
make the maximum investment ($8,600 capital costs; $3,000 annual costs). Only the larger
firms in this industry will have to make this investment. For the firms affected, capital costs
represent less than 2% of total assets; annual operating costs are less than 0.1% of sales
revenues. These firms will be able to make this investment; thus, there will be no impact on
this sector.
b. ftardwood Dimension
Dimension producers are potentially subject to water pollution abatement costs only if
they also operate sawmills employing wet storage techniques or if they engage in extensive
gluing activities.
In each case, only a small number of firms in this sector are likely to be affected and
those affected will either be financially able to bear the burden or have alternate means of
complying.
• Price Effects: Since the costs of compliance are unequally distributed across
the firms in this industry sector, it will not be possible to pass on cost
increases due to effluent abatement.
• Financial Effects: To all but the smallest firms (i.e., those less than 20
employees), the absorption of the costs of compliance is negligible.
• Production Effects: No plants are likely to be forced to close.
• Employment Effects: Zero. ;
• Regional Impacts: Zero.
2. Special Product Sawmills
The key group of manufacturers in this section to focus upon are those companies
producing shakes and shingles. Wlu'le there are many small mills in this sector, the companies
only face the costs of compliance for log handling and storage. Incremental annual costs will
represent 0-15% of annual cash flow and 0-3% of annual sales revenues; incremental capital
costs will be 0-9% of net assets. Thus, the companies will invest, and there will be no impact
on the sector.
-------
The other manufacturers incorporated in this sector, those companies which produce
cooperage stock (the material from which barrels and kegs are produced) do not use wet
storage practices. Thus, there is no effluent pollution problem, no cost of compliance, and
no impact.
3. Particlcboard
Particleboard is manufactured by a dry process and utilizes very little process water.
The product is in high demand, i.e., output should increase at between 10-15f/' per year
through 1980.
The costs of compliance are insignificant. Capital costs of effluent abatement represent
0.49c of the necessary investment to build a new plant of minimum economic size. Further,
total yearly costs represent 0.15% of the average selling price (1972) achieved by the plant
with the lowest unit selling price. Much higher levels of cost could be passed on through
price increases.
There will be no economic impact of effluent abatement in this sector.
4. Alillwork
Operations in the various milhvork subsectors do not include sawmilling, nor do they
include extensive gluing operations requiring water for cleanup. Further, the firms are
relatively large, in good financial position, and generally tied into municipal treatment
plants.
There is no noticeable economic impact in this sector.
5. Prefabricated Wood Structures
Although extensive gluing is encountered in the production of laminated beams, the
manufacturing process is quite capital intensive. Thus, the maximum costs of $2,000 for
capital investment and $480 in total yearly costs, represent insignificant ratios to capital
invested in operations (<19c) and other operating costs (<1%).
There will be no economic impact due to effluent abatement in this sector.
7. Limits to the Analysis
The two key problems limiting the accuracy of the present analysis are based on:
« A limited availability of data; and,
• The nature of the industry.
10
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We conducted representative surveys of the industry to enable us to deal with the data
limitation factor. Since there arc thousands of firms in the industry, many of them not
identified by industry associations. Department of Commerce or other sources, we have
focused on those firms most likely to be impacted. The consistency of our data suggests that
this can be accomplished within a relatively narrow band of error.
The second problem, the nature of the industry, makes it difficult to project plant
closures, as noted in Section I.B.4 above. However, since the costs are modest and even
these small firms can bear the burdens, the difficulty of accurately projecting plant closures
is less important. If new Guidelines would cause increased costs to be borne by companies in
this sector, then this would be a more sensitive issue.
Thus, although data was somewhat limited and the nature of the industry forced us to
use subjective as well as objective analysis, we believe the analysis as presented is accurate
within a fairly narrow band of error (±10%).
11
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II. INDUSTRY SEGMENTS
A. INSULATION BOARD
1. Industry Structure
a. Product Definition1
Insulation board is a form of fiberboard, which in turn is a generic term applied to
sheet materials constnicted from ligno-cellulosic fibers. (The terms "insulation board" and
"fiberboard" are used interchangeably by industry and in this report.) It can perhaps best be
classified on the basis of density, and most broadly as "compressed" and "noncompressed."
Compressed fiberboards (hardboards) have a density over 25 lb/ft3 and noncompressed
fibcrboards (insulation boards) have a density of less than 25 lb/ft3. Insulation boards are
usually manufactured in thicknesses between 3/8 and one inch. On a basis of density,
insulation board may be subdivided into semi-rigid insulation board and rigid insulation
board with densities of 9.5 lb/ft3 and 9.5 to 25 lb/ft3, respectively. Semi-rigid insulation
board is normally used only for insulation purposes while rigid insulation board may be
used for sheathing, interior paneling, and as a base for plaster or siding.
Due to increased demand for insulation board and its varied uses, there are now 10
basic types of insulation board products as cited by the Acoustical and Insulating Materials
Association. The principal types include:
1. Building board - General purpose product for interior construction.
2. Insulating roof deck — A three-in-one component which provides roof deck,
insulation, and finished inside ceiling. (Insulation board sheets are laminated
together with waterproof adhesives.)
3. Roof insulation - Insulation board designed for flat roof decks.
4. Ceiling tile — Insulation board embossed and decorated for interior use. It is
also useful for acoustical qualities.
5. Lay-in-panels — A ceiling tile used for suspended ceilings.
6. Sheathings — Boards used extensively in construction due to its insulative,
bracing strength, and noise control qualities.
1. Product Definition as contained in the Development Document.
13
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7. Sound deadening insulation board - Special product designed explicitly for
use in buildings to control noise level.
The American Society for Testing and Materials sets standard specifications for the
above categories and others.
b. Production and Shipments of Insulation Board
According to the Acoustical and Insulating Materials Association, the principal trade
association representing manufacturers of insulation board in the United States, product
shipments on a 1/2" basis reached an all-time higji of 3.7 billion square feet in 1972.
(Table II.A.I) Shipments data for the past ten years, with an estimate for 1973, indicate
little change throughout the period until 1971. The past three years indicate significant
growth but this impression must be tempered by reference to the levels of housing starts and
general'construction experienced in the United States in the same years. In fact, a closer
examination of the data indicates that the market share of insulation board remained fairly
level through the 1960's but then began to erode in 1968 and now may be stabilizing at the
lower level.
TABLE II.A.1
INSULATION BOARD SHIPMENTS,
1967-1973
(million square feet — 1/2" basis)
1964 2582
1965 • 2642
1966 2456
1967 2454
1968 2715
1969 2682
1970 2634
1971 3222
1972 3707
1973 (estimate) 3500
Source: Acoustical and Insulating Ma-
terials Association.
At an average mill net value of S60 per thousand square feet, 1/2" basis, for all
products, the approximate value of shipments was $220 million in 1972.
Exports of insulation board, mainly to adjacent foreign countries, are shown in
Table II.A.2. Exports represent an insignificant proportion of total production, less than 2%
on a tonnage basis. Imports of insu' tion board are about the same order of magnitude.
14
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TABLE II.A.2
EXPORTS OF INSULATION BOARD,* 1970-1972
1970
1971
1972
OOO's Tons
19.2
24.6
25.8
$ Million
4.6
6.5
6.3
*Made from wood or vegetable fiber and having a density
of less than 31 pounds per cu ft.
Source: Dept. of Commerce Schedule "8".
Apparent consumption of insulation board is shown in Table II.A.3. Measuring con-
sumption on a per new dwelling unit (conventional and mobile home) basis confirms the
sharp drop in market share since new dwelling units together account for more than half of
insulation board demand, with new residential units taking at least 40f/c. (Of the balance,
209f-309r is used in residential remodeling; about 10% in new and remodeled non-residential
construction and the remaining 57c or so in miscellaneous and industrial uses.)
TABLE II.A.3
APPARENT CONSUMPTION OF INSULATION BOARD, 1964-1972
(thousands of tons)
Apparent
Domestic Production Exports Imports Consumption
1964 1215 19 23 1218
1965 1258 16 23 1265
1966 1155 18 24 1161
1967 1176 16 25 1185
1968 1333 17 36 1352
1969 1352 24 34 1362
1970 1219 19 35 1235
1971 1446 25 35 1457
1972 1548 26 35 1558
Consumption
Per New Dwelling
Unit
0.71
0.73
0.82
0.76
0.73
0.71
0.66
0.57
0.53
Source: U.S. Forest Service.
c. Applications
Table II.A.4 displays the production of insulation board by type for the period 1968
to 1972. (It should be pointed out that the totals indicated in this table are higher than
15
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TABLE M.A.4
PRODUCTION OF INSULATING HOARD
(density less than 31 pounds per cu. ft.*)
SIC
Cods
2661111
2661113
2661115
2661121
2661123
2661129
2661131
2661133
2661135
2661136
2661138
2661151
2661153
2661155
2661157
2661159
Structural insulating board, total
Insulating boards for the retail trade or for use
directly in building construction, total
Interior products, total
Building hoard, 7/16 or thicker, mostly
painted or factory finished
Wallboard, under 7/16 thick, except
shinglebacker
Sound-deadening board, nominal 1/2 thick,
natural finish
Tile, except acoustical
Acoustical tile and lay-in panels, acoustical
Other (including plank, trim, moldings, and
other insulating board for retail or for use
directly in interior building construction)
Exterioi products, total
Sheathing board
Shinglebacker
Roof insulation board, preformed above deck
Insulating roof deck /
Insulating fiberboard formboard )
Insulating boards for industrial uses (for further
manufacture, processing, or assembly), total
Insulating siding base
Trailer board
Backer board for siding made of metal
Insulating board for processing into expansion
joint strips
Insulating board for all other industrial uses
such as automobile industry, furniture
industry, etc.
1972
Short
Tons
1,528,534
1,265,721
486,371
162,828
(D)
40,412
196,027
59,942
(D)
779,350
631,489
23,150
122,057
2,654
262,813
(D)
157,081
51,525
22,017
(D)
Thousand
sa. ft.
1/2' basis
3,917,742
3,199,710
1,285,782
397,859
(D)
113,882
530,440
171,780
;D)
1,938,461
1,607,572
62,479
261,482
6,928
718,024
(D)
418,811
1 50,693
61,662
(D)
1971
Short
Tons
1,445,835
1,196,334
470,183
130,909
23,247
36,399
204,807
63,579
1 1 ,242
726,151
559,902
17,168
145,610
3,471
249,501
18,160
161,906
69,435
Thousand
set. ft.
1/2' basis
3,838,953
3,147,684
1,251,552
327,439
57,829
100,683
554,996
177,605
33,000
1,896,132
1,438,930
46,782
401,560
8,860
691,269
47,094
444,061
200,114
1970
Short
Tons
1,218,531
1,004,667
386,830
112,926
28,756
28,555
154,448
50,922
11,223
617,837
436,306
18,004
1 59,943
3,584
213,864
14,947
117,234
81 ,683
Thousand
so. ft.
1/2' basis
3,193,714
2,608,405
1,021,376
282,996
70,492
79,980
413,256
143,173
31 479
1,587,029
1,074,829
47,008
455,786
9,406
585,309
36,396
307,194
241,719
1969
Short
Tons
1,352,314
1,163,875
455,502
152,932
30,040
34,712
158,477
63,480
15,361
708,373
469,770
31,035
202,084
5,484
188,439
7,483
1 18,982
61,974
Thousand
sa. ft.
1/2' basis
3,594,675
3,068,502
1,201,352
367,554
74,933
95,697
436,685
181,315
44,668
1,867,150
1,169,164
78,204
605,629
14,153
526,173
21,821
342,449
161,903
1968
Short
Tons
1,333,305
1,157,218
435,735
132,518
28,990
32,839
153,927
70,942
11,519
721,483
491,872
28,684
193,255
7,672
176,037
7,616
95,804
72,667
Thousand
sq. ft.
1/2" basis
3,476,067
2,996,804
1,135,197
302,653
71,265
89,351
43<~ r;6l
20i,'jJ5
32,972
1,861,607
1,180,347
73,256
591,936
16,068
479,263
22,368
276,463
180,432
•25 pounds per cu. ft. and under represented 78%, 75%, 82%, 84% and 95%, respectively in 1968 to 1972 on a square foot, 1/2 basis.
Source: U.S. Oept. of Commerce Current Industrial Reports "Pulp, Paper, and Board" - M26A (69).
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those shown in Table II.A.I as there is no precise overlap.) This table refers to board
products with a density of 31 pounds per cubic foot or less but the proportion of
production in the density range 25 to 31 pounds per cubic foot i< reducing and amounted to
5','r oi the total in 1972 on a square foot basis.
Interior products account for about 1/3 of the total (on a 1/2" basis) and are mainly
acoustical tile and lay-in panels and factory-finished buildinr: board. Exterior products,
principally sheathing board and roof insulation, represent 50, of the total; the balance
includes mobile home and other industrial boards.
Future shipments of insulation board will show little growth over the remainder of this
decade and will, in fact, lose some of their current volume in r',e -,h ->it term. The short term
loss will be primarily because the product is dependent on t >.e size and growth of the
residential building sector and it is unlikely that housing starts will reach the record level set
in 1972 "before the end of this decade. In the long term, the n arket share that insulation
board will retain must depend on a careful analysis of its relative competitiveness on a
performance and cost basis with alternative materials. In that ^oiitext, insulation board is
threatened both by changing performance requirements and by improved and/or more
economic products which are available, e.g. integral siding, glass fiber acoustic tiles and
gypsum wallboard.
The functional aspects of sheathing are declining in importance and with this decline
fiberboard is losing some of its advantages. Sheathing is a sheet material fastened to the
outside of a frame structure to provide rack resistance, thermal insulation, and extra cover
between the outside and inside of the structure. It is never exposed to the elements or to
sight: the outside is covered with masonry or siding and the inside by insulation and interior
finish. As insulation standards become more stringent, alternative products such as fiberglass
become more practical and economic. Nor is the strength of sh> athing as important as it
once was. More and more codes permit the exterior siding, such as plywood or hardboard,
to provide the required rack resistance. Thus, the builder is abk to reduce the construction
labor component by utilizing one composite product where two had been traditional.
Insulation board fiberboard ceiling' tiles and lay-in panels are being restricted increas-
ingly to residential repair and remodeling uses as flame spread lequirements become more
stringent in the non-residential building sectors. In the cornni -rcial building sector, fiber-
board tiles and panels are restricted to light commercial const Action but even these uses
will be incorporated into code and fire requirements. Residen' ' applications during the
next few years, however, are unlikely to be affected within the .oreseeable future, although
some minor errosion of market share will take place as alternatr •• materials take advantage
of the promotional emphasis on brand name, ease of maintenance, etc.
Fiberboard applications in the mobile home include rumbleboard, bottomboard and
ceiling board. In all three applications, fiberboard is being replaced by other materials or the
application is being eliminated altogether. Rumbleboard, founu only in relatively high-cost
17
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mobile homos, fits between the ceiling and the metal shelf of the unit and serves to reduce
the tin can type rumble from vibrations during high wind and rain storms. Most units that
presently use it are eliminating its use altogether but some substitution is taking place by
paper/polystyrene sandwich panels in order to reduce material costs. Bottomboard, required
by industry standards, fits underneath the joists of the unit to prevent dust, insects, etc.,
from rising off the ground into the home and offers a minor insulation function. Increas-
ingly, however, fiberboard is being replaced either by lower cost materials, such as heavy-
duty paperboard or foam core paper/polystyrene sandwich.
The third application of fiberboard in the mobile homes is as a ceiling panel. Fiber-
board is also threatened in this application because of the potential fire hazards it presents
but, to date, there are no practical, economic alternatives for viable substitutes. It is likely
that the design of the mobile home will change in the immediate future to allow for better
fire detection and protection devices and additional means of egress in order to improve the
fire performance of the home, reducing the immediate pressure to replace fiberboard.
Thus, the fiberboard usage in mobile homes is likely to decrease in market share but,
because the number and size of units manufactured will increase steadily in the foreseeable
future, fiberboard products will experience a modest growth in this application.
Perhaps the largest loss in both market share and absolute volume will occur in roof
deck insulation applications. This type of insulation is usually in the form of a rigid board
applied to the top of the structural deck of flat roof buildings and is then covered with a
built-up asphalt and felt roof. Historically, roof deck insulation has been made of wood
fiber or rigid fiberglass but in recent years fiberglass and perlite board products have
aggressively taken over much of this market while fiberboard has been decreasing rapidly. We
anticipate this trend to continue and possibly even to accelerate as the growing demands for
improved insulation (given added impetus by the energy crisis) allow a growing market
opportunity for plastic roof deck insulation such as urethane and styrene.
On balance, therefore, we expect the trend in insulation board shipments to decline
relative to 1972.
d. Distribution
The products used in new construction are distributed through retail and wholesale
outlets serving the homebuilders a^d non-residential contractors. The principal ouMeis
include the nia/.uiacturers' .vnrriiotMcs a»4 retail building materials (^-Icrships. Sales to
mobile home manufacturers and other industrial v^.;rs, SUch as metal siding manufacturers
>vho use fiberboard as a backer, are on a direct shipments basis much as many OEM
products are. Finally, the repair and remodeling sector, including t\w homeowner and
do-it-yourselfer, is served through the traditional mass merchandise and retail store channels.
18
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2. Industry Segments
The Development Document adopted a unit process approach to segment the timber
processing industries under analysis. The categorizations considered include:
• Process variation.
• Nature of raw materials.
• Plant size and age.
• Nature of water supply.
• Plant location and land availability.
• Water usage.
After considering these factors, the industry was segmented on the basis of the
potential impact produced by the most critical of these subcategories.
With respect to the manufacture of insulation board, the following unit process
segments were isolated.
1. Wet decking of logs.
2. Log storage in ponds.
3. Manufacture of insulation board with no steaming of raw material furnish
and no hardboaid production.
4. Insulation board production which employs steaming or has hardboard
production.
5. Finishing operations which employ water soluble materials.
3. Types of Firms
Thirteen companies operate the 18 production facilities, only one of which is privately
held. The remaining companies are all major diversified corporations, frequently with a
heavy concentration of sales and assets in the forest products industries sector. Conse-
quently, the fiberboard proportion of each company's sales is relatively small, although the
product is important to an individual company since it allows that company to offer a more
complete building materials package to the marketplace and permits the efficient and
profitable utilization of wood wastes.
19
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Based on reported data, the companies having a significant share of industry capacity
are:
Firm
Celotex
Boise Cascade
Armstrong Cork
Weyerhaeuser
United States Gypsum
Temple Industries
Total
Industry Capacity
19
13
12
8
8
7
67%
4. Types' of Plants
Insulation board is manufactured in 18 plants throughout the U.S. with a heavy
concentration in the South. Table II.A.5 lists these plants and Table II.A.6 summarizes their
TABLE II.A.5
INSULATION BOARD PLANTS IN THE UNITED STATES
Company
Abitibi m
Armstrong Cork
Boise Cascade
Celotex
Celotex
Celotex
Celotex
Flintkote
Huebert Fiberboard
Johns-Manville
Kaiser Gypsum
National Gypsum
Simpson Timber
Temple Industries
United States Gypsum
United States Gypsum
United States Gypsum
Weyerhaeuser
Plant Location
Blounstown, Fla.
Macon, Georgia
Internat'l Falls,
Minnesota
Dubuque, Iowa
Marrero, La.
L'Anse, Michigan
Sunbury, Pa.
Meridian, Miss.
Boonville, Mo.
Jarratt, Virginia
St. Helene, Oregon
Mobile, Alabama
Shelton, Washington
Diboll, Texas
Lisbon Falls, Maine
Greenville, Miss.
Pilot Rock, Oregon
Craig, Oklahoma
19721
Capacity
(MMSF-1/2")
110
500
520
130
440
155
175
220
48
180
124
260
100
300
100
90
80
325
Other Products Manufactured
Mineral Board Harclboard
1. Insulation Board only. These insulation board capacities are approximate only as most plants
can convert production to manuf act' 're other products.
Sources: 1973 Directory of the Forest Products Industry and Arthur D. Little, Inc., estimates.
20
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TABLE II.A.6
SUMMARY OF INSULATION BOARD PLANT CHARACTERISTICS
(total plants - 18)
Location
Location Number of Plants
Northeast 2
North Central 4
South 9
West 3
Total 18
Capacity Categories
Capacity Number of Plants
0-199 Tons/Day 7
200-299 4
300-399 4
400 and above 3
Total 18
Process Categories
Process Number of Plants
I — Little or no steaming of furnish; no hardboard 8
II - Extensive steaming of furnish; no hardboard 5
111 — No steaming of furnish; produce hardboard 1
IV - Steam furnish; produce hardboard 4
Total 18
Product Mix
Product Number of Plants
Finished interior fiberboard 14
Structural fiberboard 18
Hardboard 5
Mineral Board 5
Total Not Additive
Age of Equipment
Age Number of Plants
0-9 years 1 •
10-19 years ' 9
20-29 years 6
30 and over 2
Total 18
Employment Level
Number of Employees Number of Plants
0-99 employees 2
100-199 employees 3
200-299 employees 5
300-399 employees , 3.
400 and over '• .,, 5 •, •/• $ ,
Total J • i 18V 'f;
21
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principal characteristics. (A nineteenth producer presently has only a small proportion ofits
total production in wood fiberboard and has indicated its withdrawal from this sector in the
near-term future.)
In addition to manufacturing fiberboard, five of these facilities also produce mineral
board (not covered by this study) and five plants manufacture hardboard. This economic
impact analysis covers those facilities having the capability to manufacture hardboard as
these facilities have the alternative to convert production between fiberboard and hardboard
manufacture. In fact, the insulation board capacities shown in Table II.A.5 are only
approximate as this option of conversion implies that management will respond to market
demand in formulating the product mix. Only one plant — that of United States Gypsum at
Greenville, Mississippi — produces all three products. In terms of process sub-category,
which is important for evaluating the economic impact, 9 plants steam their raw material
furnish.
The average fiberboard capacity for the industry is approximately 310 million square
feet, 1/2" basis, per plant with only four of the 18 facilities larger than this. The average age
of equipment in each facility is generally high compared to most manufacturing industries;
the average for all plants is 19 years, and the newest, Abitibi's, just started up after complete
renovation. However, Weyerhaeuser has announced the construction of a new plant at
Plymouth, North Carolina for start-up in 1976. Its capacity is planned at 260 MMSF, and is
part of an integrated pulp and paper/forest products complex.
5. Financial Profile
The financial profile of a typical insulation board plant, including its production of
mineral board and hardboard, is shown in Table II.A.7.
TABLE II.A.7
TYPICAL FINANCIAL PROFILE,
INSULATION BOARD PLANT
Net Sales 100.0%
Cost of Goods Sold 80.0
GS&A 10.5
90.5
Operating Profit 9.5
Other Charges 0.2
Provision for Income Tax 4.4
Net Income on Sales 4.9%
Return on Net Assets 10.5%
Source: Arthur D. Little, Inc., estimates.
22
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The variation among plants in the industry is:
• Asset-net values vary from S2.0MM to over S15MM, depending on age and
size. (Mean = S7.2MM)
• The returns on net assets range from 2% to over 209f, but average about
10.5% (after tax).
• The cost of goods sold varies from 70% to 87% of net sales.
• Net profits after tax range between 2% and 15% of net sales.
(Mean = 4.9%)
Table II.A.8 shows the recent investment profiles of the public corporations and the
relationship of annual investments (1971 and 1972) to net assets. On average, a company
reinvests approximately 15 cents each year for every dollar of net assets.
TABLE II.A.8
INVESTMENT PROFILES OF PUBLIC COMPANIES
1971 (S Million)
1972 ($ Million)
Abitibi
Armstrong Cork
Boise Cascade
Celotex (Jim Walter)3
Flintkote
Johns Manville
Kaiser
National Gypsum
Temple Industries
United States Gypsum
Weyerhaeuser
TOTAL
Investment1 Net Assets2 %4 Investment1 Net Assets2 %4
10.9
38.5
115.6
18.7
29.6
51.9
8.5
11.4
6.6
27.4
319.5
638.6
225.6
300.1
588.5
293.2
209.0
306.1
114.5
206.7
45.8
339.1
1056.9
4.8
12.8
19.6
6.4
14.2
17.0
7.4
5.5
14.4
8.1
30.2
9.5
40.6
53.6
61.0
39.1
74.4
10.2
14.3
9.5
33.4
193.2
230.4
290.4
460.1
352.6
212.7
377.0
115.8
202.3
50.5
346.4
1134.7
4.1
14.0.
11.7
17.3
18.4
19.7
8.8
7.1
18.8
9.6
17.0
3685.5
17.3
538.8
3772.9
14.3
1. Land, plant, equipment, buildings, etc., but not including timberlands.
2. With allowances for accumulated depreciation.
3. Fiscal years ending August 31, 1972 and 1973.
4. Annual Investment -r Net Assets
Source: Company Annual Reports.
Assigning alphabet letters to specific plants in the industry, the following is the
dispersal of the 18 plants in terms of net assets per employee:
23
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Less than SI5.000 - A, B, P
SI 5-20.000 D, F, II
$20-30,000 - C. H, K. S
S30-40.000 - G,J,L,M
Not available - N. Q, R, T
Net assets per dollar of sales revenues ranges from 0.3 to 1.0 for those plants which
made data available.
6. Pricing
Fiberboard product prices are quoted on a dollars per thousand square feet basis f.o.b.
the shipping point with full freight allowed to the destination. Dealer prices for a 1/2" 4' x 8'
insulatirlg board on a carload basis will range from $56 per MSF to S82 for the more
expensive building board. A typical price for 1/2" asphalt-coated insulating sheathing is
$60; ceiling tiles will vary greatly in price depending on the acoustical and aesthetic
treatment but range from SI00 to S200 per MSF. On a full netback basis, after allowing
for freight and discounts, finished board prices averages S100/MSF and structural,
S50/MSF. Prices for products being marketed to the industrial and mobile home sectors
(OEM sectors) will be negotiated directly with the customer. While prices have increased
relative to 1967, the rate of increase has been in line with the movement of the all
commodities price index.
Direct price comparisons with competing materials is difficult to make. Historically,
fiberboard has been more economic for certain defined performance requirements but now,
in the midst of a changing situation, the insulating and structural functions fiberboard has
provided traditionally are being offered more efficiently by other products (for example,
glass fiber insulation in residential construction) or is being eliminated altogether (as in
mobile home applications). Therefore, while it is still an economic product, fiberboard is
losing its market position on the basis of performance value.
24
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B. PLYWOOD AND VENEER
Plants incorporated into SIC 2435-hardwood and SIC 2436-softwood include plants
manufacturing plywood and veneer, or just plywood or veneer, of interior and/or exterior
grades, and of softwood or hardwood species.
The description of the plywood and veneer industry sector in this section considers
both hardwood and softwood products and markets. One objective of this analysis is to
demonstrate the distinctness of hardwood and softwood plywood, by contrasting the two
sectors. In recognition of this distinctness, these two sectors are analyzed separately in the
economic impact analysis sections (Section V.B. Hardwood and Section V.C. Softwood).
This is an industry of many small operations, most of them owned and operated by
family interests. Department of Commerce information is sketchy, and data generally
available on the industry' concentrates on the operations of large manufacturers. Our first
analysis in this area (August 1973) demonstrated that the impact was most likely to fall on
smaller operations.
Thus, it was necessary to develop new background information through surveys of the
industry distributed and collected for us by the Hardwood Plywood Manufacturers Associa-
tion and the American Plywood Association. The data from the surveys represents, accord-
ing to industry sources, the most comprehensive body of data available on the industry.
1. Industry Structure
a. Products
Hardwood and softwood products are basically non-substitutable. Hardwood is used
primarily in decorative applications, while softwood is used in structural applications.
Hardwood plywood is used for interior grade products. The product is considered a
hardwood plywood product as long as it has a hardwood veneer (surface); however, the core
can be either hardwood or a softwood laminate or lumber or particleboard. Hardwood
plywood is finished to different degrees depending upon its end use. Sanded and stained
hardwood plywood can be used as tongue and groove flooring or can be made into interior
wall paneling, and moldings. These are relatively high-quality uses. Hardwood veneer and
finished hardwood plywood is used in moderate-high quality furniture. Lower grades of
hardwood plywood are used in industrial applications, for container and packaging
products.
Softwood plywood is manufactured in both interior and exterior grades, the primary
differentiation being the composition of the adhesives used to bind the laminates and, to
some extent, finishing techniques, both of which serve to increase moisture resistance
levels. Interior grades are used for such products as flooring underlayment, sub-flooring and
paneling. Exterior grades are used for siding, sheathing, and roof decking.
25
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b. Markets
Markets for hardwood plywood products are furniture, interior wall paneling, other
decorative applications, and flooring. These markets utili/e the liaulwood p!v\\ood pii-
marily as a decorative material. In most cases, hardwood plywood is a well-established
product in these markets, having gained access to the markets via substitution for solid
wood products many years ago. The substitution effect is nearly complete. Thus, the growth
of hardwood plywood consumption will parallel or be slightly less than the overall market
growth within these sectors.
The hardwood plywood markets are less subject to wide cyclical economic swings and
represent a broader base of industries than is the case for softwood plywood. This broader
base makes the demand for hardwood plywood more stable (less subject to the
substantial year-to-year variations that affect softwood plywood).
«
Softwood plywood markets can be defined as follows:
• Residential construction: 52% - sheathing, siding, underlayment;
• General construction: 14% — concrete footing;
• Industrial uses: 20% — shipping containers, packaging uses;
• Agricultural and other: 14% — furniture, boats, paneling.
Perhaps 10% out of the 14% in the agricultural and other category is for products frequently
purchased by a consumer and utilized for residential repairs and remodeling uses. Thus, the
residential construction uses account for, in total, more than 60% of total uses, and total
construction uses account for about three-quarters of the total consumption.
Agricultural, industrial and non-construction markets normally do not fluctuate widely
on a year-to-year or on a seasonal basis. Residential repair and remodeling activity also tends
to be relatively stable, although less so than the previous categories. However, new residen-
tial construction is an extremely volatile industry in the United States. With its substantial
dependence on construction activity, softwood plywood demand, and prices, are heavily
exposed to the vagaries of wide demand swings. Table II.B.I demonstrates graphically this
volatility. For example, new housing starts dropped by more than 20% in 1966 vs. 1965,
and rose by more than 40% in 1971 vs. 1970, and another 14% in 1972 vs. 1971.
26
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TABLE II.B.1
Nl:'W HOUSING STARTS
Year Starts Change
(1.000) (%)
I960 1,300
1961 1,360 + 5.3
1962 1,500 + 9.3
1963 1,640 +10.0
1S64 1,560 - 4.9
1965 1,510 - 3.3
1966 1,200 -20.8
1967 1,320 +10.5
1968 1,540 +16.9
1969 1,500 - 2.9
1970 1,470 - 2.2
1971 2,080 +42.1
1972 2,400 +14.2
Source: U.S. Department of Commerce
c. Marketing
Softwood plywood is basically a commodity product. With the exception of redwood
plywood, which has particular attributes such as workability, weather resistance, and
appearance, the softwood plywood species are largely interchangeable products. Hie major
product categories relate to the type of adhesive used (designed for interior or exterior
conditions), the finish of the sheet (rough for construction and indusirial use, smooth for
interior, cabinetry and finish work), and the appearance of the face (such as the lumber and
size of knots and cracks, and the thickness of the sheets). The products are giaded at the
mill by the producer. Independent inspectors visit mills on a spot basis to ensure that
grading standards are maintained.
A demonstration of the commodity nature of plywood is the recent acceptance of
trading in plywood futures . mtracts on the Chicago Commodities Exchange. Other forest
products commodities, such as pulp, are also traded on the Exchange. Specialty products,
such as special; papers and pre-finished plywood panels, are not traded as futures.
Fi::ure II.B.I depicts plywood distribution channels. A captive warehou:e is a ware*
house owned by the producing mill. Georgia-Pacific, Champion International (U.S. Ply-
wood), and Weyerhaeuser are examples of three firms which own captive warehouses. An
independent warehouse refers to a wholesaler which is an independently-* wned firm,
performing the same activities as a captive warehouse, but handling a i umber of producers'
products. An office wholesaler is generally a small, independently-owned firm which
operates as a midd;eman between the mill and retailers or other lar;e end users, such as
contractors. An office wholesaler maintains no inventory, and serves to facilitate the match
between user and mill. Even more than the other sectors, an office wholesaler sells relatively
large unit volumes at relatively low margins.
27
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Producing Mill
Wholesale
Level
Retail
Level
Captive
Warehouse
Independment
Warehouse
Retailer
End User
Builder
Consumer
etc.
Office
Wholesaler
Source: American Plywood Association
FIGURE II.B.1 PLYWOOD DISTRIBUTION PATTERNS
The distribution pattern is in practice considerably more complicated than that
depicted in Figure II.B.l. For example, some retailers have joined together to form coopera-
tives which are then able to buy in carload quantities at volume discounts from the
producing mill. In such cases, the mill will ship directly to the cooperative and/or its
individual members, bypassing the captive warehouse entirely. Similarly, large contractors,
either acting in concert or independently, can also buy directly from the producing mill.
Our latest data indicates the following importance of the three primary wholesale
members in the distribution chain:
• Captive: 45-50% of total shipments
• Independents: 20%
• Office: 15%
28
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Approximately 15-209r of the total value of shipments went directly from the producing
mill to the retailer and end use'-. The pritnar\ trend which is developing in terms of
distribution patterns is the increasing impoitaiKe of captive warehouses, the lessening cf
importance of oft'iee wholesalers, and the increasing capability of the producing mil! to
service the retailer or end user directly.
d. Substitute Products
In a genera! sense, the following sort of subs? i tut ion chain applies: ph wood substitutes
for lumber, and composition wood products (particleboard. hardboard, and softbcxmi)
replace plywood. H^weve., the residential construction industry is particularly traditional in
its use of materials and adopts substitutes only gradually. More specifically, hardwood
plyv. ood used in furniture faces competition from solid wood in high-quality markets, from
plastics and plastic laminates in low-moderate qu ihty markets, and from composition board
;• ,' hicts with a hardwood or printed veneer. In other decorative uses, hardwood plywood
..es generally the same competitive rrix.
In all uses hardwood plywood, domestically produced, faces its real competition from
relatively low-cost imports. While total hardwood consumption has risen considerably
during the period of the last 20 years, domestic production has remained relatively constant.
Imports have absorbed the major portion of the increase.
Softwood plywood does not face the same import subititution threat. However,
softv\ood plywood used in siding faces substantial competition from plastics (vinyls and
vinyl-clad products), aluminum, steel and liardboard and solid wood (clapboard) siding, the
product plyv ;od has replaced. In sheathing applications, softwood plywood can be sub-
stituted by softboard (insulation-board), gypsum beard; in certain areas of the country
sheathing is being eliminated entirely. Softwood plywood faces relatively little competition in
general construction markets where it is used as concrete footing and should not in the near
mture, barring a major change in building technology. In industrial applications, which
include shipping and pnckaing containers, the competition is plastics and solid wood
products, on purely pi ,,e-uasej factors.
e r oduction
Softwood plywood production is outlined in Table II.B.2. As this table indicates,
softwood plywood production over the period 1958-1972 has risen by 190%. or a 9%
annual rate of growth. Where data was available, a percent utilization ratio was indicated.
The comparison of operating rates to year-end prices is a further description of the
commodity nature of these products. For example, an 84% operating rate in 1970 relates to
a S57/MSF price for standard, exterior wade Douglas Fir plywood, 3/8" basis. The same
product sold for SI 02 in 1968 at a 95% operating rate, and at SI05 at a 100% operating rate
in! 972. By February/March of 1973, the same product sold in the range of S145-S155, and
the industry's operating rate was well in excess of rated capacity.
29
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TABLE II.B.2
DOMESTIC PRODUCTION OF SOFTWOOD PLYWOOD
Year
Domestic % End
Production Total Price
Year (MMSF-3/8") Capacity (S/MSF)
1958 6,340 83
1965 11,680
1966 13,140 - 49
1967 12,960 80 60
1968 14,810 95 102
1969 14,205 88 60
1970 14,960 84 57
1971 16,408 98 80
1972 18,303 100 105
per cent change + 190% = + 9%/yr.
1. Based on Standard Douglas Fir, Exterior Grade Plywood, 3/8" basis.
Source: American Plywood Association; Crow's Plywood Guide, 1973.
The softwood veneer industry is concentrated in the states of California, Oregon, and
Washington. Technically it is necessary to distinguish between mills which produce only
veneer for sale or use elsewhere and mills which also make plywood at the site. The latter type
of producer is covered under our analysis of softwood plywood mills.
The 1972 Preliminary Report of the Census of Manufactures indicates that shipments
of veneer that year equalled 5.2 billion square feet (3/8" basis) with a value of $303.1
million. This is an average value of S58.64 per thousand square feet.
Estimates of the total number of mills producing veneer only vary widely. The Census
data reports a total of 227 establishments operating in the softwood plywood and veneer
industry and we are aware of 192 firms which produced softwood plywood. This leaves
(apparently) 35 firms which produced veneer only. However,one knowledgeable trade
source has identified 38 mills producing veneer only (in 1973) while another source believes
there may be as many as 70 such producers. In the absence of any better data we use the
estimate of 38 producers as the best approximation of industry size.
During 1972 the 38 known producers are estimated to have produced 2.8 billion
square feet (3/8" basis) of veneer as follows:
30
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Product £ Producers Output
Green Veneer Only 30 mills 2.133.2 million fi.
Dry Veneer 8 mills 6S5 0 million ft.
38 mills 2,818.2 million ft.
Value of all mills output = SI 65.3 million (2,818.2 million ft. x S48.64/thousand)
Average output per mill = 74.6 million feet
Value of output of average mill = (74.6 million ft. x S58.64/thousand) = S43 million
The balance of the softwood veneer shipped by the softwood plywood and veneer
industry (2.4 billion feet) is believed to have been shipped by plywood mills which were
"balancing out" their veneer supplies and inventories to meet production needs. In effect
these mills were "trading" veneer within the industry since many bought as well as sold in
ord r to meet their needs.
All of the 38 softwood veneer mills identified are located in the Northwest and for the
purpose of analyzing efficient discharge, their operating characteristics and conditions faced
are identical to those of Northwest softwood plywood mills except no glueing takes place.
Domestic production of hardwood plywood, as depicted in Table II.B.3 has not
increased dramatically in the past 20 years. Domestic production has increased by 60% in
the 20-year period 1951-1971, a 2.5%/year annual rate. However, total consumption of
hardwood plywood has risen substantially, by 360% in the same p *nod, a 6-1/2% per year
annual rate of growth. Imports, rising from 49 million square feet in 1951 to 2.6 billion
square feet in 1971, have accounted for the major portion of the increase.
TABLE II.B.3
DOMESTIC PRODUCTION AND IMPORTS OF
HARDWOOD PLYWOOD
Domestic Net
Production Imports
Year (MMSF-3/8") (MMSF-3/8")
1951 1,197 49
1955 1,355 442
1960 1,102 715
1965 2,049 1,047
1966 2,076 1,254
1967 1.916 1,244
1968 2,009 1,896
1969 1,869 2,107
1970 1,758 2,047
1971 1,930 2,545
per cent change + 60% 51-71: +5,200%
65-71: + 240%
Source: U.S. Department of Commerce.
31
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Table II.B.4 depicts hardwood plywood and veneer production by product category.
The basic data for the table comes from two sources, namely, the 1IPMA survey and
supplementary data from the Department of Commerce. This table segments the industry
into four sectors. The two major categories are veneer manufacturing and hardwood
plywood and veneer manufacturing. Each of these major categories is then divided into two
subcategories, each based on the fact that firms in these categories produce either specialty/
semi-specialty products or standard/lower value-added products.
For Sectors I & II Veneer, the commercial grade products are sometimes referred to as
"fancy face" veneers and are used in high-quality applications, such as furniture top and side
panels. Container grade veneer is of lower quality, and is used for packaging application
where appearance is not paramount.
In Sectors III & IV, the semi-specialty and specialty grade products are higher
value-added products, requiring more hand labor, sold in varying sizes and shapes, including
curved shapes, and are generally finished or semi-finished products. Stock panels are those
products generally produced in a relatively standard range of sizes, with little or no final
finishing.
TABLE II.B.4
HARDWOOD PLYWOOD AND VENEER PRODUCTION BY
PRODUCT CATEGORY
Estimated Production - 1972
Category SxlO6 ft4 x106
I. Commercial Grade Veneer 145 4,175
II. Container Grade Veneer 10 420
155 4,595
III. "Stock" Plywood Panels 260 1,760
IV. Specialty Plywood Products 115 440
$375 2.200
Total $530 not additive
Sources: Department of Commerce, HPMA Survey, Arthur D. Little, Inc.,
estimates.
Distinctions between manufacturers of commercial or container grade veneer are
straightforward in terms of product mix, and in terms of economic factors. For the
manufacture of plywood there is more of a gray area where the product line from stock
panel producers overlaps with the product line of semi- and specialty-grade products.
However, in spite of this overlap, the industry segments do describe basic operations within
the industry and do yield an analytical framework appropriate to assess impact.
32
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f. Future Demand
Hardwood plywood faces a relatively stable market demand, due to its position as a
relatively mature product in generally mature market sectors. Thus, a stable 1-2'',' per year
growth rate can be projected.
The growth rate of domestic hardwood plywood production could rise substantially
above this level if imports would plateau. Such a development is possible due to rapidly
rising prices tor imported plywood. This price rise is due largely to the siphoning of the
output of Southeast Asia/Oceania producers to Japan rather than into United States
markets. If this trend continues and if productive capacity is not increased to meet the
added Japanese demand, then imports will taper off and the market growth rate could rise
above the 1-2% per year we project at present.
Softwood plywood market demand and prices fluctuate widely on an annual, seasonal,
3. id daily basis. Certainly, month-to-month or quarter-to-quarter graphs of these prices show
wide variation. As noted in Section II.B.l.b above, this is largely due to the heavy
dependence on residential construction activity. Thus, our projection is for a 4-6% per year
annual increase in demand for softwood plywood, but the pattern will be one of wide
cycles, around a 4-6% per year trend line.
Although this growth rate represents a decrease from the 9% per year of the 1950's
through the mid-1960's, it represents only a modest decrease of the 6-7% per year average
during the late 1960'sand early 1970's. We project increasing usage of softwood plywood in
residential construction in all categories, including single family h-unes, mobile and modular
housing, and multi-family homes. These increases in consumption of plywood will enhance
the abilit;. for softwood plywood to grow at a rate greater than the residential construction
activity growth rate for the period.
2. Types of Firms
The hardwood pi -wood and veneer industry is best characterized as a small-company
business. There are nearly 500 firms active in the hardwood industry sector versus about
half thrt many softwood producers. After the largest company in this sector, Georgia-Pacific,
is considered, the size of the firms falls off rapidly. (For the purposes of this discussion, we
have not separated the plants that Georgia-Pacific was forced to spin off to Louisiana-
Pacific.) Hardwood plywood producers frequently service narrow, regional markets, e.g., a
cluster of firms in the mid-South servicing the furniture industry. These firms tend to be
located in the Eastern sector of the United States, both North and South, which is \> here
the hardwood timber species predominate.
Table II.B.5 illustrates the concentration in this industry. While 152 firms have less
than 20 employees, these 152 firms represent only 3% or the total value of shipments.
Similarly, while 246 establishments (37% of the total number) have 100 or more employees,
they account for 63% of the total value of shipments.
33
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VABLR: H.B.S
PLYWOOD INDUSTRY !SSC 2432)
CONCENTRATION PATTERNS
Nurntje' of
Piu-iblishmsnts
152
269
246
667
Totai Shipments
1967 1966
26 24
37 33
50
65
Vdlue of Ship.
in%
3
34
63
1CO
1963
23
31
42
58
Plant Sire ?atterr,j - 1987
Number of
Employees
1-19
20-39
100 and over
Concentration Ratios —
4 largest firms
8 largest firms
20 largest firms
50 Idtgfcsi fiims
Source: 1907 Census of Manufactures
As the concentration ratios show, the four largest firms account for about one quarter
of total production; the 20 largest firms account for half of total production. The trend has
clearly been toward greater conoemration in the industry, which will continue.
The toncentration pi Miv; within the hardwood plywood industry sector indicate a
considerably less concentrated industry than for softwood plywood. Table II.B.6 indicates
market shares for the major firm-; in each industry, Georgia-Pacific, which accounted for
20r of the domestic hardwood plywood production in 197T, is clearly the leader in this
segment. The companies that follow trnl b> substantial market shares. The companies
beneath Borst-Cascace, ^hkh is the fifth largest in the industry with only a 2% market
siv.ue. exhibit market shur -, .if l-i/>;'- .: u l;-ss.
The picture is difierent than this for softwood plywood. Again. Georgia-Pacific is the
leader with a 1 o% market shure, bat the i^-t> cigin fin.:;, account for a 50% market share, the
to;- 10, 5"'/'-. There- are eight fivnr here wh'b a 1^ market share or more, double the number
pre...'r.i IA the hardwood plvwocd inJusiry.
,-,.iC'J -i' ii io' '.•> .;;••' i: r out of i"? five major hardwood plywood producers
:t-.A •;•!!;,. Rcrsv'hurj''-;,:,;; th^u JV.T, '[it-(K.eiin;i distribution \captive warehouse)outlets. All
•i'-: of t3ie leading hj< awood luanaiacru-rcfs r", ;:iteg!:!ted to wood fiber. Similarly, the four
;.>;"hi -. -,u!r-vc-oa plywood proA'i_'.ir; al) :;,ive oapJve ;:u'koting outlets, and al! of the top
•u i.1,- ^r.-g.a1 -.-. "c • !oodlancs, This degree ot a tegration affords the majors
34
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TABLE lt.B.6
PLYWOOD INDUSTRY MARKET SHARES - 1972
Hardwood Plywood Percent
Georgia-Pacific 22
Champion International 6
Weyerhaeuser 5
Roseburg 2
Boise-Cascade _2
37
Softwood Plywood
Georgia-Pacific 16
Boise-Cascade 8
Weyerhaeuser 7
Champion International 6
Willamette 5
Roseburg 4
International Paper 3
Vanply 3
Potlach _2
54
Source: Arthur D. Little, Inc., estimates.
greater control over volume produced and sold. For example, hr.ving captive woodlands
insulates a firm from wood availability problems more so than a firm which must buy on the
open market. Similarly, in a weak market, a firm's captive distributor can emphasize its-own
product. The ability to gain market access and to control or moderate wood price effects is
an extremely important advantage to a firm operating in this industry.
3. Types of Plants
The typical hardwood plywood plant is a small, privately-owned mill producing 5-10
miiiion square feet of product per year. This is in contrast to the production pattern in the
soitwood plywood sector, which is typified by a mill of 100 million square feet output per
year. Based on our survey results, the mean pioduction of softwood plywood plants was'
95 MMSF 3/8" (1973). Based on an arithmetic average of 1972 production, the "typical"
plant produced:
• hardwood plywood: 11.6 MM square feet 3/8"
• softwood plywood: 95.3 MM square feet 3/8"
35
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f i.; tiier, soiuvixxi ph'v/ooJ plan! tend U) be part of multi-plant opera ions owned by
brojJ-huscd forest products cotvpa ,ies.
Milk ;.roc'iicng veiKvr fur sale only are believed to be confined e>clusivdy to the
,'.;- "•- No/ th'-\ .•>'. TK-ir operat;ons ar- centered in Oregon although some mills are located
T! Ujshinuton and California. The phy.ical operations of a veneer mill arc identical to those
•1 j Northwest softwood plywood producer with two important exceptions- (1) veneer
r,i -L- do not o'iie up plywood and 'heri.'fon: do not have glue discharges and (2) most veneer
mills (.an estimated 79',£) sell green vci'eer only and will not have effluent discharges from
veneer dr>er wasndown water. The costs of compliance for veneer snills will be considerably
lower than for softwood plywood mills as a result of these differences.
Table ll.B.7a depicts the operating characteristics of plants within the four hardwood
pKwood and veneer segments. Table H.B.7b presents an extrapolation of nw data from our
survey of plant sizes within each of our four categories. As the table indicates, container
grade veneer mills tend to be quite small and have a low value of net assets per plant (60% have
less than $500,000 in value of assets). Commercial grade veneer manufacturers tend to be
significantly larger \t-A'/>. have net assets of greater than S500,000). Hardwood plywood and
veneer manufacturers are more evenly distributed.
36
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TABLE II.B.7a
HARDWOOD PLYWOOD AND VENEER MANUFACTURING1
INDUSTRY STRUCTURE
Productivity Ratios
Category
Veneer Mfgrj.
A. Commer. Veneer
B. Container Grade
Total Veneer
#
Plants
250
50
300
#
Empls.'
16,500
1,000
17,500
19:2 $ Assets/Plant Prod'n./Plant #EmpJ
Ei«:d Protfn. 1$ x 103) (Ft.2x106) Plant
$MM H.2 x 106 Ave. Range Ave. Range Ave.
145
1?
155
4,175 1,365 125-8,000 48 1.25-163 65
420 235. 105-600 2.5 0.75-5.75 20
4,595
$A/103 Ft.2
Ave. F ange
39 8-180
165 88-333
Hardwood Plywood Manufacturers
U) A. "Stock" Panels
-J
B. Semi- and Spec.
Grade Panels
Total Plywood
GRAMD TOTAL
75
115
190
490
9,000
14,750
23,750
41 ,250
260
115
375
530
1,760 2,100 300-7,000 83 1.5-273 175
440 1,750 200-10,000 16 0.8-60 293
2,200
Not Additive
48 36-70
218 37-875
Comments
High quality product; S35/103 ft.2 ^'average"
selling price.
Lower quality product; $24/10 ft.
"average" selling price.
- Standard products; "average" selling price
$250/103 ft.2 (3/8" basis).
Specialty products, including finishing,__
curves; "aver
(3/8" basis).
3 1
curves; "average" selling price $400/10' It.
1. HPMA Survey - March/April 1974.
2. Ratio Production Emp./Total Empl. — 0.83 (1967 Census of Manufactures/.
Source: HPMA, ADL estimates; Note: Productivity ratios and other 1974 survey data believed to be skewed toward larger plants.
-------
T/.RLE il.B.7'b
NIB J TiON OF PL AMIS - NET ASSETS BASIS
Wet Assets $x 103
C'-,tesorv
L\ Com..Ire' Giac's
:l. • •»;/> Jwood Plywood aiTl Veneer Manufacturing
A. Stock wanels
B. Semi and Specialty Grade
J. Exttor-olr.pd irf .r, Stnv •;.
Sources: HPMA Survey, March-April, 197<1, Arthur D. Littlt, Inc., estimates.
'."j Segrrent
% Segmen*
-J;' Plants
ic Turing
% Segment
r* Plants
% Segment
ft fonts
1-30-500
36%
90
60%
30
18%
14
21%
24
500-1,000
75
20%
10
27%
20
41%
47
1,000 and Over
34%
85
20%
10
55%
41
38%
44
4. Financial Profiles
The task of developing a financial profile :a this industry is complicated by the large
number of mills of varying sixes snd technological sophistication, and a substantial variation
in produc' line The individual firrn can produce only veneei, or only plywood, or both
products. 5;mi]ariy. part of a plant's opeiations can b-'> the production of semi-finished or
pre-firnshed products, ?uch as tongue and groove hardwood flooring. It is difficult to
separate Hie costs of th'i production of the finished product irom the cost, of manufacture
of !.'--e >».- ' • product.
Table II.C.8 pn;v,-i,t- U;c l'ir,^ni"'v-! i>rofi!e of a soitwood plywood and veneer mill jf
constructed at the e-id of 1972. Tue mill's capacity was put at !2S million square feet, 3/8"
biuis. A price Jevel w;-.s v.3iutnecj 10 be S^CXV'MSF. As the ircoine statement indicates, at that
.r --- ' v.' -»e* profit1;, ft ". ••- v, were °»8("0 nOO on .1 t< -al n-'^vnue base of S12.6 million, or
6.;% of net sale>
^ '.Vabint' is ?x- r -e!> ,:'-i,-'tive ic the assv.ned pr'c;.- level. For example, at a price
oi vi," ;/M,'"F, -- -,ii;c • Ifv-1 'v»ii. \,";-, .u anic co-'t?, net orofitp after tax would have
been $4/1 million, or 22 A of net sales. Corviv,'!}. t3\3 mil! would be only breaking even at a
pnce level of S90/MSF
-------
TABLE II.B.8
FINANCIAL PROFILE:
SOFTWOOD PLYWOOD AND VENEER MILL
Characteristics:
Products: rough sanded and S2S
Annual Production: 125 MM sq. ft., 3/8" basis
Annual Sales: $12.6 MM
Employees: 275
Net Assets: $10 MM
Income Statement — 1972:
Net Sales
Cost of Sales
Operating Expenses
Cost of Goods Sdd
GS&A
Operating Profit
Other Charges
Profit Before Income Tax
Provision for Income Tax
Net Profit
Return on Net Assets
Source: Arthur D. Little, Inc., estimates.
%
100.0
$MM
12.6
76.7
11.6
88.3
9.7
1.3
11.0
11.7
11.7
5.6
6.1
6.0
1.6
1.6
0.8
0.8
That these profitability figures are representative of the softwood industry is attested
to by a study done by the National Forest Products Association of Washington, D.C. in
March 1971. Their study, commenting on softwood lumber and plywood prices, indicated
that, "The majority of plywood producing units operated at a loss during most of 1970."
Prevailing price levels for softwood plywood products during 1970 were below S100/MSF.
Table III.B.9 presents comparable financial data on veneer and plywood mills during
the year 1971, as compiled by Robert Morris Associates. In this case, profits before taxes
were 2.9% for mills with assets of Sl-10 million, and 3.6% for mills in all size categories.
Tables II.B.10 through II.B.I3 present financial profiles for representative firms within
each of the four hardwood plywood and veneer segments as described above. These profiles
have been developed to represent operations within these sectors and tend to be somewhat
smaller than the average mill as computed from our survey data. This is an attempt to
account for the underrepresentation in the survey of smaller sized firms. As these tables
demonstrate, none of the representative operations in these segments are unusually profit-
able. However, with the exception of a container grade veneer (Table II.B.I 1) while the
plants show modest profitability (return on net assets raging from 4% to 8.8%), the
companies do have a reasonable amount of financial strength, particularly as compared
against the expected cost of compliance (cash flows ranging from 567,500 to $100,000).
39
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TABLE II.B.9
FINANCIAL PROFILE:
VENEER AND PLYWOOD MILL, 1971
Assets
S1MM-S10MM
Income Statement All Sizes
Net Sales 100.0 100.0
Cost of Sales 89.0 87.6
Gross Profit 11.0 12.4
Other Expenses, Net 8.1 8.8
Profit Before Income Taxes 2.9 3.6
Sourde: Robert Morris Associates, 1972.
TABLE II.B.10
FINANCIAL PROFILE:
HARDWOOD VENEER MFG. -SEMI AND
SPECIALTY GRADE
% $x103
Net Sales 100.0 1,500
Cost of Goods Sold 86.0 1,290
GS & A 10.0 150
96.0 1,440
Operating Profit 4.0 60
Provision for Income Tax 2.0 30
Return on Net Assets 4.0%
Cash Flow $67,500
Net Assets: $750,000
No. of Employees: 60
Annual Production: 45,000,000 ft.2
(surface measure)
Source: Arthur D. Little, Inc., estimates.
40
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TABLE II.B.11
FINANCIAL PROFILE:
HARDWOOD VENEER MFG. - CONTAINER GRADE
% $ x 103
Net Sales 100.0 90
Cost of Goods Sold 88.0 79
GS & A 7.0 _6
95.0 85
Operating Profit 5.0 5
Provision for Income Tax 2.5 2.5
Net I ncome 2.5 2.5
Return on Net Assets 2.0%
Cash Flow $8,750
Net Assets: $125,000
No. of Employees: 10
Annual Production: 3,000.000ft.2
(surface measure)
Source: Arthur D. Little, Inc., estimates.
TABLE II.B.12
FINANCIAL PROFILE:
HARDWOOD PLYWOOD AND VENEER MFG.
STOCK PANELS
$x103
Net Sales 100.0
Cost of Goods Sold 84.9
GS& A 10.0
94.9
Operating Profit 5.1
Provision for Income Tax 2.5
Net I ncome 2.6
Return on Net Assets 8.8%
Cash Flow $69,000
Net Assets: $500,000
No. of Employees: 35
Annual Production: 7,000,000 ft.2
(3/8" basis)
Source: Arthur D. Little, Inc., estimates.
41
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TABLE II.B.13
FINANCIAL PROFILE:
HARDWOOD PLYWOOD AND VENEER MFG. -
SEMI-SPECIALTY AND SPECIALTY PRODUCTS
% $x103
Net Sales 100.0 2,000
Cost of Goods Sold 83.0 1,660
GS & A JJJ) 220
94.0 1,880
Operating Profit 6.0 120
Provision for Income Tax 3.0 60
Net Income 3.0 60
Return on Net Assets 7.5%
Cash Flow $100,000
Net Assets: $800,000
No. of Employees: 60
Annual Production: 5,000,000 ft.2
(3/8" basis)
Source: Arthur D. Little, Inc., estimates.
Container grade veneer manufacturers are very small firms in tenuous financial posi-
tion, unless they are owned by a container manufacturer or other captive user. The cash
flow for the representative firms is only $8,750 per year; the return on net assets is 2.0%.
5. Pricing
Softwood plywood prices exhibit almost classic supply/demand commodity market
responses. Softwood plywood prices at a given time are determined by the following
considerations:
• Distribution channels are not controlled by producers. Prices to retailers,
consumers, contractors, etc. cannot be maintained or set by even the largest
manufacturers.
• Plywood is a commodity product. Users are generally unconcerned with the
identity of the producer; there is little brand loyalty; price competition is
severe.
• Residential construction, the dominant end use market for softwood ply-
wood, tluctuates sharply both annually and seasonally. Since efficient pro-
duction must be accomplished at a relatively level output, and since large
inventories are costly, it is difficult for producers to compensate for short-
term demand changes.
42
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As a result, softwood plywood prices have historically varied considerably in response
to supply/demand conditions. Prices change daily in what is essentially an auction market.
Most sales are made by telephone with buyers shopping among suppliers for the lowest
price. Producers seek to maintain "order books," which will allow the mill to ship as rapidly
as it produces. If the "order book" gets thin, i.e., the backlog of orders is small, then
producers lower prices. Conversely, if demand is strong, prices rise.
The ceiling on prices is reached as alternate materials become economic and plywood
markets erode. Particleboard, hardboard, lumber, and other wood fiber building boards can
displace plywood in certain uses. Further, alternative construction techniques or building
designs can be employed using stone, metal, stucco, and asbestos products. Or, of course,
some construction projects may be deferred until building and building material costs recede
to more "palatable" levels.
Nonetheless, there are many advantages to plywood which continue to make it an
attractive building material. Plywood is easily workable, is a versatile material, and pound-
for-pound, due to its alternative grain laminating construction, exhibits great strength.
Hardwood plywood prices exhibit far less volatility than do softwood plywood prices.
Markets for these products are more mature and more stable. Pressure from low cost
imports has also acted to inhibit price increases.
The cost of manufacture is not the primary determinant of hardwood or softwood
plywood prices. Rather, manufacturing costs determine that point at which a mill will shut
down, thereby reducing supply, or a "mothballed" mill will start up. As prices have risen in
recent years, mills have begun to peel smaller and smaller logs, a step which would not be
possible without new machinery and prices high enough to make peeling smaller logs
economical. Similarly, many mills ceased production during the price trough of 1970.
Interestingly enough, many of the same mills came back on-stream during the strong
demand market of 1972.
43
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C. SAWMILLS AND PLANING MILLS, GENERAL
For 1972 the U.S. Department of Commerce reported there were 8,018 establishments
in the United States falling into this category. Of this group 31% had 1 to 3 employees, 21%
had 4 to 7 employees, and 25% had 8 to 19 employees. 1694 firms employed 20 or more
persons.
However, the most extensive listings we have secured identifying industry participants
aggregate fewer than 2,000 firms which are estimated to account for well over 90% of
production. Trade sources believe the Commerce Department totals are swelled by the
inclusion of seasonal and part-time operators who perform minimum processing operations
either from owned woodlots (farmers, perhaps) or with portable equipment transported by
truck from site to site. We are unable to verify this fact as there is no known accounting of
these allegedly transient firms. Thus, this section will necessarily focus upon those produc-
ing units listed in the trade directories and/or who are members of the principal trade
associations.
The industry is readily divided into segments by type of product, markets served,
geographic area of production, and producer group. The most important division is between
softwoods and hardwoods which have historically accounted for approximately 80% and
20% of production respectively. These products are largely used by different markets and
produced in different geographic areas by a different group of companies.
1. Industry Structure — General*
a. Production
The production of lumber in the United States in 1972 totaled 38.035 billion board
feet, up 3" from 1971. Total industry production, shown in Table Il.C.l, has tended to
remain relatively stable for the last two decades and has averaged 36.221 billion board feet
since 1965.
Despite its substantial volume of production, the United States is a large net importer
of lumber, chiefly of softwoods from Canada. In 1972 imported softwood is estimated to
have supplied 23% of U.S. domestic consumption. That same year imports of hardwoods
supplied 6%. of domestic consumption.
Softwoods from Canada represented 99% of U.S. imports and hardwoods from that
country totaled 34% of imports. Canada purchased 24% of softwoods and 57% of hard-
woods exported while Japan purchased 349? of U.S. softwood exports.
"For both softwood and hardwood species.
44
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TABLE II.C.1
U.S. LUMBER PRODUCTION
(billion board feet)
Year Total Softwoods Hardwoods
1972
1971
1970
1969
1968
1967
1966
1965
1960
1955
38.035
36.998
34.668
35.597
36.473
34.741
36.492
36.762
32.880
37.380
31.222
30.039
27.530
28.281
29.285
27.311
28.754
29.295
26.650
29.815
6.813
6.949
7.138
7.316
7.188
7.430
7.738
7.467
6.230
7.565
Average-1965-1972 36.221 28.965 7.254
Source: U.S. Department of Commerce, Current Industrial Reports, Lumber Pro-
duction and Mill Stocks, Series MA-24T.
Net imports of lumber have increased by 86% since 1965 although most of the gain
occurred in 1971 and 1972. Substantial increases in new residential construction during
those two years had a dramatic impact on demand and prices for lumber, and pushed
imports up. U.S. imports and exports of lumber are shown in Table I1.C.2.
In 1971 shipments by companies classified in SIC 2421 had a dollar value of S4.5
billion and 169,700 persons were employed by these producers. The industry is quite
susceptible to changes in the level of construction activity in the United States; thus 1971
shipments were 20^ higher in value than 1970 which itself was 11% lower than 1969. Dollar
statistics tend to be misleading, however, since prices fluctuate widely and it is more
common to discuss production in units. Lumber, the main product, is measured in board
feet (a 12" x 12" x 1" unit of measure) which is the industry standard.
The production of lumber in one form or another is the main activity of sawmill and
planing mill operators. Rough and dressed lumber produced in 1971 represented 80% of the
dollar value of shipments of SIC product class 2421. "Wood chips," the second largest
product category, totaled 8% of the value of products shipped and all other products
equalled 12%.
Wood chips are produced from waste generated in the manufacturing process and are
used in the production of paper, particleboard, and hardboard. Chips are produced almost
exclusively as a by-product, and, although important in value, are usually not produced
directly from logs.
45
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TABLE II.C.2
IMPORTS AND EXPORTS OF LUMBER, 1965-1972
(billion board feet)
Year
Imports
1972
1971
1970
1969
1968
1967
1966
1965
Exports
1972
1971
1970
1969
1968
1967
1966
1965
Net Imports
1972
1971
1970
1969
1968
1967
1966
1965
Total
9.426
7.619
6.116
6.304
6.156
5.146
5.200
5.233
1.424
1.097
1.291
1.135
1.159
1.134
1.024
0.922
8.002
6.522
4.825
5.169
4.997
4.012
4.176
4.311
Softwoods
8.977
7.246
5.769
5.849
5.808
4.798
4.776
4.895
1.196
0.927
1.152
1.018
1.025
0.955
0.860
0.777
7.781
6.319
4.617
4.831
4.783
3.843
3.916
4.118
Hardwoods
0.449
0.370
0.339
0.449
0.346
0.344
0.421
0.334
0.228
0.154
0.116
0.106
0.107
0.159
0.148
0.125
0.221
0.216
0.223
0.343
0.239
0.185
0.273
0.209
Source: Fingertip Facts and Figures, National Forest Products Association,
February 1972 and 1973.
Probably the largest single "NSK" product of sawmills and planing mills would be
products made from bark. This too is a by-product, normally removed prior to the sawing of
the log. Most bark is sold for landscaping use either for commercial and public buildings (the
largest volume market) or for residential homes and gardens. Some sawdust is sold for
miscellaneous uses but in general it is burned (as is some bark) or presents a disposal
problem. Cut stock is lumber cut to nonstandard, customer specified sizes. The kitchen
cabinet industry is the largest user f softwood cut stock. (See Table I1.C.3.)
46
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TABLE II.C.3
VALUE OF SHIPMENTS OF SIC 2421: 1971
Value of Product
Shipments
(million dollars)
1971 Percent
2421 Sawmill and Planing Mill Products $4,500.7 100
24211 Rough Lumber and Sawed Ties 949.5 21
24212 Dressed Lumber 2,644.0 59
24215 Wood Chips 364.4 8
24217 Softwood Cut Stock 130.7 3
24218 Softwood Flooring and Other
General Sawmill Planing Mill
Products 61.6 1
24219 Contract or Custom Sawing of
Logs Owned by Others 45.6 1
24210 Sawmill and Planing Mill Products,
N.S.K. 305.4 7
Source: Annual Survey of Manufacturers, 1971.
b. Regionally
Geographically, 70% of softwoods are produced in the western United States (see
Table II.C.4), with the South accounting for another 27% of domestic production. During
1972, production from the states of California, Oregon, and Washington represented 80% of
western softwood production with the balance spread throughout the Intermountain states.
The principal species cut in the west are Douglas Fir, Ponderosa Pine, and Redwood.
Other species harvested include Western White Pine, White Fir, Sugar Pine, Spruce, Hem-
lock. Larch, and Cedar. Douglas Fir is mainly produced on the western slopes of the Cascade
Mountains in Oregon, Washington, and California and this area is sometimes referred to as
the "Douglas Fir" or "Coast" region. The area east of the Cascades including the Inter-
mountain states is termed the "Western Pine" or "Inland" region while production of
Redwood occurs in Northern California.
The most important species cut in the South is Southern Pine, which accounts for 96%
of southern softwood produced. This area of the country is usually termed the "Southern
Pine Region." Production in the South is more evenly spread than in the West. The leading
states are Alabama, Arkansas, Georgia, North Carolina, and Texas which together accounted
for 61% of 1972 production.
47
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TABLE II.C.4
U.S. LUMBER PRODUCTION BY REGION
1972 vs. 1955
(billion board feet)
All Species
1972
1955
1972 %
Softwoods
1972
1955
1972 %
Hardwoods
1972
1955
1972 %
U.S. Total
38.035
37.380
100%
31.222
29.815
100%
6.813
7.565
100%
West1
22.125
20.703
58%
21.986
20.647
70%
0.139
0.056
2%
South2
12.624
13.270
33%
8.291
7.976
27%
4.333
5.292
64%
Total
West and South
34.749
33.973
91%
30.277
28.623
97%
4.472
5.348
66%
1. States of Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada,
South Dakota, Washington, Oregon, California, Alaska, and Hawaii.
2. States of Virginia, West Virginia, North Carolina, South Carolina, Georgia, Florida,
Kentucky, Tennessee, Alabama, Mississippi, Arkansas, Louisiana, Oklahoma, and
Texas.
Source: U.S. Department of Commerce, Current Industrial Reports, Lumber Production
and Mill Stocks, Series MA-24T.
2. Softwood Lumber
a. Industry Structure
!
(1) Softwood Markets. The market for softwood lumber is dominated by the U.S.
construction industry which consumes in excess of 75% of softwood lumber produced. Of
this amount, over half moves directly into new or maintenance construction usage and most
of the balance is "remanufactured" into millwork, kitchen cabinets, prefabricated structures
or some other intermediate product before going into construction use. About 25% of
softwood lumber is used by other manufacturing industries. Table II.C.5 identifies the
distribution of shipments for SIC 2421 and 2429 during 1975. *
Table II.C.5A identifies the i .ajor segments of the construction industry. Residential
construction represents 44% of the total and this market sector is the largest user of lumber.
48
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lABLt ll.C.b
1972 Disrmr.UTiOM or cinr-ir.r
SIC 2421 SAVYiVm LS AND PLAMIMG MILLS, GENF.RAL
AMD
SIC 2429 GENERAL PURPOSE SAWMILLS. NLC
Percent of
Buyers Purchases
Iron Ore Wining .1%
No:i'3i ious Ore Mining .4
Coal Mining .4
Crude Oil & Product Mining —
Chemicei! & Fort Mutiny —
Mnialc'n.inr.i' fJuni'riict'ea 14.S
Lorj.-jinn Camps & Contractor 2.7 *
Savvmili & PMnhvj !V-illi 1?.?*
Haidwood Dimensions &• Flooring 3.B
MilKvork Pldnts 9.3*
Veneer & Plywood Plants 1.9*
Prefibricatud Wood Products 3.0*
Wooden Containers 2.4
XVooci Preservative & r/hsceiloneouG Products B.5
Ho'jseb.cld Furnitui'p 6.1
Office Furniture 1.4
Pulp Mills -9
Paper (,'litls, Excludinq Building Products 2.7
Faperbo.ird Mills 3.2
Coatr-d & Converted Papn Products —
Buildtr.g Pap-r, Allied Mills & Wall Paper .4
Fiber Cf.ns —
Paints & Allied Products —
Gum & Wood Chemicals 1.1
Other Agricultural Chemicals — -
Printing Ink —
Gasoline, Jet Fuel, Kerosine • ' ~
Distillate £ Residual Fuel Oil -
Lubi looting Oi! & Greases —
Tire & Inner Tubes ~
Miscellaneous Rubber Products ~
Fabric Plestic Products —
Shoes & Other Leathers • -1
Glass, Except Containers -4
Glass Containers -1
Hydrpulic Cement ~
Brick £ Structure Clay Tile -
Ceiamic Wall & Floor Tile —
Clay & Monday Refractory —
Other Stuiciurc Clay Products —
Vitreous Flumbinrj Fixture —
Miscellaneous Pottery & Porcelains —
Concrete Block & Brick ~
Other Coi-.ciete Products -2
Ready-Mixed Concrete «1
* All uses estimated to principally end in new or maintenance
construction. Total 50.1% of shipments.
49
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'[ I » I • ff -I
TABLE II.C.5 (Continued)
Buyers
PCI cent of
Purchases
L imc
Gyp.-.tim Products
Cut Stor.c & Stono Products
Acbesio; Products
Minoia! Vi'ool '
Abrasive & Other IViincrels
Iron & Steal
Motel CoiUnincrs
Enr.m Gunitory & Plumbing
Heat Equipment, Except E'ectiic
Fcb'icatL'd ^U'jcure Stcol & Metal Doors
Fabricated i'inte-.vork
S'i.-et. Archittctiiic. Miscellaneous Metal Work
Stemp Si fk-re\ ' Morliinc Products
Hardwr-.re, rioting, Wire Products
Valves, Pipo Fittings
Sxeam Engines ot Turbines
Internal Combustion Engine NEC
Faim Equ'pment
Construction Equipment
Mining
g t\';3chinery
Materidl:- Handling Equipment
f/i-jchinc1 Tools — Cutting
Machirc- Tool: — Forming
Dies, Toci; & Accojsories
MctalViOikinn Eqjij.'mcrt — We'ding
Food Products Machin-jry
Textilfi Equipment 2: Machinery
Woodwork Equipment & Machinery
Pap^r Equipment £ Macninery
Printir.n Equipment & Machinery
Specis! Industry Machinery
Pumps & Corr.rjressors
Bloweis & Exhaust Fans
General Industry Machinery — Fans, Filters
Nonelectric Machine Shop Products
Computers Si Calculating Machines
Duplicating fk Other Office Machines
Vendintj £v Airconditionmg Equipment
Electric. Apj.-lii.nces & Motois
l-iouseliold Refiicierntors & Freezers
Household Laundry Equipment
fclcctric Light & Wire equipment
Telephone & Telegraph Equipment
Radio & TV Commur.icpticns Equipment
Battery, X-ray, Elcciric Equipment
Truck & Bus Bodies
Truck Trailers
Aircraft
Ship Building & Ropair
Bodt Building
.1%
.5
.2
.3
.2
.2
.1
.1
.1
.2
50
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TABLE II.C.5 (Continued)
Buyers
Percent of
Purch.ises
Locomotives & Railioad Cars
Mobile Homes & Ca:iip(.-is
Car Tiyil^rs, Snowmobiles
L:Mj;ncc. in i ?-• Lj.boaitory Instruments
Meclinnit.il l/iojsuiing Instruments
Ajtonic'iiC lompcrsturo Ontiol Instruments
Orthopedic & Surgery Appliances
Match-s, Clocks, & Parts
Optical, Photocopy, Pho'.t'ijiaphic
Jewelry, Toys, Sport, Miscel'arieous
Electric Utilities
Wholesale 6, Retail Trade
Real Estate- &'Rental
Total
Components
Inventory
New Construction
Federal Defense
Competitive Imports
Exports
Total
Category
.8
1.0
.1
.9
81.8%
.4%
27.2
-12.4%
18.2%
Single-Family Residential
Two to Four Unit Residential
Garden Apjrtments
High-Rise Apartments
Alteration? & Additions
Nonhousckceping Units
Industrial
Office & Warehouse
Stores. Restaurants, Garages
Religious
Private Educational
Hospital & Institutional
Other Nonrcsidsntial
Farm, Including Residences
Oil & Gas Well Drilling
Railroad
Telephone & Telegraph
Electric Utilities
Gas & Petroleum Pipelines
All Othei Private
Highway
Military
Conservation
Sewer Systems
14.0%
1.3
2.7
.2
3.4
.3
.1
3.3
.3
.1
.1
.1
.1
.5
.1
.1
.2
1.1
.1
1.1
51
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TABLE II.C.5 (Continued)
Percent of
Category Purchases
Systems —
I'ubl.c Residential .1%
Public. In'lustriu! —
Public Educational .4
Public Hoinit:,! -
Otli^; Pub'.c Stfiictures ' .2
Miscellaneous Public Construction _ .2
Total 27.2%
Source: Arthur D. Little, Inc., input-output model.
New single family units and new, low-rise multi-family units require substantial quantities of
lumber mainly, for structural and framing purposes. In the past lumber was also used
extensively for subflooring, exterior siding, and roof decking but these uses have moved
heavily toward composite materials such as plywood, particleboard, and hardboard. In
addition lumber has lost markets to metal products such as aluminum siding, steel studs and
joists. However, softwood lumber still accounted for over 23% of the materials bill for new
single-family construction in 1969 as reported by Construction Review.
The U.S. construction market is extremely sensitive to interest rates and year-to-year
construction activity is inversely correlated with the cost of money. Table II.C.6 lists
housing starts and mobile home production from 1965 through 1972 and shows the
substantial annual variations which occur.
(2) Shipments. As housing is the major softwood lumber market, followed by
manufacturing, shipments show a concentration of movement from producing regions into
the states where construction activity is strongest and where manufacturing operations using
lumber are concentrated. Further, since freight costs are a major factor in the delivered cost
of lumber, producing areas serve those regions where relative freight costs are lowest or
where competitive costs are equal.
Table II. C. 7 shows new housing construction by area during 1972 and reveals that the
South and West were the leading housing areas with 41% and 25% of total activity
respectively. Table II.C.8 lists manufacturing use of all lumber by region in 1960. Again the
South is the leading consumption area at 32%, followed by the North Central states with
29% of usage.
Table II.C.9 shows shipments of softwood lumber by destination during 1972 from
mills of western origin and selected Southern Pine mills. Producers located in the West
shipped 45% of their product into that same region with the North Central and South
receving 26% and 16% of western output. Those Southern Pine mills reporting shipped 77%
of their output to users in the South, the nation's largest consuming area.
52
-------
TABLE II.C.5A
VALUE OF CONSTRUCTION - 1972
(billions of dollars)
Amount Percent
Total Construction $123.836 100%
Private
Residential
New Single-family 27.669 22
New Multi-family Units 17.067 14
Additions and Alterations 7.420 6
Non-housekeeping 2.030 __2_
Subtotal $ 54.186 44%
Nonresident! al
Industrial 4.676 4
Commercial 13.462 11
Hospital and Institutional 3.172 3
Other 2.726 _2
Subtotal $ 24.036 19%
Farm ' .902 1
Public Utilities 13.575 11
All Other Private Construction .941 1
Total Private $ 93.640 76%
Public
Buildings 11.500 9
Highways and Streets 10.448 8
Military Facilities 1.080 1
Conservation and Development 2.172 2
Other Public Construction 4.996 _£
Total Public $ 30.196 24%
Source: Construction Review, U.S. Department of Commerce.
53
-------
TABLE II.C.6
NEW HOUSING IN THE UNITED STATES, 1965-1972
(thousands of units)
Conventional Starts
1965.
1966
1967
1968
1969
1970
1971
1972
Total
Conventional
1,510
1,196
1,322
1.545
1.450
1,469
2.085
2.379
Single-
family
965
780
845
900
811
815
1,153
1,311
Multi-
family
545
416
477
645
639
654
932
1.068
Mobile Home
Production
216
217
240
318
413
401
497
576
Total
All Types
1,726
1.413
1,562
1.863
1,863
1,870
2,582
2,955
Source: Construction Review, U.S. Department of Commerce.
TABLE II.C.7
NEW HOUSING CONSTRUCTION BY REGION - 1972
West 25%
North Central 19
South 41
Northeast 14
100%
Source: Construct in Review, U.S. Department of Com-
merce.
54
-------
TABLE II.C.8
LUMBER USED IN MANUFACTURING BY REGION - 1960
(hardwoods and softwoods)
West 17%
North Central 29
South 32
Northeast _23
100%
Source: Regional Wood Use by Manufacturing Industries, U.S.
Forest Service Research Note WO-7, December 2, 1965.
Truck movement of lumber predominates in the South while rail shipments are more
common in the West. Table II.C. 10 shows the regional differences which are chiefly due to
the distance between production and consumption areas.
(3) Lumber Distribution. Producers of softwood lumber do not control the wholesale
and retail distribution of their products. Instead, independent wholesalers and retailers
dominate the movement of these materials between producers and users. Table II.C. 11
shows the distribution channels used by western mills during 1972. The pattern for southern
softwood mills is quite similar.
The U.S. County Business Patterns reports there were more than 12,000 wholesalers
and 20.000 retailers of lumber and building materials operating in the United States in
1971. We estimate softwood lumber is handled by at least half of the wholesalers and more
than 90% of the retailers reported.
Although wholesalers purchase most softwood production, they do not take actual
delivery of most of the material. The wholesaler performs mostly as a sales and financing
intermediary and the actual physical movement of most lumber is direct from the producer
to the retailer, factory, or company-owned distribution yard.
b. Types of Firms
During 1972 the top ten U.S. producers of softwoods manufactured almost 8 billion
board feet of lumber, just over 25% of 'total industry production. These companies are listed
in Table II.C.12 along with the number of U.S. mills operated and their estimated output.
The Weyerhaeuser Company was the nation's largest producer accounting for 8% of the U.S.
domestic production. In second place at 4% was Louisiana-Pacific, a newly-created firm
spun off from Georgia-Pacific, now the country's six largest producer.
55
-------
TABLE II.C.9
SHIPMENTS OF LUMBER BY DESTINATION - 1972
Western Mills
Coast Region
Inland Region
Total
West
North Central
South
Northeast
Export
47.5%
21.4
16.5
8.9
5.7
42.5%
30.6
16.1
10.1
.7
44.8%
26.3
16.3
9.5
3.0
100.0%
100.0%
100.0%
Southern Pine Mills
(125 reporting mills producing 3.2 billion board feet in 1972)
West
North Central
South
Northeast
Export
19.4%
76.9
2.5
1.2
100.0%
Sources: Western Wood Products Association, 1972 Statistical Yearbook; Southern Forest Products
Association, Distribution o* Southern Pine Shipments 1972.
56
-------
TABLE II.C.10
SHIPMENTS OF SOFTWOOD LUMBER BY RAIL, TRUCK,
AND WATER -1972
125 Southern
Western Mills Pine Mills
Rail 60.3 28.7
Truck 33.5 71.3
Water 6.2 -
100.0 100.0
Source: Western Wood Products Association, 1972 Statistical
Yearbook; Southern Forest Products Association, Dis-
tribution of Southern Pine Shipments, 1972.
TABLE II.C.11
DISTRIBUTION CHANNELS FOR WESTERN SAWMILLS- 1972
Percent of
Shipments
Direct to User 6.2
Direct to Retailer 12.7
Wholesaler 60.5
Company-owned Distribution Yards 10.6
Factory, for Further Manufacture 10.0
100.0
Source: Western Wood Products Association, 1972 Statistical
Yearbook.
The term "integrated production" refers to a company's ability to make many
different products from the tree, not necessarily to production of different products on the
same site. The most important products besides lumber produced from the tree are pulp and
paper, followed by plywood, particleboard, hardboard, and insulation board. The ability to
use as much of the log as possible for its best application is an important element in the
profitability of a forest products company. Of the top ten U.S. lumber producers in 1972,
seven were also pulp and paper manufacturers and an eighth was the leading hardboard
producer.
However, the material demands of plants depending on waste wood are great and very
few lumber mills generate enough waste to fully supply these plants. Pulp and papermills in
57
-------
TABLE II.C.12
TOP TEN U.S. SOFTWOOD LUMBER PRODUCERS - 1972
Number Estimated Percent of Total
of Mills Production Production
(billion board feet)
Weyerhaeuser Company 22 2.392* 7.7
Louisiana Pacific 26 1.266 4.0
Boise Cascade 19 0.864 2.8
U.S. Plybood 16 0.628 2.0
Potlatch Forests 15 0.603 1.9
Georgia-Pacific 26 0.555 1.8
Pack River 12 0.501 1.6
Edward Hines Lumber 11 0.400 1.3
St. Regis Paper Company 5 0.398 1.3
Masonite Corporation 11 0..389 1.2
Total 163 7.996 25\6
Total Softwood Produced-1972 31.222
"Includes very small amount of hardwood not reported separately.
Sources: Forest Industries, op cit.; Forest Products Industry Directory; and Arthur D. Little,
Inc. estimates.
particular use enormous volumes of waste wood and must depend on a wide geographic area
for chips in order to supply their needs. Chips are, of course, a by-product of mills
and, in areas where very small timber prevails, wood fiber is ground directly from logs as
well.
Perhaps the most integrated producer of forest products in the United States is
Weyerhaeuser Company with 20 domestic sawmills currently operating. Of this group, 7
mills are totally isolated from other facilities while the other 13 mills share common sites
with 11 plywoo'i mills. 5 pulp mills, 3 particleboard plants, and one hardboard plant.
Weyerhaeuser's emphasis on common site production is substantially stronger than the
balance of the industry. Table II.C.I3 indicates „ total number of establishments counted
as sawmill, -.ivl planing mills (SIC 2421), pulp and paper mills (SICs 261 and 262), and
veneer ;>,'< . plywood mills (SIC 2432) during 1971 in Oregon, Washington, and California.
Based on these statistics and a survey of more than 200 mills listed in trade directories, we
estimate nearly 90% of Western sawmills are independent units and do not share the mill site
with another principal producing facility.
Sawmills operating in the South are also largely independent units, perhaps more so
than in the West. This is because Southern mills are smaller and more numerous.
In the future, new western mills are expected to be built as isolated units and the trend
in construction is toward building "satellite" mills closely proximate to the timber source.
58
-------
TABLE II.C.13
NUMBER OF ESTABLISHMENTS BY SELECTED SIC CODES AND STATES - 1971
Number of Establishments
SIC 2421
Sawmills and Planing
Mills, General
331
215
260
806
SIC 261 and 262
Pulp and
Paper Mills
12
23
22
57
SIC 2432
Veneer and
Plywood Mills
123
47
33
203
Oregon
Washington
California
Total
Source: County Business Patterns 1971, U.S. Department of Commerce.
The trend in timber utilization has consistently been toward removing more and more of the
total tree from the forest for conversion to various products. The economics of transporta-
tion favor smaller mills closer to the forest.
A current trend in the South, however, is to build sawmills at pulp and paper plants
where whole logs have previously been ground to pulp. New sawmilling equipment allows very
small logs to be economically processed into lumber and chips; producers are adapting to
this change. We do not expect this trend to materially affect the balance between indepen-
dent and common site facilities. In general, therefore, sawmills cannot be expected to share
effluent disposal facilities and expenditures with other forest products plants.
c. Types of Plants
The size of the softwood producing units located in the western United States and in
the Southern Pine region are listed in Table II.C. 14. The West is clearly dominated by larger
units with almost half of the mills producing more than 50 million board feet annually. In
contrast slightly more than one-third of the Southern Pine mills are estimated to produce
less than 10 million board feet annually while only about 6% produce more than 50 million
board feet per year.
The most important factor influencing mill sizes in the South versus the West is the size
and species composition of the woodlands supplying timber to the mills. Western forests,
unlike those in the South, tend to be large and homogeneous in species composition. "Clear
cutting" is commonly practiced in the West. This practice entails harvesting all of the trees
on a given area of land at one time rather than selectively harvesting only some species or
sizes. During 1972 western producers depended on federally-owned timber for over 50% of
the lumber produced (see Table II-C-15) and access to the immense forests under govern-
ment ownership is an important facet of the western industry.
59
-------
TABLE II.C.14
SOFTWOOD LUMBER PRODUCTION BY MILL SIZE - 1972
Western U.S. Mills
Size (annual production in board feet)
Under 10 Million Feet
10 to 25 Million Feet
25 to 50 Million Feet
Over 50 Million Feet
Not Reported
Total
Size (annual production in board feet)
Under 10 Million Feet
10 to 20 Million Feet
20 to 30 Million Feet
30 to 50 Million Feet
Over 50 Million Feet
Not Reported
Total --
Number
of Mills
49
102
78
284
82
595
Southern Pine Mills
Number
of Mills
154
116
30 \
> 64
34 J
29
88
451
Percent of Estimated
West Total Production
(billion bd. ft.)
8%
17
13
48
14
i
20.741
100%
Percent of Estimated
South Total Production
(billion bd. ft.)
34%
26
14
6
20
' 5.637
100%
26.378
Western U.S. Mills
Southern Pine Mills
Average Production per Mill per Year
34.86 million board feet
12.56 minion board feet
Sources: Forest Industries. Mav 29.1973; Southern Pine Inspection Bureau Roster. July 1.1973. Listing
believed to cover 7iq/£ of Southern Pine production. Arthur1 D. Little, Inc. estimates.
60
-------
TABLE II.C.15
SOURCES OF TIMBER FOR LUMBER PRODUCED - WESTERN MILLS
Inland Region Coast Region Total
(%} (%) (weighted
average, %)
Company Owned 18.7 38.4 27.8
Federal 65.7 34.5 51.2
Other 15.6 27.1 20.9
100.0 100.0 100.0
Source: Arthur D. Little, Inc., estimates.
In contrast Southern mills must depend almost exclusively on privately owned wood-
lands for their timber base since government ownership of timber acreage in the South is
estimated at only about 10% of usable forest land. Further, southern forests are largely
mixed in species content and it is far more difficult to assemble a large timber supply to
justify construction of a large mill.
Lumber mills do not normally maintain large stocks of finished or semi-finished
products. Lumber is a product which must be kept dry and, because of its bulk, an
enormous investment in storage space and sheds would be necessary to store much finished
product. Table II.C.16 shows year-end inventories of lumber and contrasts them with annual
production. Inventories are usually at a higher level in the winter months since demand is
seasonally lower then.
Mill stocks of lumber move inversely with demand although, as can be seen, gross
inventories are not sufficient to cope with annual shifts in demand. Unfilled orders for
lumber mills usually average about 40% of gross inventories for softwood and slightly higher
for hardwood producers. Thus, actual "free" stocks available to cope with demand swings
are lower still.
Cutting of timber for lumber production is also difficult to adjust in the short run.
Western producers, who depend on government timber, are tied to cutting contracts which
normally average about three years in duration. Government sales are budgeted in advance
and, although some allowance is made for increased sales in periods of high demand, the
logistics of getting the logs cut and out of the forest hinder efforts to adjust production. In
the last several years hardwood producers have also been severely impacted by adverse
weather and domestic production has fallen while prices have gone up.
d. Financial Profiles
Profits of softwood sawmills are difficult to separate from the overall performance of
integrated producers or are closely guarded by the many privately held concerns which make
61
-------
TABLE II.C.16
GROSS INVENTORIES OF SOFTWOOD AND HARDWOOD LUMBER AT YEAR END
1965-1972
Softwoods
Year Inventory
(billion board feet)
Inventory
as%of
Domestic
Production
Hardwoods
Inventory
(billion board feet)
Inventory
as % of
Domestic
Production
1965
1966
1967
1968
1969
1970
1971
1972
4.539
4.652
4.351
4.166
4.704
4.848
4.282
3.593
15%
16%
16%
14%
17%
18%
14%
12%
1.066
1.033
1.400
.838
.650
1.478
.984
.387
14%
13%
19%
12%
9%
21%
14%
6%
Source: Arthur D. Little, Inc., estimates.
up the bulk of production. It is also difficult to identify the costs and profit contribution
resulting from sawmill processing, waste product utilization, and timber production. Finally,
given the dramatic swings in price which occur from year to year, it is extremely misleading
to look at costs and profits without taking into account these large cyclical swings in price.
Table II.C.17 presents operating data for a group of 60 Southern Pine mills for 1972.
Examination of this data clearly shows the wide variability between costs of different
operations both large and small.
62
-------
TABLE II.C.17
COST TO PROOUCE, SHIP AND SELL SOUTHERN PINE LUMBER
For lh« Cnmndr,' Ol Fnc»l tin 1072
Arrayed (rom Low lo Hlfjh Production
ON
U)
NOTES
Co»i C«ittf r»fi«ts «nb^ Costi fw
a&o* (^''V.rrc' Labor (J\ Sup-
'•fi {-If C'p* Snop «ic Include*: m
lndif*it L«tK3t
N B Not HpporW-d— Co»tC**iWT
1 H«M no Cj*ant
V,,-^-9
(0 To'JI
Dep'co,«i,0n of J 16 08 mc'ud#d
* Col C*rit*rs reposed do nol »dd-»
P*aM Crfifal »nd CVp'ec ation ol
$lf f c ,n, iy.1Pd to TtMj!
1 Cosl Coilcri repoT-d do nol add—
Su^d-> o* S4 C3 melted in Total
* Coi' C*- Own Tirnt^, *t fair
H'i Vf; . f c'firmtsf jtfuaf
C0>t Ol li ' !•«•' cut
(C) LJtx.)' Celt Ltckidt-5 Lodging.
S-»tltng i General Adinirtn!r»t,v»
** Cost Cert fr ri repo*i of CompJi'ts Reporting
Numtwr ol Mills ntprrsrn'ed
RANGE HIGH
LOW
MEAN AVERAGE
Mtjn Aic-tne — Oo><« Log Scale
Compjnw 9 rtpofltig >., f^r Log Seal*
Vean Average — Scribrnr Log bc«Ic
Prrducuoo
"»7j
MBd Fl
0 to 10
M 'lion Ft
7 00?
255?
4 400
4 3X)
a BL*Q
5 103
6 ."-J
6 130
7 232
7,918
9482
8501
B 702
9057
9 7bS
10 to 20
Million Fl
o 260
0 716
0 80?
s/r
047
(.14
OfO
1 M
6000
7 o:c
JO ID 30
Million Ft
25251
26 309
aa ?ao
30 lo *0
Million Fl
30 000
30 066
34 375
34 495
37 056
33 E.CQ
3) QS4
40 ?:s
•is cno
4'. ,V
StumpagA
$ 60 00
77 00
4SOO
8000
60 00
79 80
6000
64 12
7074
7296
N R
9000
ssoo
67 42
$467
61 00
7S 00
7594
60 00
4898
7277
73 18
7345
103 92
4769
7899
56 71
70 CO
BE. ro
64 3$
7259
68 00
75 18
46 83
72 23
N n
49 08
50 TO
75 00
58 20
J3 76
60 00
6456
73 US
113 00
44
51
113 00
4500
68 02
28
7249
11
6505
logging
»nd
Hauling
t 3000
38 00
30 00
75 00
43 00
4221
29 00
31 10
4369
J602
N R
2051
2500
3000
3212
3747
3000
25 51
4000
3460
3455
31 44
24 55
31 54
32 00
2575
37 78
3787
2B92
3056
3496
30 00
2721
23 57
30 00
N 0
43 J8
27 75
44 05
2980
2372
2040
3031
3? 18
2570
44
51
4405
2051
31 14
28
41 55
11
3070
LOG
TOTAL
$ 80 00
110 00
75 00
10500
103 00
12201
6900
9522
t)4 43
9fl98
N n
nosi
83 00
87 42
8679
108 55
10S 00
101 45
100 00
83 62
10732
9462
t8 00
13*p 4fl
60 29
104 74
94 49
10787
t14 92
95 Ot
10755
99 00
102 39
70 40
102 2J
N R
97 46
77 75
119 05
8800
72 4S
68 40
94 «J7
10523
138 70
44
51
13870
7040
99 16
26
104 04
11
95,75
S C A L L ~ ^
Logs
S "5 00
110 00
/5 00
78 83
8700
10000
8fl 06
BO 00
10000
69 04
98 92
N H
7500
11225
7500
105 00
9562
75 BO
105 19
10000
91 40
10000
83 52
10693
97 65
135 1C
N n
SS15
N R
(*,' 00
101 35
113 66
103 14
N Fl
t?6 03
100 43
1 la 81
7502
70 7,1
905?
97 Bfl
11'j 25
38
43
13516
70 71
96 09
24
93 44
11
9333
t n w it
tipcnn
t 500
275
200
218
N H
1 15
426
258
3 CO
1 00
300
162
10 00
1 52
1 91
238
21 65
1 36
1 44
494
N n
N R
270
3 00
1 89
N n
-53
231
187
8 BO
S06
1
Sold
6214
N R
7704
03 45
BO 00
T\ 18
-
(409)
N R
r
N R
1900
6687
111 92
TOTAL
t ! 0 ' i
?'> (<0
78 M
fly ;s
ins oo
1C') OU
110 71
80 00
100 00
'.M ?b
114 43
99 C9
PI 17
lOfi .17
1)4 fl£)
BG 90
102 '.0
B7 (-0
76 80
1',
9C, fjT
13923
60 29
10^ 01
9'j "3
10732
Jt7 06
95 01
107 55
9550
102 01
70 1J
Bl ',0
10502
N R
124 15
8 I ' 9
119 03
8fl 00
73 6 J
8ft 17
9645
1 IB 04
142 62
Add
500
300
4 11
1 50
N R
1 25
N R
5 00
N n
N n
294
500
705
N R
N Fl
N R
250
1 25
1 bO
2 21
3 i,")
2 99
5 00
N M
M R
273
1 74
815
N R
305
39S
220
N R
N R
250
17 4&
10 27
7 bO
263
N R
713
3G8
261
3 58
404
335
1.9B
N R
7 16
TOTAL
11L 00
7BOO
P2 94
91 25
105 00
106 25
1 '0 71
85 00
100 00
91 25
117 37
104 69
6822
10fl 47
114 f)B
fib 08
10000
en '*s
7H 10
107 16
10 1 <")
ID'J 23
11501
0? 15
107 26
9926
140 97
82 44
102 01
98*3
111 28
J20 Tfi
95 01
10755
yijyo
1 1 ^ 05
80 07
92 10
107 7C
N n
13* 46
fl3 -^
121 64
91 59
77 55
91 52
9843
1 10 04
150 CO
"" M "
53
15000
77 65
102 12
33
10500
13 !
»Sd2 j
0
20
30
0
46
34
?0
40
47
3
78
N R
39
19
30
N Ft
32
30
10
20
31
35
27
10
11
14
50
57
0
55
48
54
49
42
35
40
3S
5'
31
43
N P
N n
52
43
23
1
5*
21
S4
46
V £ H 0
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
N n
IV fl
X
X
X
X
U ~N ^- 1"6~
X
X
X
X
X
X
X
X
X
X
X
X
z
N R
X
Inter
_
z
I
E
X
N R
X
X
Decimal
C
X
X
X
-
I
-
N R
^
33 13 3 3
7
-
-
~~
-
5
-
i
TO r/,_
Lvji to
S 75 "J
PP ",
7E ^J
S'> 44
*.? *-*
«> n
75 V5
5i 'si
eve,;
y> 'A
8'1 OS
8532
ee 35
57 e*.
ice 4?
77 *A
*7 21
94 V)
71 CH
W TJ
C* '•*
R-, **,
7C • J
m oo
72 7S
93»<)
« '«
_.
e* M
65 '»i
£5 '4
72 U
79 1C
« '«1
602fl
'S •>?
V. ' 'i
M Vj
*,3 V4
7' 15
(7 ';
76*5
W il
&4 62
70 70
7S 43
81 62
f/t 01
60
115 OQ
S403
775»
i' ,- fl - PL^
(t, L'Jl
SB i o*
S 1TV)
11 CO
1 03
,;;
i -a
v
u
1 V3
30 9?
10 V4
973
32 *r
17 15
55i
17 CO
11 03
8S6
t i'
5 "/]
'.: 1.5
12 '0
42 32
4' 94
581
6 W
2* 3C
as 10
*C3
IS '2
64S
12 j4
'4 ^7
3 4O
7 01
13 4*
\ P5
17 11
25?
37 S2
>5 (5
5 70
12 *6
21 70
2Z f*>
24?5
7 'y3
15 79
51
55
42 32
54
15 16
V I ; : i '
^
L->;i to
i %i 00
7' '/}
*900
',? i4
;; "
e/ ri
5- U
7", '.0
4- r;
*.'i 8
5-: *C
77 ri
56 U
75 MJ
v. n
t1 *^
77 'S>
V. ' 5
*C *t
7'. ~f>
V. '-•*
9- JO
y 43
5i 91
6? 37
« 78
** 17
49 3J
i> :2
V- -2
ti M
W 72
1- '.4
M M
61 M
;;:;
**, 23
*A 27
4'a 20
4C 75
52'3
72 34
4^00
rr *t
t, '^
« n
t' -i
6* i5
52
60
9COO
3C43
62 71
-------
TABLE II.C.17 (Continued)
COST TO PRODUCE, SHIP AND SELL SOUTHERN PINE LUMBER
NOUi
Cott Cenfnr rrlects entire Cotti lor
thai «"•«' "Xlud'ncj (MOtt^cl
LaOO' (2' !nd"M1 Labor, (3| Sup-
pi ft .1] t PCIMC P0w*f of Gas Pur-
chas'd i5l Of pTC>a1>on and (6)
Injurjoc* Sur^po 'or Maintenance.
Mjch n* $^op ttc . 'ncluded In
Ind.npcl LabOf
Cc-'*1'''n«(J-Nol availaDle, tic
Ulrtf"^
* Hern-o Davanl
• YSp.C^i'ig
• Ccsi Cpmtni reported (So not add
DffwJI.on o' S16 06 Included
T Co*' C'-iei rrrfifd do not add —
pi in! Gi if r jl a"ij Ot'frcialion of
116 US .nciu«dm To'.al
• Coil Cf^ieT 'ppo-led do not add —
Sund'j ol SI 03 included in Tola*
• Cosl CffMets •fpc'r'e>1 do not add —
f>r'fc ation ot S4 70 indudrd >n
Toul
'• Cojl Onlfn reported do not add—
SunC"> ot $.7 .'->9* Sawdust
,t> Lsbddonotadd —
Overhead of S7 02 included In lotal
TOTAL PRODUCTION tor the $2 Companaie
representing 60 m.Ha amounled lo
1 640 61 J M Board Feet
Nu"ib*r ol Companies Reporting
Number ol Wills Represented
RANGE HIGH
LOW
Company* reporting Doyle Log Seal*
M«an Average — Do>le Log Sell*
Companies reporting Scribner Log Sot*
Mean Average — Seribncr Log Scale
Production
1972
MBdft
~oT5T5
Million Ft
2 000
2 552
4.400
4 eoo
4 800
5 100
6 2r'3
6 900
? is:
7918
• 48}
8 501
8 733
9057
9.768
10 to 20
Million Ft
10 2SO
10 719
10 602
11 577
1 1 947
14 6J4
15 000
15 114
16000
17028
70 10 30
Million Ft
35251
26 309
28200
23778
301040
Million Ft
30 000
30 006
34375
34455
37086
38600
33954
401050
Million Ft
40 225
45 500
45 ftS6
46 153
501075
Million Ft
52516
58357
61 792
71 093
73 60S
75 Million
Fl 4 Ovtr
78 004
78 840
01 671
85332
B9 041
100 615
52
60
100.635
2.000
31.550
Sawmill
$ 2500
1200
2700
1778
21 00
28 00
11 30
17 61
35 00
14 G8
1501
1628
1441
26 30
2829
2552
1929
2402
1780
23 62
17 77
1983
8 12
2200
25 13
2(49
1224
1803
925
1«20
9 26
1394
1537
1884
1322
N R
1672
1« 10
1075
6 46
1723
lt> 12
7521
20 17
1290
11 16
3377
11 16
1092
1720
1326
17 41
NOTE.
Gn>«n
Chain
S 700
800
4 00
454
300
N R
N R
421
4 00
451
N R
N R
N R
5 18
538
N H
N H
597
1 00
5 70
269
11 26
1 68
429
H R
N R
N fl
N R
261
200
325
N R
N Fl
1 29
391
N R
756
N H
1 21
N R
1 10
708
N R
20
333
265
247
253
353
250
233
461
Orenn
Stacking
J 5 00
4 00
4 00
N R
200
N R
6 53
203
725
N R
N R
966
N R
632
N R
N R
N R
2 38
1 50
205
1 18
373
1 87
274
N R
N R
N R
N R
1 18
290
1 62
2 12
N n
1 15
N R
N R
N R
N R
201
65
3 14
N R
N R
1 71
N R
1 7»
564
235
N fl
1 45
1 32
3 10
D (
Kiln- Air
Ory'nj
J 8 00
800
3 00
4 44
N R
N R
2?0
4 IS
NOSE
N n
1999
796
S 89
439
N R
N R
N R
299
1 25
26b
298
5 00
595
4 10
233
3228
21 IS
766
5 14
1 17
3 05
233
405
242
6 59
N R
570
5 86
294
1 65
524
N R
N H
300
5 44
369
247
102
599
324
352
1 96
> A R 1) M t A
Shed-Yard
Inventory
S 10 00
4 00
300
322
N R
N H
3 75
4 55
1 00
N R
N R
5 96
405
5 13
N R
1535
972
358
201
2 13
875
N R
309
N R
859
N R
N H
N H
738
347
N R
N R
524
1351
N R
N R
492
N R
333
26
N R
N R
N R
06
324
693
211
275
1 19
505
652
1 99
Planing
Mil!
I 13 00
5 00
1300
834
7 00
21 00
5 50
8 00
1200
16 (it>
1027
1096
870
1054
812
929
909
1791
1255
857
7 51
772
5 34
689
962
N F)
N Fl
730
788
634
815
589
666
775
5 96
38 19
13 14
750
619
459
9 01
10 26
987
429
605
10 29
1801
559
670
802
661
12 14
t. n M f E E
Shipping
$ N R
6 00
N R
6 1
N
N
9 0
N
7 0
9 8
7 1
N R
5f,>
308
N R
13 14
N R
224
12 43
N R
324
N R
2 91
2 16
768
N n
N Fl
1 57
258
299
N R
289
N R
357
2 54
750
N R
N n
651
1 25
2 19
N R
N R
91
292
2 53
535
4 38
840
1 16
235
201
No •tt«mp! hal b««n mitdo to formulate averages liom coal Information reported
or "Coal Cenltri" of Sawmill through Shipping because ol inconsistency of
•eaponaea. such aa, "combining of departmente' ' not available.' etc
TSTil
Leg
Mfg & Ship
$ 133 00
1 1 26 CO
11300
9688
8644
131 00
100 68
1 120 04
145 35
93 02
111 61
105 22
1?044
119 07
11769
12355
9836
13659
108 64
90 19
1J219
123 10
97 19
140 15
*375
11066
9579
"110 36
94 48
102 24
74 97
83 99
7934
•123 17
•11501
07 63
104 92
9282
' 122 12
• 9735
85 14
101 71
134 28
• 7500
66 51
•118 64
11682
'•115 46
97 71
9535
9712
130 14
52
60
14525
7497
107 89
— SSK.VJ " Tourcgrr-
t Gsn— otLOr
Admin I Shipped
S 1 CO
1 00
CO
1 18
50
1 00
;5
39
25
1 96
2 83
3 86
C9
963
509 ;
17 78
6 04
61
32 70
5 16
8 '8
2021
26 27
8 00
1590
N R
10 97
3 78
1533
1375
25 24
34 15
1 69
7 72
1 90
497
13 12
10 04
14 «
4 00
12 99
2 30
1 PO
565
N R
7 73
7 68
400
1947
9 65
529
253
| 111 00
141 CO
121 00
11306
92 94
11<< CO
104 13
178 43
in '.0
107 98
11*44
140 C8
121 53
121 70
1?; 78
141 33
101 40
13720
14t 34
9% 35
131 17
141 64
121 46
140 16
94 6S
1 1C 66
10676
111 14
109 79
11589
ICC 21
lie 4i
81 23
130 69
11691
102 SO
118 01
lOi »5
13f, 97
101 35
98 13
101 01
13S08
• 8001
8651
126 37
126 50
1 19 18
117 18
105 00
102 7'
13267
52
to
14950
too-,
118 35
S«t:incj
Pnce
(Optional)
t 1!,', 00
113 Sg
1 jl 00
12584
1«,!M
110 01
119 50
105 M
141 £9
132 *>7
1-18 4«
m 13
11865
147 88
11650
12912
185 K
15481
126 »1
117^5
1 r> 67
mes
lie 07
133 75
121 79
138 63
112 63
J ,
13300
111 52
111 41
lifc 59
115 :2
_
13685
12495
134K
125 OS
| ~
1ncom«
Or L<*18
(Option*1)
t 7~/l
3 :0
12 'A
12 79
2300
1 59
NO'lt
12 121
173!
42)
1-, 70
3380
1425
10 fA
5?1
r «5>
42 12
015
2127
•0T9
15 ',3
rjyt
17 W
12 31
40 56
7 74
TO 19
14 9fl
31 'A
11 'S.\
•,524
1719
10 49
(1 55)
1502
2005
Ic)
Labor
Coil (Ttr M
t r> w
n :
23 r!'1
H R
1V61
H R
H n
?o yy
»4J
29 57
V. '-7
37 71
19 '7
VI '4
27 'fl
231S
N R
25 51
30 1".
3', on
21 '."^
N R
20 60
23 72
H H
i: '^
2f <2
N R
V^'.-j
i; 37
11 i'j
23 40
X R
15 i5
31 11
22 35
7 87
75 69
19 59
15 ',5
H Ci
12M
20 2O
32 97
««
21 73
23 11
11 '*
1452
-------
Table M.C.18 presents estimates of "typical" operating costs for a large western mill
for 1970 and 1971. The swings in prices and costs again highlight the difficulty of relying on
any one year's results to base a decision.
TABLE II.C.18
ESTIMATED COSTS FOR A "TYPICAL" LARGE WESTERN MILL: 1970 AND 1971
(S per thousand board feet)
1970 1971
Stumpage $ 80 $ 40
Logging and Hauling Costs 30 30
Delivered Log Cost to Mill $110 $ 70
Log Cost Corrected for 33% Realization Overrun 82 52
Sawmill Conversion Costs 30 30
Total Costs $112 $ 82
Realization (price) $ 80 $100
Source: Arthur D. Little, Inc., estimates.
Table II.C. 19 presents a comparison of all U.S. manufacturing activities and lumber and
wood products manufacturing activities in terms of profit on sales and equity since 1965.
The return on sales and equity for this industry is slightly lower than for all U.S.
manufacturing industries and in each case, the standard deviation (measure of fluctuation) is
greater.
"Investment" in the industry is also difficult to measure. The lumber industry has been
the slower growing portion of the forest products industry for several decades and many
producing units have been in the same location for 30 or more years. Because most mills are
constantly maintained with equipment replaced and upgraded, neither the age of the facility
nor the book value of the investment fairly reflects the economic usefulness of the plant.
Industry sources estimate the capital cost of a new 50 million board foot mill
(excluding land and timber resources) in the Western United States to be approximately
S5-6 million. Of this amount, about $3-4 million would be for the sawmill, planing mill, and
dry kilns with the balance allocated to log storage, sorting, and handling facilities. The
investment in a minimum size facility producing a limited product line (20 million feet of
studs, chips, and bark) would probably be about $2 million distributed as follows:
65
-------
TABLE II.C.19
CORPORATE PROFITS AFTER TAXES
1965-72
As Percent of Sales
As Percent of Stockholders Equity
1965
1966
1967
1968
1969
1970
1971
1972
Mean
Standard Deviation
All U. S.
Manufacturing
5.6%
5.6
5.0
5.1
4.8
4.0
4.2
4.3
4.8
.6
Lumber and
\Vood Products
3.9%
3.8
3.4
5.3
4.8
2.5
4.4
5.1
4.2
.9
All U.S.
Manufacturing
Lumber and
Wood Pioducts
13.0%
13.5
11.7
12.1
11.5
9.3
9.7
10.6
10.0%
10.0
8.6
14.6
13.2
5.9
11.3
15.9
11.4
1.5
11.1
3.1
Source: Western Wood Products Association, 1972 Statistical Yearbook.
Log Handling, Sorting, and Storage Facilities
Sawing Facilities
Kilns
Planer Mill
De-barking and Bark Handling Facilities
Chipping and Chip Handling Facilities
Total (not including land or transit links such
as railroad spur, etc.)
S 400- 450,000
400- 450,000
500,000
200,000
250,000
100,000
$1,850-1,950,000
Capital investment in the entire sawmill and planing mill industry has not been great in
recent years. Table II.C.20 lists capital expenditures since 1965 for SIC 2421. Expenditures
tend to coincide with profitability and showed a substantial upswing in 1971 and continued
during 1972.
66
-------
TABLE II.C.20
CAPITAL EXPENDITURES FOR SAWMILLS AND PLANING MILLS
(S millions)
SIC 2421 Sawmills
and
Planing Mills
1965 $172.8
1966 163.5
1967 129.4
1968 180.3
1969 210.5
1970 189.1
1971 232.2
Mean 182.5
Compound Growth 5.05%
Source: Industry Profiles, U.S. Department of Commerce.
e. Pricing
The market for softwood lumber is notoriously volatile with significant swings in price
occurring in short periods of time. Construction activity in regions suffering severe winters
such as the Midwest, Mountain States, and East is quite seasonal and prices vary accordingly.
Similarly, larger shifts in price resulting from annual variations in housing demand overlay
cyclical swings on the normal seasonal pattern.
Table 1I.C.21 shows price indexes of Douglas Fir, Southern Pine, other softwoods, and
selected other construction materials since 1966. Lumber has varied more in price than the
index of all construction materials and, as shown by the standard deviations of the indexes
from 1966 through 197"., was also the most volatile of the wood-based building materials.
This price volatility results directly from the inability of lumber producers to adjust
production levels to meet the wide swings in housing demand which occur. Table II.C.22 •
presents indexes and standard deviations (measures of variability) of conventional and all
types of housing produced in the United States from 1966 through 1972. The standard
deviation of annual activity for this sector is greater than the same measure of fluctuation
for softwood lumber prices and demonstrates the problem lumber producers face in
forecasting and coping with demand.
There are several factors inherent in the supply of raw material (timber) which further
curtail the ability of the industry to cope with large shifts in demand and these will be
discussed in more detail. In analyzing this sector of the forest products industry, however,
one must be aware that the free market, economic supply-demand niechanism for de-
67
-------
TABLE H.C.21
INDEXES OF WHOLESALE PRICES OF MATERIALS USED IN CONSTRUCTION,
BY SELECTED GROUPS AND COMMODITIES
(1967 = 100)
Millwork
00
Period
1966
1967
1968
1969
1970
1971
1972
1972
January
February
March
April
May
June
July
August
September
October
November
December
98.8
100.0
105.6
111.9
112.5
119.5
126.6
123.2
124.2
124.9
125.7
126.2
126.6
127.2
127.8
128.0
128.3
128.4
128.5
Douglas
Fir
96.8
100.0
120.3
131.7
108.8
137.6
161.1
148.2
151.4
153.6
156.3
159.1
160.8
165.4
166.8
167.3
167.9
168.1
168.3
Southern
Pine
100.2
100.0
113.7
126.0
114.5
133.8
151.1
142.4
145.7
148.5
150.9
151.6
151.6
152.2
153.3
154.4
154.8
156.3
156.3
Other
97.5
100.0
123.5
139.0
115.1
145.3
177.0
161.3
166.0
168.3
171.4
173.1
175.8
178.3
132.9
184.5
186.3
187.2
189.3
Selected
Hardwood
Lumber
Annual Averages
116.2
100.0
107.7
127.7
116.8
114.4
130.4
Monthly Indexes
120.6
121.5
121.7
126.6
129.1
132.7
134.6
135.0
135.3
135.3
135.8
136.5
Prefabricated
Group
Index
98.0
100.0
105.8
117.8
116.0
120.7
128.4
124.9
125.5
125.8
126.6 ,
127.6
128.4
129.6
130.0
130.2
130.7
130.9
130.7
General
Miltwork
9B.7
100.0
105.8
117.6
115.6
121.4
129.1
126.0
12G.O
12G.7
127.7
128.9
129.8
130.5
130.5
130.8
130.9
131.0
130.9
Structural
Members
94.8
100.0
107.8
119.2
118.0
117.5
124.9
•
119.4
122.8
121.6
121.6
121.6
122.0
125.1
127.5
127.5
130.0
130.0
129.7
Plywood
Group
Index
104.0
1CO.O
115.7
122.5
108.5
114.7
130.7
120.2
125.1
123.9
123.9
130.3
131.7
132.9
135.9
134.6
134.6
133.3
132.3
Softwood
106.1
100.0
129.2
139.2
113.6
127.2
154.9
137.9
145.8
153.3
153.3
155.6
157.9
160.5
162.1
159.7
159.7
157.4
155.2
-------
TABLE II.C.21 (Continued)
Millwork
Period
1973
January
February
March
April
May
June
July
August
September
October
1966-1972
1966-1972
All
Construction
Materials
Softwood Lumber
129.4
132.3
136.2
139.1
140.8
140.1
138.6
138.9
140.1
140.4
110.7
10.1
Douglas
Fir
169.5
188.3
208.5
214.1
219.8
217.2
212.6
216.1
223.9
216.9
Southern
Pine
156.9
164.5
171.5
181.4
186.6
194.9
191.8
198.4
203.5
202.7
Other
190.1
204.9
220.7
237.7
248.7
243.7
234.3
226.4
232.6
229.2
122.3
23.0
120.0
18.6
128.2
28.0
Selected
Hardwood
Lumber
Monthly Indexes
140.2
158.7
169.3
180.3
188.1
192.5
194.3
222.1
227.6
229.0
Prefabricated
Group
Index
(continued)
131.4
133.4
134.8
141.2
146.5
147.7
148.3
148.3
149.0
• 149.4
General
Millwork
131.7
133.4
134.7
138.5
144.8
146.3
147.1
147.2
147.9
148.4
Structural
Members
130.0
133.5
135.4
154.2
154.2
154.2
153.9
153.6
154.1
154.1
Plywood
Mean
116.2
112.4
Standard Deviation
10.6 11.3
112.5
11.5
111.7
11.1
Group
Index
134.1
149.4
176.8
132.5
177.7
154.9
133.0
140.1
133.2
134.6
113.7
10.7
Softwood
1G0.5
186.1
245.6
252.6
242.2
183.5
153.7
163.9
159.5
153.5
124.3
19.3
Source: Construction Review, U.S. Department of Commerce; Arthur D. Little, Inc., calculations.
-------
TABLE II.C.22
INDEX OF NEW HOUSING IN THE UNITED STATES: 1966-1972
(1967= 100.0)
Total f^P Total
Conventional All Types
1966 90.5 90.5
1967 100.0 100.0
1968 116.9 119.3
1969 109.7 J19.3
1970 111.1 119.7
1971 157.7 165.3
1972 180.0 189.2
Mean 123.7 129.0
Standard Deviation 32.6 35.4
Source: Construction Review, ADL calculations.
termining price works. Lumber prices are not set by a concentration of a few suppliers or
customers nor are cost increases simply "passed along." In the long term, industry produc-
tion levels are adjusted to balance timber costs and supply, processing costs, and prices. In
the short term producers and customers endure wide swings in price and profits rise or fall
for suppliers, distributors, and users accordingly.
3. Hardwood Lumber
The hardwood lumber industry is distinct from the softwood industry in several
important respects, namely:
• Scale of operating mills — hardwood producers are much smaller companies
running small plants.
* Fnd use markets served — hardwood producers serve mainly the furniture
and industrial (mainly shipping usage) markets, not construction.
• Greater vulnerability to displacement products.
a. Industry Structure
(I) Production. Total production of hardwood lumber in the United States has been
declining almost steadily for seven years. The recent high was in 1966 when production
totalled "7.738 billion board feet. By 1972 production was off 12% to 6.813 billion board
70
-------
feet and preliminary data for 1973 indicate the decline may have accelerated. Prospects for
1974 rfre also regarded as clouded as the industry continues to suffer from a shortage of logs
due to floods and rains which have impaired logging conditions.
On a regional basis, 647r of production occurs in the South. The second most
important producing area is the Northeast and Northcentral Regions with 34% of industry
output. Table I1.C.23 shows hardwood production by region and lists the principal species cut.
TABLE II.C.23
HARDWOOD PRODUCTION BY PRINCIPAL REGION AND SPECIES, 1972
Northeast and
North Central Regions South Region
Species 1972 1972
Hardwoods. Total 2,341 4.333
Ash 64 84
Basswood 50 16
Beech 97 85
Birch 85 17
Cotton wood and Aspen 196 77
Elm 85 64
Gum, Black and Tupelo 11 308
Gum, Sweet (red and sap) 8 336
Hard Maple 358 77
Soft Maple 142 51
Oak 973 2,160
Yellow Poplar 76 552
Walnut 39 16
Other Hardwoods 157 490
Source: Op cit. Current Industrial Reports.
Commerce Department statistics lump hardwoods and softwoods together making it
difficult to determine precisely the value of hardwood shipments. However, trade sources
estimate an average price of SI60 per thousand board feet could be applied to 1972
production and this would indicate a value of shipments of about $1.1 billions or just over
20% of SIC 2421.
It is extremely difficult to secure an accurate count of the number of hardwood mills
in operation. Trade association membership covers fewer than 200 producers and the most
comprehensive trade directory located listed only 675 hardwood mills. Sources familiar with
the industry believe nearly twice this number of firms operate regularly and perhaps another
500 to 1,000 produce seasonally or intermittently.
71
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(}.) End-Use Markets. Two uses account for the bulk of the market for hardwood
himbc' - furniture and industri jl shipping. Other markets include stock for hardwood
:;im-'ru: and transportation equipment such as truck trailers, etc. Table H.0-24 indicates the
dis'ribution of saJes by market segment.
TABLE II.C.24
HARDWOOD LUMBER END-USE MARKETS
Furniture 34-45%
Shipping
Pallets 15-20%
Boxes, Crates and Cases 10-15%
Transportation
Equipment 5-10%
Flooring 3- 5%
Miscellaneous balance
Sources: Hardwood Lumber Manufacturer's Association National
Oak Flooring Manufacturer's Association. The Outlook for
Timber in the Unite:) States and Arthur D. Little, Inc.,
estimates.
b. Types of Firms
Producers of hardwood lumber are generally small, independent, family-owned com-
panies. The markets served require specialized (short production run) products, and are
highly regional, creating a business environment more appealing to this type of producer.
This contrasts with the softwood sector in which the major forest product firms are most
active.
c. Types of Plants
Table II.C.25 lists the breakdown of mill sizes reported for the 675 producers
identified. Using the previously mentioned average price of SI60 per thousand board feet
for 1972, we estimate 70' <•• of the mills identified would have had sales less than $1.2 million
in 1972 and 30% would have had sales under $400,000. Clearly hardwood lumber is
manufactured in much smaller plants than is softwood lumber. Table II.C.26 lists the
locations of these mills by state.
d. Financial Profiles
Investment and Operating Costs. Haidwood lumber mills, as previously men-
tioned, are much srnalJer than softwood mills. Consequently, the total capital invested in the
Industry is much lower proportionally than for hardwood producers. Furthermore, the
72
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/ TABLE II.C.25
/
675 HARDWOOD PRODUCERS BY MILL SIZE. 1972
Estimated
Board Feet Dollar Sales Number of Percent of
Produced Mange Firms • Firms
(million fact) (million dollars)
0 to 2.5 $0 to$ .4 203 30%
2.51 to 5.0 . .4 to .8 204 30
5.1 to 7.5 .8 to 1.2 74 11
7.51 to 10.0 1.2 to 1.6 61 9
10.1 to 15.0 1.6 to 2.4 45 7
15.1 to 30.0 2.4 to 4.8 25 4
30.1 to 50.0 4.8 to 8.0. 16 2
Over 50.0 Over 8.0 6 1
Not Reported - 41 Q
Source: Hardvvoou Purchasing Handbook 1974, National Hardwood Magazine, Inc., Memphis,
Tennessee.
equipment and facilities required for a successful hardwood operation are much less
extensive. Hardwood mills generally do have debarking and chipping equipment, but
because much of the product (perhaps more than 50%) is shipped rough, most mills have
not invested in dry kilns or in planing facilities.
The membership directory of the Southern Hardwood Lumber Manufacturers Associa-
tion indicates 44 of the 79 plants covered or 56% had dry kilns which are expensive to
acquire. These mills are reflective of the larger producers but in aggregate we believe less
than 30% of regular producers have invested in this equipment.
Trade sources estimate the investment in a new hardwood mill could range from a low
of less than SI00,000 for a very small unit performing minimal processing steps up to about
$750,000 for a facility capable of producing 8 million board feet per year.
73
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TABLE II.C.26
State
675 U.S. HARDWOOD LUMBER MANUFACTURERS
BY STATE
Number of Plants
put State
Alabama
Arkansas
California
Colorado
Connecticut
Florida
Georgia
Illinois •
Indiana
Iowa
Kansas
Kentucky
touiyana
Mains
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
New Hamprhite
New Jersey
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhnde Island
SodV Ca'o'tna
Tennessee
Texas
Vermont
Virginia
Washington
Yifcst V.rginia
Wisconsin
30
27
1
1
1
2
20
21
37
9
6
36
28
10
10
5
22
11
22
22
4
2
36
37
37
2
9
57
1
11
56
9
13
21
5
26
29
licnst'cu: Op. cit., Hardwoc'J Purchasing Handbook 1974.
74
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Table II.C.27 based on industry credit evaluations, lists the estimated financial strength
for 104 randomly selected hardwood lumber producers. Again this data points out the small
size of producing units as 45% of the firms are estimated to have "financial strength" under
S500.000 and an additional 38% are unaccounted for.
Net Worth
TABLE II.C.27
ESTIMATED FINANCIAL STRENGTH OF
104 HARDWOOD LUMBER PRODUCERS
Number of
Firms
Percent
Under $35,000
S 35,000 to S 125,000
5125,000 to $ 500,000
5500,000 to $1,000,000
Over $1,000,000
Net Worth Undetermined
Total
6
18
23
5
12
40
104
6
17
22
5
12
38
100%
Sources: Op. cit., 1974 Hardwood Purchasing Handbook (names selected at
random) and The Lumbermen's Redbook, Spring 1973, Lumber-
men's Credit Association, Inc., Chicago, Illinois.
e. Pricing
There is considerably more stability to the demand for hardwood lumber than for
softwoods. Furniture sales are correlated with new construction but the relationship is not
direct; furniture demand is more closely tied to long-term demographic characteristics of the
U.S. population such as age and income distribution, rate of family formation, etc. The
outlook for the furniture industry is for steady increases in real demand through 1980
averaging as much as 6% per year and furniture represents an increasingly important market
for producers.
Flooring demand has been declining almost steadily for over a decade and now
accounts for such a small part of consumption it is not an important factor. Oak and maple
75
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floors are losing market share to wall to wall carpeting although the latter is shorter
Demand for hardwoods for shipping use is tied to industrial output and to materials
handling technology. Pallets are the largest shipping usage and their use has broadened as
more warehousing and shipping rely on mechanical means of materials handling.
Hardwood lumber used for shipping and manufacturing applications generally does not
have to be finished nor does it have to be kiln dried. As a result much hardwood is air
dried and is not run through a planer mill.
Imported hardwoods now account for about 6% of domestic demand, chiefly for
furniture use. Furniture producers have been forced to seek other sources of supply due to
hardwood lumber shortages. In addition furniture producers have shifted to alternate
materials, chiefly particleboard, softwood lumber (Eastern White Pine and Ponderosa Pine),
and plastics (frames for upholstered chairs and sofas). We estimate softwood lumber now
accounts for about 25% of total furniture/lumber usage.
Some material shifts are due to style factors or labor economies (e.g., use of
plastic molded decorated parts instead of carved wood) but hardwood shortages have forced
most of the switch. Industrial users can switch even more readily to softwoods for pallets,
crates, dunnage, etc. and have done so.
In essence, the presence of imports and the ready substitutability of other materials
and products for hardwood lumber acts as a severe constraining effect on hardwood lumber
prices.
76
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D. HARDWOOD DIMENSION AND FLOORING MILLS
This section deals with mills producing hardwood flooring and hardwood lumber cut to
a specified dimension for use in household furniture. Also included are hardwood frames for
furniture use and lumber cut to size for a variety of miscellaneous manufacturing uses.
During 1972, 585 plants operated in this industry and employed about 26,000 persons.
1. Industry Structure
Table II.D.I lists shipments in this SIC code for 1967 and 1971. Dollar sales actually
declined over that period with a substantial drop occurring in the flooring sector.
TABLE II.D.1
SHIPMcfJTSOFSIC 2423
HARDWOOD DIMENSION AND PLCORilMG MILLS
1067 Af.'D 1971
(S million*)
Percent of 1971
product 1S67 1971 Shipments
H?:dwoocl Mooring $129.2 $ 91.2 28%
Hardwooc1 Dimension Stock:
Furniture 176.3
219.8 66
Oths: Industrial 53.6
Hardwocd Dimension and
Flooring, n.s.k. ?4.3 20.6 §
Total $370.2 $331.6 100%
Sources: 1967 Census of Manufactures; 1971 Annual Survey of Manufacturer.
Table II.D.2 presents the end use markets for this sector during 1972. New construc-
tion and maintenance construction together accounted for 43.9% of purchases while the
77
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TABLE II.D.2
197k WSnilPAJ- !ON UF bl'il'
SIC 242G H/vHU'.VOOO D.r.'. r.T.IOM
AND FLOORING MILLS
Buyers
Percent of
Pt.'rctmses
Mr.intcnnnco Construction
Ctrinoncc
Lodcinn Carr.ps Si Contractor
Hatdvvo-'d Dimension; & Flooring
Miilwoik flams
Wooden Containers
\VooJ Pies-erv^uve — Miscellaneous Products
Household FuM-.ittire
Oifi'je F:urr.iture
Gor. & Vi'crod Chemicals
Fabric F-l^stic Products
Rea'-V-I/i'xeci Concrete
("?'. rn Equipment
E!-;;r;iric: Light & Wire Equipment
Motor Vehicles
JcwUry, Toys, S|-ute& Rental
Total
Components
4.D%
3.4
.1
5.5
.4
1.5
.1
6.2
3o.5
3.2
.1
.6
6.3%
Inventory
fJew Construction
.2%
39.0
r*
-------
household and office furniture industries purchased 39.7% of output. The balance of
production (adjusted for imports and exports) went to miscellaneous manufacturing indus-
tries and is properly regarded as "dimension stock" also.
The apparent disparity between shipments of flooring (289? of shipments) and pur-
chases of flooring (44% of purchases) is explained by industry members as an error in the
census data. Trade sources believe dimension shipments are overstated somewhat due to the
categorization of some hardwood flooring as "dimension" when it is shipped by a company
whose principal business is dimension manufacture. Although there is some overlap, the
flooring and dimension businesses are largely separate.
The flooring industry in the United States is not prospering. Sales of oak flooring
declined 787 in the 17 year period from 1955 through 1972 and partial data for 1973
indicates the rate of decline increased that year. Table II.D.3 lists orders, production, and
shipments of oak flooring for that period. Oak is estimated to supply over 90% of the U.S.
usage of hardwood flooring with maple providing the balance.
TABLE II.D.3
TREND Or OAK FLOORING
(stiin tvr.e — ijoth fir.iohcc.' cV.d im'iniohc-c!)
Yesr
1955
1960
1965
1956
1S37
1950
1969
1970
1971
1972
1973
(11 mo.)
Source: National Oak F
Orders
(thousand feet)
1.18S.7F.1
827,454
818,338
618,090
047,048
493,533
33C,C?9
304,436
223,301
268,194
169.0G1
looring Manufacturers Asi
FsoiJuction
(thot'ssnd fjet)
1,220,204
878,931
77S.CB6
G85.r.43
051,220
459.236
393,107
315,189
306,603
2-',4,787
174,363
ociation, Memphis,
Shipments
(thousand feet)
1,207,164
8-17,388
783,299
654,368
552,218
485,093
387,778
306,736
3?0,921
261,147
173,725
Tennessee.
79
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Flooring is sold through bulk'ing materials wholesalers and retailers. It is the largest
serior of tiie hardwood lumber industry going directly into construction (mostly residential)
but it has not benefited from recent increases in housing demand. Table II.D.4 lists the
'iistpbution of shipments by region.
TABLE ll.D.4
OAK I'LUOrUMG CHiP^FNTS CY
GLOGRAPiun REGION
1971
Percent
New Gr.nl'ncl 10.9?
'.'iddij Atlantic 27.6
North Con a 3!
E<-,si North Centra! 17.9
\Vtst Worth Central 4.0
South
Svjih Atlantic 26.1
East South Central 6.2
V.'Vst South Centrcl 1.9
Wesi
Mountain .7
Pacific 3.2
Export 1.5
Source: Op. cit., National Oak Flooring Manufacturers Association.
Hard'vood dimension is sold either directly to furniture and industrial plants (about 75
to 80" of shipments) or to wholesalers. Dimension producers tend to be located close to
t'.., ;nw material they depend on which is where the wood furniture industry is located.
'T"ne exception is p-oducrrs of frames which arc more evenly distributed according to
p'K>M'M:?r Mir-y *ramer ;'~e sold to firms which finish them by adding cushioning and
u/'i -.i".tt"->' 'c produce covered furniture. Frames and upholstered furniture are bulky to
s .-j .<'„ jre pioduced closL to consuming areas.
80
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2. Types of Firms
Firms which are active in the segment arc primarily small, independent operators. No
manufacturer dominates the industry. For example, firms with one or two flooring ma-
chines have about two-thirds of capacity currently operating. Table II.D.5 indicates the
industry to be utilizing only about 609o of equipment in place.
TABLE II.D.5
OAK FLOOR ING MANUFACTURERS: DISTRIBUTION OF PRODUCTION CAPACITY
AND CURRENT OPERATING STATUS
Number of
Machines
1
2
3-5
Total
Number
Of Firms
36
11
_£
51
Total Number
Of Machines
In Group
36
22
16
74
Number of
Machines Currently
Operating
24
10
I2.
46
Percent
Operating
67
45
75
62
3. Types of Plants
Table II.D.6 lists the number of plants and employees participating in SIC 2426 during
1972 by state. Based on the number of known flooring mills we have also estimated the
number of plants principally engaged in dimension manufacture by state. Using the sales
data presented in Tables II.D.I and II.D.2 we calculate the average sales per flooring plant in
1971 to have been about $2.5 million and the average dimension sales per plant to have
been about 5500,000. The average number of employees per plant is 45.
The hardwood business is extremely fragmented. The 1972 distribution of firms by
employment size for SIC 2426 indicates almost half of the plants had fewer than 20
employees.
Hardwood Dimension and Flooring Mills
No. of Employees
1- 3
4- 7
8- 19
20- 49
50- 99
100-249
250-499
500+
Total
No. of Mills
80
78
125
127
101
65
7
_2
585
Percent of
Mills
14
13
21
22
17
11
1
100%
Source: Op Cit, County Business Patterns 1972.
81
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TABLE II.D.6
1972 DISTRIBUTION OF PLANTS AND EMPLOYMENT
SIC 2426 HARDWOOD DIMENSION AND FLOORING
No. of No. of No. of Known No. of Estimated
State Employees Reporting Units Flooring Mills Dimension Plants
U.S. Total 26,082 5851 59 428
Alabama 813 15 5 10
A!as\a - - -'
Arke" 2,557 39 9 30
Califom.a 473 20 0 20
Colorado — — — —
Connecticut — — — —
Delaware — — — —
District of Columbia — — — —
Florida 292 6 1 5
Georgia 784 18 3 15
Hawaii — — — —
Idaho -
Illinois . 387 21 2 19
indiana (D) 19 0 19
iowa — — — —
r'.ansas — — — —
Kentucky 1,889 25 2 23
Louisiana (D) 11 0 11
Maine — — — —
Maryland — — — —
Massachusetts — — — —
Michigan (D) 22 2 20
Minnesota — — — —
Mississippi 1,789 19 1 18
Missouri 866 23 6 17
Montana — . — — —
Nebraska — — — —
Nevada — — — —
Mew Hampshire 101 7 — 7
New Jersey 151 10 1 9
flaw Mexirc — — — —
New York (D) 21 1 20
North Carolina 3,379 69 2 67
North Dakota — — — —
Ohio 414 11 0 11
Oregon 346 9 0 9
Pennsylvania — — 1 —
Rhode bland — — — —
Sc-jfh CrrjJina (D) 11 0 11
Svt-tr, D?k«*ta — — — —
Ttr. v: .;.;,. 3,742 60 13 47
, v- 193 11 0 11
82
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TABLE 11.D .6 (Continued)
No. of No. of No. of Known No. of Estimated
State Employees Reporting Units Flooring Mills Dimension Plants
Utah -
Vermont — — — —
Virginia 1.889 25 8 17
Washington 227 606
West Virginia 394 909
Wisconsin — — 2 —
Wyoming — — — —
1. Includes Guam, Puerto Rico, and U.S. Territories.
Sources: 1972 County Business Patterns, Maple Flooring Manufacturers Association, and National Oak
Flooring Manufacturers Association.
Among producers the principal difference in operations is whether or not the producer
also operates a hardwood lumber mill. Out of the 59 flooring producers identified, 18 (30%)
are believed to operate lumber mills as well. The balance buy lumber and produce flooring
from it.
Assuming the same proportion of these mills (40%) have wet decks as do hardwood
lumber mills in general, the total number of firms likely to be impacted would be only
about 8 to 10 mills.
If 40% of those harawood dimension producers with sawmills employ wet decks or log
ponds (this is the same proportion of hardwood lumber manufacturers using this method of
log handling), then only 4-6% of all hardwood dimension producers would be faced with
pollution control expenditures for log handling and storage purposes.
A second important distinction concerning dimension producers is whether they are
engaged in extensive gluing activities. An analysis was made of a trade directory listing of
255 hardwood dimension producers which identified the principal products and equipment
of each plant. The plants listed were sorted according to whether they had "extensive gluing
activities" or not. For this purpose, operation of edge gluers, electronic gluers or production
of panels and doors are examples of "extensive gluing operations" while utilization of
finger joint machines are not.
83
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The analysis showed 29% of the 255 plants fell into the category of chose engaged in
"extensive gluing operations." Listed below arc the employment si/e categories of the two
groups:
No. of Plants No. of Plants Without
With "Extensive "Extensive Gluing Total
No. of Employees Gluing Operations" Operations" Firms
0-15 1 41 42
16-30 20 33 53
31-50 7 36 43
51-99 24 28 52
100+ 22 17 39
Not reported _^ 26 26
Total 74 181 255
Source: Op Cit, 1974 Hardwood Purchasihg Handbook.
These 74 plants would be the number expected to be affected by the Effluent
Guidelines.
4. Financial Profiles
Table II.D.7 presents an estimate of total assets for a group of firms in the industry.
Our analysis for financial strength continues as follows: The average capital expenditure per
employee made in 1972 was S501.66. This means that a firm employing ten persons if it
followed the industry average for new capital expenditures would have spent about S5,000
in 1972, Our analysis of those firms with extensive gluing activities in terms of employment
TABLE II.D.7
ESTIMATED FINANCIAL STRENGTH OF OAK AND MAPLE FLOORING MANUFACTURERS
WHO ALSO OPERATE SAWMILLS
Number of Percent of
Estimated Net Assets Manufacturing Firms Total
Over $1,000,000 8 44
$500,000 to $ 1,000,000 2 11
$ 125,000 to $ 500,000 2 11
S 35,000 to $ 125,000 1 6
S 500 to S 35,000 0 0
Net Assets Undetermined 5 28
18 100%
Sources: Op.cit., National Oak Floorinq Manufacturers Association, Maple Flooring Manufacturers
Association, and Lumbermen's Redbook.
84
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size shows only one firm employing 0 to 15 persons which falls into the category of being
an extensive gluer. The next group is 20 firms with 16 to 30 employees. At an average of
S500 of capital expenditures per employee the 20 firms would have expended from
$8,000-515,000 each for new capital equipment in 1972. All other firms with the exception
of the one small firm would be above that category and we feel it is reasonable to expect the
larger firms spent more than SI5,000 in 1972.
5. Pricing
Prices are determined by the cost of raw material (lumber in most cases, timber in
some) which are affected more by industrial demand than by shifts in housing, and by the
cost of converting the product. Due to decreased hardwood log supplies, prices have moved
up in recent years.
There is no index of dimension prices because there are no standard products. Prices
reflect the cost of lumber and converting costs tempered by demand. During the last several
years, shortages of lumber and strong furniture demand have pushed prices up sharply.
85
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E. SPECIAL PURPOSE SAWMILLS
This section deals principally with producers of two products - shingles and shakes
(hereafter referred to as "shingles") and cooperage stock (the material from which barrels and
kegs are produced). In 1967 firms in this category shipped SI 15.6 million of goods but by
1971 shipment? had dropped to $99.3 million.
1, -nci'jstry' Segments
The U.S. County Business Patterns reported 452 firms in this category in 1971 and
total industry employment of 6,185 persons. Small firms dominate the industry in terms of
employment as reflected in the distribution of firms by employment size shown below:
Employment Size
Category 1-3 4-7 8-19 20-49 50-99 100-249 250-499 500+
Number of Reporting
Units 138 83 136 71 20 4 -
% of Reporting Units 31% 18% 30% 16% 4% 1%
79%
Source: 1971 County Business Patterns.
The industry should be segregated into categories according to principal product
manufactured for the following reasons:
1. Shingle producers do not manufacture cooperage nor vice versa.
2. The manufacturing technologies are quite different.
3. Shingle manufacture is centered in the West (Oregon and Wi. '-ington had
457o of the units reported in SIC 2429 in 1971) while cooperage is produced
in the Eastern U.S.
4. Shingles are made from softwood (mainly cedar) while cooperage is made
from hardwood (mostly oak).
2. Shingle Producers
During 1967, shingles shipped had an aggregate value of S60.9 million and domestic
industry production totalled about 3.5 million "squares" which is the unit of production.
This kvel of production was estimated to equal about 50> of U.S. consumption with the
balance imported entirely from Canada (British Columbia). Red cedar is the raw material for
93% of the shingles produced.
86
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Shingles are sold almost exclusively for usage in new construction and for maintenance
(roof repair). As a result, prices tend to be volatile depending upon the building cycle. In
addition old growth Red Cedar, the principal raw material, is not in plentiful supply and
total U.S. production capacity is limited by this decreasing resource.
Sales are generally made to wholesalers or sales agents as very few producers are large
enough to control their own distribution. Consumption is regional and during 1971 four
states accounted for over 67'','1 of consumption.The lead ing consuming states were California
(34%), Texas (19%), Washington (9%), and Oregon (4%).
a. Types of Firms
Firms active in this industry sector are small, independent and family-owned and
operated. This is a specialized, low-barrier to entry, low-margin business sector. The active
firms have been in the business through several generations and are managing to continue
operations in spite of the declining market.
b. Types of Mills
Shingle producers are distinguished most by their very small size. The industry trade
association is the Red Cedar Shingle and Handsplit Shake Bureau and their 1973 member-
ship roster lists 226 firms operating in Oregon, Washington, and Idaho. These producers are
believed to represent over 90% of U.S. production, implying average sales per firm are only
S200.000-S250,000. About 30% of shingle producers or 75 firms will be affected by the
proposed regulations. Of this group, 10% operate using log or mill ponds.
Most shingle mills may not be affected because they utilize dry decks only for log
storage. An inventory of association members showed 160 mills (71%) used dry decks only,
44 mills (19%) used wet decks, and 22 mills (10"r) have log or mill ponds. This means only
29% of producers will be affected if the proposed regulations are put into effect.
Table II.E.I presents the same analysis of estimated plant value for the 66 firms
identified who would be affected by the proposed regulations.
c. Financial Profiles
The most important equipment shingle producers utilize is shingle machines and
shake resaws. The current cost of these machines is about S20.000 and SI0,000 respectively
and such equipment usually represents about 40% of the total value (exclusive of land) of a
mill. Table J1.E.2 below is a distribution of the estimated replacement cost and estimated
total value of plant (exclusive of land) for the association member mills. Using this method
of estimating assets employed, we calculate over 70% of producers have a replacement value
of plant under $100,000 indicating the very small scale of operations which prevail.
87
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TABLE II.E.1
DISTRIBUTION OF AFFECTED SHINGLE MILLS BY
ESTIMATED REPLACEMENT VALUE OF
TOTAL PLANT ASSETS
Estimated Replacement Value
of Total Plant Assets
Up u i 50,000
f, 51,000 to Si 00,000
No. of Mills No. of Mills With
With Wet Decks Log or Mill Ponds Total Percent
11 3 21%
11 5 24
31 01, 000 to $200,000
8201,000 to 3500,000
Over $500,000
Not Reported
15
4
1
2
8
5
r
_
35
14
3
3
Total
44
22
*Has both wet deck and log pond.
Sources: On. cit., Arthur D. Little, Inc., estimates and Red Cedar Shingle and Shake Bureau.
d. Pricing
There is no pattern of price leadership by any single dominating firm. Prices are set
d 'v market demand for and supply of competitive materials, e.g., aluminum and vinyl
iiiHng, or plywood and hardboard exterior paneling. The individual producer of shingles
v'u rually no influence on the price of its end product.
jga Producer-,
C"- CTSJC mills are located mainl.v in the Eastern states near sources of oak lumber.
'1;>nv mills in fact are actually portable facilities which are moved from site to site rather
1 i:1, : T:rM.i.~nt!y situated.
88
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TABLE II.E.2
DISTRIBUTION OF SHINGLE MILLS BY
ESTIMATED REPLACEMENT VALUE OF
PRINCIPAL MACHINERY AND TOTAL PLANT ASSETS
Replacement Cost of Shingle Estimated Total Value No. of Percent of
and Shake Machines of Plant Assets Firms Firms
(exclusive of land)
Up to $20,000 Up to $50.000 118 52%
$21.000 to $ 40.000 $ 51,000 to $100.000 45 20
$41.000to$ 80,000 $101,000 to $200.000 34 15
$81,000 to $200.000 $201,000 to $500,000 12 5
Over $200.000 Over $500.000 2 1
Not Reported - 15 7_
Total 226 100%
Sources: Arthur D. Little, Inc., estimates and Red Cedar Shingle and Shake Bureau, Seattle, Washington.
Staves are produced from bolts or billets which are logs that have been bucked to the
desired length. They ar.- not debarked prior to sawing nor is the residue usually chipped.
Very few mills are believed to wet deck logs and none are known to use log ponds.
Whiskey producers are the largest market for barrels and are estimated to consume over
three fourths of industry production. The other important markets utilize barrels for a
variety of industrial shipping purposes.
\
Klost cooperage producers make staves and heading (barrel ends) only and do not carry
the manufacturing process forward to also make barrels and kegs. Table II.E.3 indicates the
proportion of cooperage producers estimated to make various cooperage products.
89
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TABLE II.E.3
% OF 69 COOPERAGE PRODUCERS
MAKING SELECTED PRODUCTS
# %
Tight Staves and Heading 44 75
Tight Barrels and Kegs 16 27
Slack Staves 3 5
Slack Heading 2 3
Slack Barrels and Kegs _4_ _7
Total 69 n.g.
Source: The Associated Cooperage Industries of America
The estimated financial strength of 69 cooperage producers identified is shown in
Table II.E.4. Because of their small size and the mobile nature of the industry, very few
producers are rated by financial reporting services.
TABLE II.E.4
ESTIMATED FINANCIAL STRENGTH OF 69
COOPERAGE PRODUCERS
Net Assets # %
UptoS35,000 2 3
$35,000 to SI25,000 4 7
$125.000 to $500,000 3 5
$500,000 to $1,000,000
Over $1,000,000 7 12
No Net Assets Determined 14 24
Not Reported 28 48
58
Source: The Associated Cooperage Industries of America. St.
Louis, Missouri, Op Cit, Lumbermen's Redbook.
Cooperage production does not involve use of wet decks or log ponds and therefore no
water pollution is known to result.
90
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F. PARTICLEBOARD
1. Industry Structure
a. Product Definition*
Particlcboards are board products Which differ from conventional fiberboards in that
they are composed of distinct particles of wood or other ligno-cellulosic materials which are
bonded together with an organic binder. The "particles" vary in size and must be distin-
guished from the fibers used in insulation and hardboard. Other terms used for particleboard
include chipboard, flakeboard, silverboard, shaving board, and wood waste board. Particle-
board is a highly engineered product which can be formed to meet varied specifications. As
a result of its being produced in wide density ranges, it is usually divided into categories of
low density (0.25 to 0.40 g/cm3) (15 to 25 lb/ft3), medium density (0.40 to 0.80 g/cm3)
(25 to 50 lb/ft3), and high density (0.80 to 1.20 g/cm3) (50 to 75 lb/ft3).
Low density particleboards are manufactured specially for their lightness of weight for
use either as panel material, where heat or sound insulation is important, or as a core in
veneered constructions where weight savings are important. These boards are usually
manufactured in thicknesses of no greater than 2.5 cm (1 inch).
Most of the particleboard currently produced can be classified as medium density
board having a density some 10 to 20 percent higher than that of the species of wood or
material used. This density range yields the most desirable properties per unit weight and is
easiest to produce. The mat-formed board may be homogeneous throughout its thickness
with respect to the particles used; or it!may be composed of two or three different layers.
Extruded particleboard, however, must use the same type of particle throughout its
thickness because of the nature of its production.
High density particleboard is quite similar to hardboard in density, appearance, and
application, the basic difference being one of bond. It is usually produced in the same
thicknesses as conventional hardboard, and the small sized particles which are used may
approach wood fiber in site.
b. U.S. Production and Shipments
Production and shipments of particleboard have experienced a faster rate of growth
than any other forest product over the past decade. For example, production (3/4" basis)
has increased from 496 million square feet in 1963 to a high of 3117 million square feet in
1972, an annual increase of 22%. Every year in this period has shown an increase over the
previous one and, although the rate of growth has slowed with time, it is still a great deal
"As contained in the Development Document.
91
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Million
Square Feet
(3/4" basis)
883.2
1050.9
1371.2
1615.3
1662.2
2299.6
3013.4
Average Value
(S/MMSF)
$ Million
88.7
97.1
141.9
200.8
159.4
206.3
289.6
Actual
100
92
104
124
96
90
96
Relative*
108
92
103
140
74
67
69
TABLE II.F.1
SHIPMENTS OF PARTICLEBOARD, 1966-1972
Year
1966
1967
1968
1969
1970
1971
1972
'Relative to All Commodities price index, 1967 = 100.
Source: U.S. Department of Commerce "Current Industrial
Reports" Series MA-24L.
faster than the growth being experienced by its consuming industries. The shipments of
particleboard in the period 1966-1972 are shown in Table II.F.I. The value of shipments, in
current dollars, indicates a declining trend in average value per thousand square feet of board;
this decline is all the more significant when viewed on a constant dollar basis, i.e., relative to
the all commodities price index.
Historically, the western region of the United States has been the principal producing
area. Particleboard plants were established to utilize waste from saw mills and other forest
product operations. The regional distribution of production, shown in Table II.F.2, in-
dicates that the recent growth in production has been much more rapid in the southern
states, especially the West South Central region which includes Arkansas, Texas and
Louisiana. For example, Western states' production of particleboard decreased from 55% of
the total in 1968 to 44% in 1972; production in the West South Central states increased
from 10.5% to 18.5% in the same period.
TABLE II.F.2
PRODUCTION OF PARTICLEBOARD, BY REGION 1968-1972
(1000 sq.ft., 3/4" basis)
1972 1971 1970 1969 1968
East
South Atlantic
t .st South Central
West South Central
West
TO FAL U.S.
Source: U.S. Department of Commerce "Current Industrial Reports" Series MA-24L.
92
210,902
605,635
i47,3S4
574,361
1,378,955
3, 117,24;
178,899
420,578
258,654
402,990
1,132,638
2,393,760
153,197
315,644
169,436
238,990
886,281
1,763,548
164,023
289,248
155,186
226,232
881,370
1,716,059
132,449
242,980
122,034
150,539
776,986
1,424,988
-------
Floor underlayment board, used as a base to carpeting and resilient flooring in
residential construction, represented nearly 40??-of the 1968 production but this proportion
dropped to 307< in 1972, despite the considerable growth experienced by the residential
sector (+60?<) during that period. (Table II.F.3) The growth rate of 14.5% compares to that
of about 279c for industrial grades; the latter increased their proportion of the total from
6\c/'< to 709r. Floor underlayment grades are predominately in the 5/8" si/e while industrial
board for furniture and other manufacturing industries is distributed between many thick-
nesses with an even concentration in the 3/4" and 5/8" si/.es. It is anticipated that the
proportion of underlayment grades will continue to decline and will thus result in a higher
average unit value on a constant dollar basis.
TABLE II.F.3
PRODUCTION OF PARTICLEBOARD BY TYPE, 1968 & 1972
{MMSF, 3/4" basis)
1968 1972
Product MMSF % MMSF %
Total 1391 100 3117 100
Floor Underlayment 547 39.4 941 30.1
5/8" board 384 27.6 644 20.6
3/8" board 82 5.9 130 4.1
Other 82 5.9 168 5.3
Industrial and Other 844 60.6 2176 69.8
3/4" board N.A. - 708 22.7
5/8" board N.A. 676 21.6
1/2" board N.A. 238 7.6
Other N.A. - 553 17.7
Source: U.S. Departme it of Commerc; "Current Industrial Reports"
Serins MA-24L
It is significant to note that particleboard manufactured by the mat forming process
represents all but 38 million square feet of total 1972 production of 3.1 billion square feet.
Extruded board has not enjoyed any long-term growth and, in fact, decreased from a total
of 49 million square feet in 1965 to 38 million square feet in 1972. This extruded board is
almost entirely of captive production by furniture manufacturers in the Southern states,
although one new plant came on stream in California in 1972.
Domestic trade in particleboard between the U.S. and foreign countries has been
negligible and is mostly with bordering countries. As Table II.F.4 shows, exports have
increased considerably in the period 1970-1972, from 11.8 million square feet to 53.8
million square feet, but still represent an extremely small proportion of total U.S. produc-
tion (1.7%). The value of exports "free alongside ship" totalled 6.3 million dollars in 1972.
Imports have also grown in recent years but still represented less than 1% of the value of
apparent consumption in 1972.
93
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TABLE II.F.4
EXPORTS AND IMPORTS OF PARTICLEBOARD
Exports Imports
Year MMSF $MM MM Lbs. $MM
1970 11.8 1.6 10.2 0.6
1971 23.9 3.2 23.9 1.4
1972 53.8 6.3 33.8 1.9
Note: Export value "free alongside ship." Import
value is market value in foreign country, ex-
cluding, freight, insurances, taxes, duties.
Source: U.S. Department of Commerce Schedule "B".
c. Applications
Particleboard's rapid growth has been due in part to the overall growth of industrial
and construction activity in the past few years, but mainly to its displacement of other
materials in both of these markets. The product that is threatened most severely by
particleboard is softwood plywood, but hardwoods are also being displaced in furniture
applications. This displacement has been taking place on the basis of more favorable
economics but the particleboard industry has at the same time been improving the quality
of various grades. For example, underlayrnent grades have improved performance and are
gaining acceptability in the past five years; these have rapidly displaced softwood plywood
in residential and mobile home construction as prices for the latter have continued to
increase. In furniture applications, industrial corestock grades have also improved in per-
formance and furniture manufacturers are able to work the board into various forms
without affecting its structural integrity.
The largest single application of particleboard is in underlayrnent, both conventional
and mobile home decking. These two applications represent approximately 30% of total
particleboard consumption. An additional 5% also serves the construction industry, but
mostly for interior applications such as shelves, partitions and doors. The furniture and
cabinet applications represent approximately 55% of consumption with kitchen and other
cabinet manufacturers and household furniture each taking approximately 20% and com-
mercial and institutional furniture applications, the remainder. The balance (10%) of U.S.
consumption is mostly in industrial, do-it-yourself and miscellaneous applications.
Much of recent particleboard market growth has been stimulated by the growth of the
consuming industries. For example, housing starts increased from 1.5 million units in 1970
to 2.4 million units in 1972, an aggregate growth of 60%, in comparison to the growth of
particleboard at 80%. Although future growth will still be largely dependent on that
anticipated in the construction, cabinet and furniture industries, particleboard will continue
94
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to grow at a much more rapid rate than the customer industries and will be used increasingly
in newer applications.
Housing starts are unlikely to reach the levels set in 1972 before the end of the decade
and so considerable downward pressure will be placed on the underlayment sector of the
particleboard industry. However, the U.S. Forest Service has projected unit demand for
particleboard in residential construction to grow as follows:
(Square Feet, 3/4" Basis)
Year 1-and 2-Family Multifamily Mobile Homes
1970 250 55 560
1980 420 70 650
1990 590 85 715
Source: U.S. Department of Agriculture: Outlook for Timber
in the U.S.
The growth of the furniture industry will range from 47c for household furniture to 8%
for commercial and institutional and 10% for the cabinet industry, but the growth of
particleboard consumption in these sectors is likely to be at least twice these rates. In
summary, we anticipate that the unit growth in particleboard consumption will average 12%
to 15% per year for the remainder of this decade.
The medium density fiberboard (40 to 45 Ibs./cu. ft.) proportion of particleboard
shipments, currently representing about 12% of total production, will grow very rapidly as
much of new plant additions and capacity expansions are in this specialty type of board
serving the furniture corestock industry.
d. Marketing and Distribution
The distribution channels used to market particleboard are mainly dependent on
whether new construction, O^M or remodeling markets are being served. Particleboard used
as underlayment in new construction is distributed through building materials wholesalers
and retailers and sold to homebuilders. Physical distribution from the plant to the whole-
salers is mainly by rail, with some local truck shipments. A similar channel of distribution
serves the remodeling and do-it-yourself purchasers but the unit sales at the retail level are in
considerably smaller volumes.
OEM markets, principally the cabinet, furniture and mobile home industries, are served
by direct shipments after prices and contractual details are established between the mills and
the customers. A large proportion (perhaps one-half) of the industrial board is cut-to-size to
customer specifications by the manufacturer before shipment and edge banding may also
take place. Some distribution is carried out through wholesalers, especially in the case of
kitchen cabinet manufacturers and other small industrial customers which do not qualify for
95
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the volume quantities demanded for direct shipments. Some pooling of shipments can also
take place for these users.
2. Types of Firms
Manufacturers of particleboard span the spectrum of industrial firms in terms of
size, diversification, assets and form of ownership. The following principal groupings can be
identified:
• Major integrated forest products companies, such as Champion International
and Weyerhaeuser, who operate many facilities and who utilize waste from
their other operations in making the board.
• Other major forest products corporations, such as Masonite and American
Forest Products, with only one facility.
• Small firms which are divisions or subsidiaries of larger corporations, such as
Kirby Lumber and Wickes Forest Industries.
• Furniture companies which operate a particleboard plant largely for captive
consumption, such as Bassett and Broyhill.
About 38 companies operate the 75 plants, with Georgia Pacific owning 6 locations
with a total capacity of 416 million square feet (11% of industry). The largest four
companies operate 36% of capacity.
3. Types of Plants
The particleboard industry presently consists of 74 manufacturing facilities, 67 produc-
ing a mat formed board and the remainder, an extruded type. These plants are listed in
Table II.F.5, together with the capacity, product trade names and uses for each.
Total industry capacity was approximately 3.3 billion board feet in 1972 and capacity
utilization approximately 91%. Medium density fiberboard and other specialty boards
represented about 20% of total capacity. Announced capacity additions, listed in
Table II.F.6 (including 11 new plants), will increase industry capacity to approximately 4.7
billion square feet by 1976; capacity utilization in 1973 through 1976 will be lower than
the 1972 level, especially in the West, but will reach 90% shortly.
The geographic distribution of manufacturing capacity is shown in Table II.F.7. More
than half of the plants are located in the South with only 8 in the East and the remainder in
the West. The principal manufacturing state is Oregon, with North Carolina having the
second largest concentration of facilities. Future additions to capacity are dispersed but
again with heavy concentration in the South and West.
96
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TABLE II.F.5
PARTICLEBOARD PLANTS (MAT FORMED) - U.S.A.
Company
Location
American Forest Products Corp. Martell, Calif.
Basset Furniture Bassett, Va.
Boise Cascade Corp. LaGrande, Oregon
Broyhill Furniture
Carolina Forest Products, Inc.
Cascade Fiber Co.
Champion International
Champion International
Champion International
Champion International
Cladwood Co.
Cladwood Co.
Clear Fir Products Co.
Lenoir, N.C.
Wilmington, N.C.
Eugene, Oregon
Redding, Calif.
Gaylord, Michigan
North Oxford, Miss.
South Boston, Va.
Virginia, Minn.
Sweet Home, Oregon
Springfield, Oregon
Capacity
(MMSF-3/4" basis)
100
20
170
30
12
52
43
98
104
70
13
10
10
Tradenarnes
BCC underlayment,
BCC industrial
BCC mobile home decking
Shav-Bond, Dina-Shav
Firlok, Fircraft
Fiber Face Novoply,
Novowood, Novodeck,
Corteza
Novoply, Novowood,
Novodeck
Novoply, Novowood,
Novodeck
Novoply, Novodeck
Cladwood
Cladwood
Custon-Carv Plantons,
Denswood, Castwood
Uses
Corestock, furniture
Corestock, furniture
Furniture, toys, lumber banking,
custom routing & shaping
Underlayment, furniture core
Doors, Cabinet and furniture, stock.
shelving, games, underlayment,
store fixtures
Core stock, furniture, shelving,
cabinets, coach floor, doors
Core stock, furniture, shelving,
cabinets, coach floor, doors
Core stock, furniture, shelving,
cabinets, coach floor, doors
Exterior siding & building board
Siding for home and industrial uses;
soffet, gables and all ext. use.
Shelving, decorative material,
door panels
-------
TABLE II.F.5 (Continued)
vo
oo
Company
Collins Pine Co.
Evans Products Co.
Florida Plywood
Georgia Pacific Corp.
Georgia-Pacific Corp.
Georgia Pacific Corp.
Georgia Pacific Corp.
Georgia-Pacific Corp.
Georgia-Pacific Corp.
Giles & Kendall Inc.
Golden State Building Products
Location
Chester, Calif.
Missouia, Mont.
Greenville, Fla.
Crossett, Ark.
Ukiah, Calif
Vienna, Ga.
Louisville, Miss
Taylorsville, Miss.
Russellville, S.C.
Maysville, Ala.
Redlands, Calif.
Hambro Forest Products Inc. Crescent City, Cal.
Humboldt Flakeboard Arcata, Calif.
International Paper Co.
Malvern, Ark.
Capacity
(MMSF-3/4" basis)
24
/o
10
33
85
85
55
90
100
7
30
23
85
70
Tradenames
Collins Flakeboard,
Collins Coreboard,
Collins Door-core
Evans, Evans Dyna-Bord
Georgia Pacific
Particleboard
G-P Particleboard
G-P Particleboard,
G-P floor underlayment,
Georgia-Pacific Mobile
Home Underlayment
G-P Particleboard
Cedarline
Econline, Edgetite
Cresdek, Crestflake,
Creslay
Humboldt Flakeboard,
Mobil-dek, X-57 Modular
Long-bell, Flakelock,
Filcote
Uses
Core stock, door stock
Industrial core stock, underlayment
Underlayment & core
Core stock & underlayment
Core stock & underlayment
Underlayment & core stock
Closet lining & decorative paneling
Floor underlayment, furniture core,
spec, applications
Mobile home decking, industrial,
underlayment
Cabinets, furniture laminates,
shelving, mobile home flooring
Industrial core stock, cabinets,
countertops, fixtures, partitions,
underlayment
-------
TABLE II.F.5 (Continued)
Company
International Paper Co.
International Paper Co.
Kroehler Mfg. Co.
Louisiana Pacific Corp.
Louisiana Pacific Corp.
Masonite Corp.
Mexwood Products Inc.
Nu-Woods Inc.
Olinkraft Inc.
Pack River Co.
Permaneer Corp.
Permaneer Corp.
Permaneer Corp.
Permaneer Corp.
Permaneer Corp.
Permaneer Corp.
Location
Greenwood, S.C.
Longview, Wash.
Meridian, Miss.
Urania, La.
Corrigan, Texas
Waverly, Va.
Albuquerque, N.M.
Lenoir, N.C.
Lillie, La.
Sandpoint, Idaho
Hope, Ark.
Black Mountain, N.C.
Brownsville, Oregon
Dillard, Oregon
White City, Oregon
Jackson, Texas
Capacity
(MMSF-3/4" basis)
75
12
18
72
90.
65
30
22
102
20
18
18
27
34
45
18
Tradenames
Long-bell, Flakelock,
Filcote
Long-bell
Maxi-Board
Georgia-Pacific Particle-
board, G-P Flakeboard,
G-P mobile home decking
Presdflake, Masonite
Underlayment
Lignabond, Homo,
Super 3/Layer
Tuf-flake
TENEX, Ranch N'Cabin
Dor-Core
Uses
Industrial corestock, cabinets,
countertops, fixtures, partitions,
underlayment, gen'l. const.
Underlayment, gen'l. const.
Furniture mfg.
Core stock & underlayment
Furniture, toys, mobile home &
commercial const & underlayment
Underlayment, core stock
Furniture
Underlayment, mobile home-decking,
industrial
Interior wall paneling ceiling tile,
utility board
All output used internally
Output used internally; Dor-Cor &
drawer sides sold externally
All output used internally
All output used internally
All output used internally
All output used internally
-------
TABLE II.F.5 (Continued)
o
o
Company
Rodniann Industries Inc.
Roseburg Lumber Co.
The Singer Co.
Southwest Forest Industries
Stoors Wood Products
Temple Industries
Temple Industries
Temple Industries
Tenn- Flake Corp.
Tenn-Flake Corp.
Timber Products Co.
Union Camp Corp.
Ward Industries Inc.
Westvaco Crop.
Weyerhaeuser Co.
Weyerhaeuser Co.
Weyerhaeuser Co.
Location
Marinette, Wise.
Roseburg, Oregon
Trumann, Ark.
Flagstaff, Ariz.
Evanston, Ind.
Capacity
(MMSF-3/4" basis)
20
300
21
24
17
Thompson, Ga.
Diboll, Texas
Pineland, Texas
Middlesboro, Ky.
Morristown, Tenn.
Medford, Oregon
Franklin, Va.
Miami, Okla.
Tyrone, Pa.
Adel, Ga.
Broken Bow, Okla.
Klamath Falls, Oregon
100
85
10
50
g
60
61
31
4
35
100
56
Tradenames
Resincore
Resin-tite
Kachinaboard
Trimwood
Tenn-Flake
Tenn-Flake
Thundcrboard,
Totemboard,
T.P. Board
Cedarfresh
Timblend, Versabord
Versabord, Timblend
Uses
Furniture
Furniture core stock, industrial
applications
Furniture Parts
Printing, laminating, furniture,
cabinets, drawer parts
Corestock, furniture stock, cut-to-
size, door stock, dinette seats
Core mat'l for vinyi, high pressure
laminates, printing and embossing
Core mat'l for vinly, high pressure
laminates, printing and embossing
Industrial
Closet lining, decorative paneling
Furniture parts, core stock, floor
underlayment, mobile home decking
Furniture core, floor underlayment
-------
TABLE II.F.5 (Continued)
Company
Weyerhaeuser Co.
Weyerhaeuser Co.
Wickes Forest Industries
Willamette Industries, Inc.
Willamette Industries, Inc.
Willamette Industries, Inc.
American of Martinsville
Dixie Chipboard Co.
Georgia-Pacific Corp.
Williams Furniture Div.
Jasper-American Mfg. Co.
Lane Co., Inc.
Lenoir Chair Co.
Pacemaker Div.
Broyhill Industries
Woodcore. Inc.
Capacity
Location
Springfield, Oregon
Marshfield, Wise.
Chowchilla, Calif.
Ruston, La.
Albany, Oregon
Bend, Oregon
Martinsville, Va.
Rural Hall, N.C.
Sumter, S.C.
Henderson, Ky.
(MMSF-3/4" basis)
90
50
35
70
160
103
10
12
12.5
7
Tradenames
Versabord, Timblend
Vinylhue
Timblend, door core,
mobile home deck
Duraflake South
Duraflake
Alpine, Korpine,
Florpine
Particle Board
Stylemasters
Altavista. Va.
Newton, N.C.
Scottdale, Pa.
15
4
1.2
Lanewood
Scotbord
Source: 1973 Directory of Forest Products Industry, July 1973 issue of Forest Industries.
Uses
Underlayment, industrial, mobile
home underlayment, vinyl substrate
Furniture corestock, door core,
floor underlayment
Industrial, furniture decking,
countertops, underlayment
Industrial and furniture requirements,
decking underlayment
Industrial corestock for furniture
and cabinet requirements
Core stock in wood furniture
Corestock, lumber banded furniture
stock, cut-to-size panels, tubular
partitions and door cores
Furniture parts
Lumber edge banded, table tops,
kitchen cabinet doors, door cores
Furniture, core stock
Furniture
Core stock
-------
ANNO! i;"ZED ADDITIONS AND EXPANSIONS •
i'ARTICLEBOARD PLANTS
Blandm V>'o^' f'".' C,nr\s
Champion ihtt msl i. 'i~>=;
Chjrnpion hu.f-r< juc.'-.l
FibreboatrJ S-r^i'ucU
Georgia-f'3crfic
Georgia 1- ;;c !•":"
Golden Stat'- ^••'ifiirQ Products
Holly H.ii i.umt.---'
Kirby Lu'rii;.^
Louisiana-Pacif'f
MacMilian BU-joc1'-!
Medfc-ro
Olinkrp.fi
Plum Creek Lt.'f. jei
Pennantes
Willam-'-ts3 'nctu'ifn?'"
Grand Rapids, Minn. —new
Gnylord, Mich.
R'^nner, Mont. — new
Rocklin, Calif. — new
Whiteville, N.C. - new
Montacello, Ga. — new
Fiedland, Calif.
Holly Hill, S.C. -new
Siisbee, Tex.
Oroville, C;ilif. — new
Pine Hill, Ala. - new
Medford, Ore. -new
Monroevilte, Ala. — new
Columbia Falls, Mont, —new
Hope, Ark.
Send, Ore.
TAE?!.E il.F.7
GEOGRAPHIC DICTR'BUTiON OF U.S. PARTICLEBOARD PLANTS
Middle Aticncic
East North Cenc^!
West North Centra!
South A'ciantic
East South Cei' rai
West Sout'-, Centra!
Mountain
Pacific
Mat Formed
1
4
1
14
1
13
4
J23
67
Extruded
1
5
1
Plant capacities r.'nu'C from 7 million square feet, 3/4" basis, to the largest at 300
million square feel (Roicbiiri1, Lumber in Rcseburg, Oregon). The largest concentration is in
those facilities sued at b^vveen 25 and 100 million square feet of annual capacity. The
average unit capacity is approximately 45 million square feet, 3/4" basis, but newer facilities
are constructed at about 70 million square feet each.
102
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4. Financial Profiles
In 1972, the average mill net price for particleboard in the United Slates, after
appropriate discounts, was approximately $93. A typical plant with an annual capacity of
approximately 70 million square feet, 3/4" basis, would have a net asset value of about $9
million and annual net sales of S6.0 million. Table II.F.8 illustrates the typical financial
profile for such a facility.
TABLE II.F.8
FINANCIAL PROFILE- PARTICLEBOARD PLANT
$
% (1,000)
Net Sales 100.0 6,000
Cost of Goods Sold 63.0 3,780
G.S. &A. 10.0 600
73.0 4,380
Operating Profit 27.0 1,620
Provision for Income Tax 13.5 810
Net Income on Sales 13.5 810
Return on Net Assets 9.1
Net Assets: $9,000,000
Annual Capacity: 70,000,000 SF (3/4" basis)
Employees: 200
Source: Arthur D. Little, Inc., estimates.
1972 represented a good "typical" year for analyzing the financial performance of the
industry; 1973 undoubtedly was more profitable. A combination of lower capacity utiliza-
tion rates, especially in the West, and steeply increasing raw materials and resin costs will
dampen performance to 1971-72 levels in the period 1974-1976. It is thus important to base
the economic impact analysis on 1972, a representative year.
5. Pricing
Price setting in the particleboard industry depends very largely on the product being
considered. Underlayment and mobile home decking are regarded as commodities and the
products are priced to reflect market demand, the costs of substitute materials and capacity
utilization rates. Underlayment and mobile home decking products thus vary greatly in price
from year to year, even from week to week. The average selling price in constant dollars,
however, has declined steadily over the past decade until 1972 but has increased sharply since
then. The steady decline in prices resulted primarily from increased efficiency in the
103
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industry as manufacturing processes became more sophisticated and automated (the in-
dustry is relatively young) but also as additions to capacity shrunk the competitive radius
for a particular mill to a regional, rather than a national one. Two levels of prices are
prevalent in the United States today — those representing plants located in the South and
East and those for the West.
Consumption of underlaymcnt is largely related to housing starts and thus it is
concentrated in the more populous regions, especially the Northeast and Midwest where
product acceptability and house design have been favorable. Thus, freight equalization from
regional manufacturers takes place and f.o.b. mill prices for Southern suppliers are a great
deal lower than for those in the Northwest. Delivered prices, however, will generally be
equivalent.
Tha following f.o.b. mill prices, after appropriate discounts, existed in December,
1972, and December, 1973 for underlayment grades:
5/8" Particleboard Underlayment (S/MSF)
West South
December 1972 53 38
December 1973 120 100
The steep increases in prices to some extent reflected price decontrols but also resulted
from the relative unavailability of plywood (many customers were on allocation during
1973) and the resulting strong demand for particleboard by furniture manufacturers. These
price levels will not be maintained during 1974; prices should drop to about S80 and .$65
for the West and South, respectively, reflecting the steep decline in housing starts this year,
then remain relatively stable but reflecting the cyclically of housing starts.
The pricing for corestock and industrial grades is very different from that of underlay-
ment, and historically more stable. The product is used in various structural applications
where physical characteristics and performance (such as wear, durability, screwholding,
abrasive resistance, tensile strength, smoothness, etc.) are extremely important. Customer
requirements will vary depending upon the end use of the product and thus a great deal of
product differentiation, and even the use of brand names, takes place. A furniture manu-
facturer, for example, will examine and test a range of boards before selecting those that
meet his specifications. He will then negotiate a contract to reflect price, quantities and
delivery schedules with the suppliers. Any manufacturer wanting its particleboard to be
selected by a potential customer must thus submit the product for performance and
economic evaluation.
Thus, although product prices fall in a number of general ranges to reflect different
levels of quality, there is no quoted market price for corestock grades and most prices are
negotiated directly to reflect both the performance standards and the services (cutting to
104
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shape, edge banding, etc.) that the manufacturer will provide. Prices for corcstock grade are
higher than for underlayment.
Table II.F.9 shows the actual average selling prices prevalent for underlayment and
corestock grades originating in both the West and South during 1972 and developed in our
surveys at that time. It is interesting to note the reversal in the relationship between these
prices from each region. For example, underlayment grade from the West is 50% more
expensive than from the South on a mill net value after appropriate discounts. The reverse is
true for the corestock grades. Southern products are more expensive. This pricing strategy
reflects in part the principal concentrations of demand for each type of product. Underlay-
ment grades are largely being shipped to the Midwest and Northeast while corestock grades
will serve the furniture industry concentrated in the South. Thus, in order for the
Western mills to compete with the South for the corestock grades, a larger allowance for
freight must be made. In addition, however, the southern mills have the capabilities to
produce a higher quality, and thus a more expensive product than plants in the West.
TABLE II.F.9
PARTICLEBOARD PRODUCTION AND VALUES, 1972
(3/4" basis, mill net values after discounts)
Underlayment
Corestock & Other
Total
MMSF S/MSF SMM MMSF $/MSF SMM MMSF S/MSF $MM
West
South and East
United States
320
621
941
54
38
43
17.3
23.6
40.9
1059
1117
2176
90
130
111
95.3
145.2
240.5
1379
1738
3117
82 112.6
97 168.8
90 281.4
Source: U S. Department of Commerce "Current Industrial Reports," Series MA-24L, and
Contractor estimates.
105
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G. MILLWORK
This sector covers producers of millwork products which includes mainly window
units, parts, and farms; doors; finished wood mouldings;and cabinet work and architectural
millwork. Table II.G.l lists the principal millwork product categories shipped during 1967
and 1971.
TABLE II.G.1
MILLWORK SHIPMENTS BY TYPE OF PRODUCT: 1967 AND 1971
($ million)
1967 1971
Windows, parts, and frames 246.0 351.6
Doors 404.9 547.8
Finished wood mouldings 195.7 365.6
Cabinet work to be built in
and architectural millwork 249.5 415.1
Millwork N.S.K. 241.0 260.1
Total 1,337.1 1,940.2
Sources: 1967 Census of Manufactures, 1971 Annual Survey of
Manufacturers.
These firms are not likely to be affected by the proposed regulations because:
a. They do not use glue extensively.
b. Many are small "garage shop operators" or ancillary to other activities (i.e., a
door shop owned by a retail lumber dealer) and
c. Almost all firms are located within cities and have access to city waste
disposal facilities.
1. Industry Structure
A large number of firms participate in the millwork industry. During 1972 the U.S.
County Business Patterns reported there were 2,729 firms employing 78,153 persons in the
United States in this industry. Table II.G.2 shows the distribution of firms and employment
by state. Although the states which are producers of lumber have a sizable share of
employment, the industry is fairly broadly dispersed across the United States.
An analysis of industry shipments shows the dependence of millwork producers on
new construction. The Arthur D. Little, Inc. input-output model analysis shows 82% of
demand associated with new construction and an additional 4% with maintenance construc-
tion (see Table II.G.3). Within the construction sector, 67.2% is the result of new residential
construction, a highly cyclical industry.
106
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TABLE II.G.2
1972 DISTRIBUTION OF FIRMS AND EMPLOYMENT
SIC 2431 MILLWORK AND
SIC 2433 PREFABRICATED WOOD STRUCTURES
State
U.S. Total
Alabama
Alaska
Arizona
Arkansas
California
Colorado *
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Millwork
SIC
No. of
Employees
78.153
1,478
1.434
283
8,052
(D)
409
(D)
(D)
3,568
997
221
792
2,911
1,799
2,032
489
687
1.077
f
. 1.267
1,252
1,505
3,406
661
1,577
387
357
660
1,873
(D)
3,333
1.395
(D)
895
4,495
106
(0)
954
(D)
1,528
6,767
2431
No. of
Reporting Units
2,729
50
35
9
382
27
37
2
5
163
51
10
19
132
49
15
30
18
42.
«_
41
75
84
69
27
50
9
20
18
102
21
184
63
75
30
77
14
13
35
10
47
179
Prefabricated Wood Structures
SIC
No. of
Employees
33,848
1,275
613
301
2,366
370
165
1,596
1,230
(D)
941
2,289
(D)
181
244
(D)
(D)
1.514
701
509
469
117
160
706
(D)
(D)
1,863
1,210
(D)
2,819
203
389
215
311
(D)
430
950
2433
No. of
Reporting Units
703,
24
11
6
55
8
9
47
28
6
19
36
17
4
8
8
11
42
18
8
12
6
9
5
5
3
32
14
2
43
9
12
4
10
2
13
32
107
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TABLE II.G.2 (Continued)
Millvvork Prefahriciti-d Wood Structures
SIC 2431 ~SUT2433
No. of No. of No. of No. of
State Employees Reporting Units Employees Reporting Units
Utah 369 24 148 6
Vermont — — — —
Virginia 2.868 48 1,671 18'
Washington 3,057 99 887 27
West Virginia — — — —
Wisconsin — — — —
Wyoming — — — —
Sources: 1972 County Business Patterns, Maple Flooring Manufacturers Association, and National Oak
Flooring Manufacturers Association.
The industry can be segregated into three categories for purposes of determining the
impact of the proposed water pollution control standards:
• manufacturers of mouldings
• manufacturers of doors and windows
• local producers and assemblers of door units, window units, and cabinetry.
Moulding production is the most concentrated of the sectors and this product repre-
sents about 207f of millwork industry production. Ponderosa Pine is the species of wood
used most commonly and is estimated to represent 85% of production.
2. Types of Firms
The industry is quite fractionated with the 8 largest companies producing only 13% of
output in 1970. Among producers of moulding, 35 companies are believed to possess 80%
of industry capacity but none of these firms are dominant.
Moulding producers purchase rough lumber to process and although many producers
are owned by companies which also produce lumber, most moulding plants are separate.
The "shop" and "moulding and better" grades used to make mouldings represent only a
small fraction of the lumber produced from a log. No moulding plant would use the entire
output of one sawmill. For this reason if a moulding plant and sawmill do share a site, the
larger producing unit wculd be the sawmill.
108
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TABLE II.G.3
1972 DISTRIBUTION OP SHIPMENTS
SIC 2431 MILLY'.'Cr.K
Percent of
Buyers Shipments
i
Maintenance Construction , 3.0%
Lorjyinfl Camps & Contractor —
Srivvmil! c* Planing h'.iils 1.2
Hardwood Dimr.nsions & Flooring -
Millwoi-k Plants .4
Veneer & Plyvvoocl Plonts 1.0
Prefabricated Wood Products .4
Wooden Containers .3
Wood Hiest-vvetive & Miscellaneous Products .2
Household Furniture 1.1
Office Furniture .4
Fiber Cans —
Fabric Pla;tic Products —
Brick C: Structure Clay Tile -
Conrrov Piock & Brick —
Fabricated Structure Steel & Metal Doors .4
Fabrcetcd Platework —
Sheet, Architecture, Miscellaneous Metal Work —
Stomp h Screw Muctvne Products —
Hardv.-src, Plating, & Wiie Products .3
Dicvvcrs & Exhaust Fans —
Nonelectric Machine Shop Products —
Venclir.g & Airt.ondition equipment —
Other Household Appliances —
Electric Light & Wire Equipment —
Boat Building .8
Mobile Homjs &. Campers 4.3
Surgical & Medical Instruments —
Jovvdlry, Toys, Sport, Miscellaneous .5
Wholesale & Retail Trade 2.6
Real Estate & Rental .2.
Total 18.3%
Components
Inventory .4%
New Construction 81.9
Competitive Imports —
Exports .3_
Total 81.7%
Category
Single-Family Residential 42.8%
Two to Fo;:r Unit Residential 1.2
Gaiden ArMitnients 7.5
High-Ris'.! Ajiau-nents 1.3
109
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TABLE II.G.3 (Continued)
Prrcnnt of
Categoty Shipments
Ahcioticns & Adv
Nonhousskeepim; Units 1.9
Industrial .-1
Cl i ice >x Warehouse 1.2
Strrcs, Rtsta.irants, Garages 1.0
Rjli'jous .5
Piivoto Educational .3
no.pi'.cil & Institution;)! 1.0
Oiht/r Norne'.idonlial /
Farm, ir.f lijdiny Residences 1.2
Railroad —
Telephone & Telegraph .1
Electric Utilities .1
G-t-, & Petroleum Pipelines —
All Otrmr Private .1
Military —
Conservation .1
Sewer Systems 3.0
VVatc. Sy-tams —
Public RcciiJer.tial .3
Public Industrial —
Public Ed'.icational 2.0
PlillltC Hospital .3
Ot^:r Public Structures .8
M:$c°liar:-jous Public Cf;nstruction ._2_
Total SI.9%
Source: Arthur D. Little, Inc., input-output model.
Gluing operations in moulding plants are confined to the "finger joining" of small
pieces of lumber and are not conducted on a large scale. We believe moulding plants do not
use wash water as described in the proposed regulations and will not be affected. Most
moulding plants are located within the city limits of incorporated communities and have
city waste disposal facilities available.
Local producers of windows and door units and cabinetry are small operations. In the
trade they are referred to as "door shops" and "cabinet shops." Door shops typically buy
sets of door jambs and premanufactured doors which are then assembled by mechanical
means into "pre-hung" units for sale to contractors or to retailers. They also produce garage
doors on a local scale and some produce custom doors such as louvered doors.
Cabinet shops produce a variety of miscellaneous cabinetry such as book shelves,
built-in closets, bathroom and kitchen cabinetry, commercial cabinetry for store and;
industrial use, etc. They are almost custom furniture manufacturers and their operations
involve mostly mechanical means of assembly with only nominal glue usage. No sawmilling
is undertaken for either group and lumber and plywood are the principal raw materials used.
110
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Local producers of doors during 1972 may have produced from $400 to S500 million
in product that year. Locally produced cabinetry and architectural millwork probably
equalled this amount bringing the total for the two to between $800 million and $1 billion
in sales or roughly 40-50'< of the entire industry.
3. Types of Plants
Table 1I.G.4 shows the distribution of plants by employment size for millwork. This
table shous that 70/c of the producers have fewer than 20 employees.
TABLE II.G.4
DISTRIBUTION OF MILLWORK PRODUCERS BY
EMPLOYMENT SIZE
No. of Employees No. of Plants % Plants
1-3 684 25
4-7 510 19
8-19 709 26
20-49 475 17
50-99 188 7
100-249 119 4
250-499 35 1
500 and over 9_ -
Total 2,729 100
Plants producing wood windows and doors are the category most affected by the
proposed standards. Although not engaged in sawmilling activities (hence not subject to log
handling pollution problems) these producers do employ glue; however, the plants are
generally large with a wide product line. Table II.G.5 lists the product offerings of 69
millwork manufacturers who are members of the National Woodwork Manufacturers As-
sociation. Besides the products these firms produce 75% also provide prefinishing services
such as water repellant treating, factory prefinishing and priming.
4. Financial Profiles
Table II.G.6 lists the distribution of estimated financial strengths for the 69 millwork
producers who are members of the National Woodwork Manufacturers Association. 45% of
these firms fall into the "over $500,000" category.
Ill
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TABLE H.G.5
PERCENT Oi- 09 WOODWORK MANUFACTURERS
PRODUCING VARIOUS PRODUCTS
Percent of Total
Number of Number of
Product Manufacturers Manufacturers
Frames. Doors 22 46.4%
Frames: Windows 22 31.9
Doors Hnrdwood 37 536
Doors' Softwood 33 47.8
Sash 28 40.6
Window Units 29 420
Services 53 76.8
Source:
TABLE II.G.6
ESTIMATED FINANCIAL STRENGTH OF 69 WOODWORK MANUFACTURERS
Number of
Estimated Net Assels Manufacturing Firms %
Ovei 51,000,000 25 36
S500,000 to 31,000,000 6 9
S1250GO to S500.000 12 17
$35000 tc 3125,000 4 6
Net Assets UP .^tenr.lned 22 32
Total 69 100
Sources: Oo cit.. National Woodw< 'ufacturrrs Association and
L .-1- .crmer's Pedbook.
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5. Pricing
Prices in the millwork industry in general are determined by the cos! of raw materials
and the cost of converting tempered by demand. The main cost is lumber and the price of
this material varies widely. Although the grade of Pine used is consumed principally by the
millwork industry, the price of this material is affected by construction lumber prices.
Millv.ork producers (and industrial users) must pay enough for the product to prevent it
being diverted into structural use, and this causes Pine prices to fluctuate with construction
lumber prices.
Profits in the industry move coincidentally with prices. During periods of strong
demand producers usually experience difficulty in securing adequate raw material supplies
but are able to secure high prices for their products. During slow housing construction
periods, raw materials are readily available but overcapacity is the rule and prices and profits
are low.
More than most sectors of the wood based building materials industry, millwork has
been under attack from a variety of displacement products. Wooden windows have already
largely been displaced by aluminum windows and are estimated to have only about 30% of
the market currently. Mouldings, particularly prefinished mouldings, have very recently lost
substantial market share to extruded plastics. Hardwood flush doors are losing share to
printed hardboard and particleboard faced doors while plastic window parts and cabinetry
parts (including plastic doors) are being accepted. The impetus for this displacement has
been recent high prices in millwork.
H. PREFABRICATED WOOD STRUCTURES
This section deals with the manufacture of prefabricated wood structures which is
chiefly comprised of glue laminated beams, roof trusses, and housing component parts such
as wall sections, etc. Truss and component producers will be unaffected by the proposed
regulations, because they are not engaged in sawmilling and the method of manufacture
commonly used employs mostly mechanical fasteners. Producers of glue-laminated beams
are affected due to their use of glue.
1. Industry Structure
In previous years, up to 1972, this category also included producers of pre-cut and
prefabricated wooden buildings. Their output accounted for 65/"£ of 1967 production in
SIC 2433 and in 1971, we estimate prefabricated buildings represented about the same
proportion of output although industry production had more than doubled.
t
For the 1972 Census of Manufactures, this SIC code was changed to delete prefabri-
cated and precut buildings..It is this SIC definition which we are using for this report; hence
it is necessary to recast prior years' census data to allow for this change. Table II.H.I
presents the estimated breakdown of production of prefabricated structures for 1967 and
1971.
113
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TABLE II.H.1
SHIPMENTS OF PREFABRICATED WOOD STRUCTURES
19G7 AND 1971
(S Million)
1967 1971
Glued Laminated Lumber S 39.3
Sawn Lumber 5.9
Combination of Glued
Laminated and Sawn Lumbrv 17.8
Roof Trusses made of Saw
Lumber; Light Construction 41.6)
Other Wood Components 49.9 I
Ready Cut and Prefabricated
Buildings1 291.2 600.0
Total S447.8 956.2
1. Omitted from consideration in this section.
Sources: 19G7 Census of Manufactures, 1971 Annual Survey
of Manufactures, Arthur D. Little, Inc., Estimates.
Producers of prefabricated structures can be divided into three categories according to
type of product produced. Manufacturers of glue-laminated beams are the most identifiable
due to the uniqueness of their product. Glued beams consist of pieces of lumber glued and
pressed together to carefully engineered and specified measurements meeting rigid strength
requirements. Beams 60 feet long, several feet thick and wide, are common and make
striking architectural/structural components.
Beams are produced to customer order and not normally inventoried in quantity. The
new construction market, both residential and nonresidential, takes virtually all of industry
production.
Beams are expensive to ship long distances because of their unusual dimensions and
plants tend to be spread across the country. However the style of construction employing
glue laminated beams is more popular in the West and there is a concentration of plants in
Oregon and Washington.
2. Types of Firms and Plants
The investment in equipment and facilities to produce beams is substantial and many
of the producers are large concerns. Included are important lumber producers such as Boise
Cascade, Bohemia Lumber, Koppers Company, Potlatch Forests, Roseburg Lumber, and
Weyerhaeuser Company.
1 14
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The second important category of prefabricated wood structure product is roof trusses.
These are fabricated structural members most commonly used to support the roof of a
single family or low-rise residential dwelling. Tiusses can be fabricated on the site and in
fact, the only real distinction between a "manufactured" truss and those produced on site is
the locus of production.
Trusses are fastened together mechanically with the joining done with nails or with
metal plates. The most inexpensive approach to truss manufacture requires only a "jig" in
which to lay precut lumber to shape, a saw to cut the lumber to length, and a hammer or
nailing machine. A more expensive facility for larger production might automate the process
of joining the lumber.
Because of the low capital investment needed and the broad market acceptance of
trusses, many building materials retailers have entered into production themselves. A 1971
study showed 15% of building materials retailers engaged in the manufacture of trusses,
prehung doors, or prefabricated buildings. That same study also showed the market
acceptance of such components indicating trusses, prehung doors, and prefabricated build-
ings were handled by 50%, 10%, and 15% of dealers respectively.
The third important category of prefabricated wood structural product is components
such as wall sections, floor and roof sections, etc. This group of products are also sold
exclusively to new construction and are a step closer to the prefabricated house since most
are made to customer order.
Joining of these components is also done mechanically and the required investment to
enter this business is small, ranging from 55-10,000 for a simple operation up to
S200-300.000 for a highly automated facility.
3. Financial Profiles
Table II.H.2 presents the estimated financial strength of a group of producers of
beams, trusses, and components. This distribution indicates mat both very small and very
large concerns compete in this business.
4. Pricing
Prices of prefabricated wood structures are strongly influenced by lumber costs. On
average we estimate material costs are at least 60% of the FOB plant price of components
and trusses, and somewhat less for beams. Since producers must pay the market price for
their raw material, shifts in the housing market cause prices to fluctuate.
115
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TABLE II.H.2
ESTIMATED FINANCIAL STRENGTH OF PRODUCERS
OF PREFABRICATED WOOD STRUCTURES
# %
Trusses
Under 535,000 1 2
$35,000-5125,000 1 2
5125,000-5500,000 8 20
5500,000-51,000,000 2 5
Over 51,000,000 13 32
Net Assets Undetermined )
_ . f 10 -3*7
Not Reported J
Total 41 100
Laminated Beams
Under 535,000 -
535,000-5125,000 2 6
5125,000-5500,000 , 3 9
5500,000-51,000,000
Over 51,000,000 12 35
Net Assets Undetermined ) 17 «5n
Not Reported j
Total 34 100
Prefab Housing Components
Under 535,000 1 2
535,000-5125,000 3 7
$125,000-5500,000 10 24
5500,000-51,000,000 3 7
Over 51,000,00 8 19
Net Assets Undetermined \ 17 40
Not Reported j
Total 42 100
TOTAL (Trusses, Laminated Beams
and Prefab Housing Components)
Under $35,000 2 2
535,000-$125,000 6 5
5125,000-5500,000 23 19
5500,000-51,000,000 5 4
Over $1,000,000 33 28
Net Assets Undetermined 1
Not Reported
Total 119 100
116
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III. METHODOLOGY
All of the sectors covered under this assignment were studied to define the structure of
the particular industry and to estimate the nature and severity of the costs of compliance.
Based upon the levels of cost to comply, it was clear that for five of the industry sectors, the
effects of effluent abatement were minimal. These sectors are:
• Particleboard
• Millwork
• Hardwood Dimension and Flooring Mills
• Special Product Sawmills
• Prefabricated Wood Structures
That these industry sectors would be only minimally impacted is demonstrated by the fact
that:
• Particleboards are manufactured by a dry process, utilizing little process
water. Capital costs of abatement represent QArr of the necessary investment
to build a new plant of minimum economic size; total annual costs represent
only Q.5','r of the average 1972 selling price achieved by the plant with the
lowest unit selling price.
• Millwork operations do not include sawmilling nor wet log handling and
storage practices nor extensive gluing operations: therefore, cost of com-
pliance and impact is essentially zero. Capital costs are 1-2% of net assets;
Annual costs <0.\f/c of sales revenues.
• Most hardwood dimension and flooring manufacturers do not also operate
sawmills. Only the larger firms operate sawmills and utilize wet log storage
and handling processes; only those firms will be affected. These firms are in
strong enough financial position to make necessary investments, since capital
exists are 1 -2% of net assets and annual costs are <1 % of sales revenues.
• Special product sawmills do not generally use wet storage practices and can
readily make the investments to comply with process changes, since the
maximum annual cost if <0.5% sales revenues, and capital costs are <9% net
assets.
• Prefabricated wood structures manufacture require extensive gluing only in
the production of laminated beams, a very capital-intensive process. The
capital costs of abatement ($2,000) are insignificant as compared to total
capiral investment in operations (<\7c) annual costs ($480) are similarly
insignificant (<1%).
117
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A. SURVEY TECHNIQUES
Approaches to data gathering had to he developed specifically for each of the sectors
studied since the sectors vary considerably in terms of data available and number of firms
involved, e.g., 18 insulation board manufacturers vs. more than 8,000 sawmill operators.
1. Insulation Board
Since only 18 mills are covered under the proposed Guidelines, it was possible to
interview either in person, by phone, via a mail questionnaire or through a combination of
these devices, each of the 1 8 mills. Thus, the financial profiles, abatement cost effects, and
profitability effects were determined for each of the firms and plants in the sector.
2. Hardwood Plywood and Veneer
Many of the 490 manufacturers of hardwood plywood and veneer are small firms
operating small mills. Information on these small operators is generally incomplete.Thus,
we prepared a survey which was distributed by the Hardwood Plywood Manufacturers
Association to all known manufacturers of hardwood plywood and veneer, irrespective of
their membership in the HPMA.* During March and April 1974, approximately 490 surveys
were distributed. We received 142 responses to the survey, representing 29% of the total
industry.
Respondents were generally willing to answer questions and provide the necessary
background data. However, although nearly 30% of the firms in the industry responded and
many very small firms responded:
• The survey data suggests that very small firms are underrepresented in our
sample.
For example, an arithmetic average of 1972 production of 2.2 million square feet (3/8-inch
basis) and 190 producing plants, suggests that a typical plywood plant would produce 11.6
million square feet. Arithmetic averages from our survey indicate an average plywood plant
to be closer to 40 million square feet in annual production. Thus, although we have used the
survey to structure our sector generalizations, we do focus upon the problems of the very
small firms and have attempted to adjust our analysis to incorporate such firms.
Basically, the survey intended to identify for individual facilities:
• Operations performed and product mix.
*HPMA membership tends to consist of larger manufacturers.
118
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• Location.
• Capacity and annual production.
• Capital investment.
• Other facilities on a common site.
• Access to municipal sewers.
• Log handling practices.
• Land availability.
Using this data we were able to develop a detailed structure of the industry and its
several subsegments. According to industry sources, the data represents the most complete
information ever collected on the industry.
3. Softwood Plywood and Veneer
The analysis of economic impact in this sector is based on an intensive survey of
softwood plywood and veneer mills conducted during April and May 1974, based on a
survey prepared by the contractor and conducted through personal mill visits by the
American Plywood Association. The survey was distributed to 150 mills (75% of the
operating units). The completed questionnaires were processed and tabulated under the
contractor's supervision. One hundred fourteen usable questionnaires were returned.
Data was gathered regarding operating parameters of the individual mills, such as 1973
capital expenditures and production. In addition, the questionnaire gathered data on the
current effluent practices and the costs of compliance which mills estimate they would have
to bear to meet proposed Guidelines.
4. Sawmills and Planing Mills — General
To improve upon the extant data base, we conducted a survey of 195 softwood and
hardwood sawmills by telephone during March 1974. The mills surveyed were selected at
random from trade directories, and an effort was made to make the sample as representative
as possible. The number of mills interviewed by state is shown in Table III.A.I.
A total of 144 softwood mills and 51 hardwood mills were interviewed. The sample of
softwood mills equals approximately 10% of the total number of mills estimated to be
19
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TABLE IH.A.1
SURVEY SAMPLE BY TYPE OF MILL AND LOCATION
Softwood Hardwood
Area Mills Mills
Northwest
California 21 -
Idaho 8 -
Montana 8 -
Oregon 28 -
Washington 12 _2
Subtotal 77 2
Other U.S.
Alaska 2 -
Alabama 6 5
Arizona 1 —
Arkansas 4 5
Colorado 3 -
Florida 1 —
Georgia 8 1
Maine - 1 —
Michigan 4 4
Mississippi 6 1
New Mexico 2 —
North Carolina 4 3
Louisiana 2 —
Maryland — 3
Kentucky — 5
Ohio - 2
Pennsylvania — 7
South Carolina 5 4
Tennessee 1 4
Texas 8 —
Virginia 6 2
Wyoming 2 —
Wisconsin 1 2
Missouri - 1
Subtotal 67 49
Total Sample 144 51.
120
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operating in the industry; the sample of hardwood mills equals approximately 5'' of those
mills known to be operating.* These samples are sufficient for statistical reliability.
B. PRICE EFFECTS
The analysis of the ability to pass cost increases on to consumers is based on
consideration of the parameters listed in Table III.B.I.
If the annual treatment cost (before tax) represents a significant percentage of the
selling price, it will be difficult to pass this on to consumers. This is particularly true in an
industry which is characterized by high price elasticity of demand. In price insensitive
industries, a 15% price increase can be readily passed on. In the Timber Products Processing
Industry sectors, a ratio of before tax treatment costs to selling price of 10% seriously
hampers the ability to pass on the cost increase.
The existence of readily-substituted products will limit the ability to pass on price
increases.
Similarly, a low demand growth rate implies a mature industry sector, with established
consumer purchasing patterns. Particularly if demand is elastic, the ability to pass on price
increases will be limited.
A uniformly low operating rate within the industry would also constrain such in-
creases. Companies with low operating rates are more likely to absorb cost increases in an
attempt to maintain present rates or increase them rather than attempting to pass through
cost increases.
A critical factor in this analysis is the extent to which plants within the industry have
to absorb comparable abatement costs. If costs are unequally distributed throughout an
industry, producers which do not have to make an investment or can make less of an
investment, obtain a strategic cost advantage. A low-cost producer will tend to absorb
abatement costs, particularly if the abatement costs to the low-cost producer are smaller
than for the industry as a whole, to put the other plants in the industry at a cost
disadvantage.
If products are sold within an industry on the basis of price rather than quality of
service, then cost increases are likely to be absorbed rather than passed through. Similarly, if
market shares are generally small for any individual firm or plant, then price competition is
likely to be severe and cost increases are likely to be absorbed.
We estimate approximately 1,000 hardwood mills are operating full-time and are identifiable; industry
sources estimate there may be an additional 1,000 mills which operate at various times but are not
identifiable through conventional sources. Similarly, although approximately 5,000 softwood sawmills are
reported by the Department of Commerce, only about 1,500 are operating full-time and are identifiable.
121
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TABLE III.B.1
PRICE INCREASE ANALYSIS MATRIX
Parameter Condition for Constraint
Before Tax Treatment
Cost-% Selling Price High, e.g., greater than 10%
Substitute Products High occurrence; ready substitution
Industry Capacity Utilization Low; e.g., operating rate less than 80%
Demand Growth Low, e.g., less than GNP
Foreign Shipments High
Abatement Cost Differences Unequal distribution of costs
Within Industry
Price Elasticity of Demand High
Basis for Competition Price
Market Share Distribution Fragmented
The ability for firms in these industries to pass on cost increases is to a significant
extent a macroeconomic consideration, i.e.. heavily influenced by the total supply/demand
balance. In a strong market, such as the last halt" of 1972 or first quarter 1973 demand was
generally strong enough to accept substantial price increases. Conversely, in a weak market
(1971 and the first half 1972) firms had to absorb most cost increases. Tims, the final
determination of price effects was heavily influenced by analysis of supply/demand factors.
C. PLANT CLOSURE EFFECTS
If costs of abatement cannot be passed on to consumers or if capital is not available,
then the management of individual plants must decide whether to continue operations at
lower levels of profitability, or to shut down. This decision depends on the magnitude of
financial impact on operations. The factors incorporated into our analysis of plant closures
are listed in Table III.C.l.
Three of the parameters in Table III.C.l deserve specific attention.
• Extent of integration — If a plant is part of an extensive woodlands opera-
tion, it is likely to be kept open even if financial impacts or capital
requirements are relatively severe. For example, an insulation board manu-
facturing plant can be an efficient consumer of otherwise low-value waste
product (sawdust, shavings, etc.) from a sawmill or planing mill located on a
common site.
• Other facilities on a common site — An isolated plant is most vulnerable for
the reasons described in the integration discussion above.
122
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• Ownership — A large, multi-industry firm would tend to nuke a shutdown
decision based on "rational" business analysis, such as effects on profit-
ability. Such a firm would likely have specific criteria for each of its
operating facilities to meet. However, a private owner tends to have greater
"staying power," a greater personal commitment to staying in business even
if profitability is substantially reduced. This is true for such subjective
reasons as pride in successive family ownership, but also for such specifically
economic reasons as the fact that this may be a particular family's sole or
primary source of income.
TABLE III.C.1
PLANT CLOSURE ANALYSIS MATRIX
Parameter Condition for Closure
After Tax Treatment Cost-% High, e.g., greater than 15%
Net Income
Cash Flow Negative
Capital Cost of Abatement-% High, e.g., greater than 30%
Net Assets
Extent of Integration None - Low
Other Facilities on Common Site Isolated Plant
Ownership Large, multi-industry firm
To accomplish the impact analysis, these factors were assigned different orders of
importance based on the specific characteristics of individual industry sectors. That is, a
small privately-held firm has different profitability criteria than a large, multi-industry,
publicly-held firm, e.g., magnitude of cash flow is the important issue to a privately-held
firm. Further, the management of such firms is not likely to perform a discounted cash flow
analysis as part of its stay-open/shut-down decision making. And, cash flow has a different
meaning for a private enterprise which frequently elects to pay higher salaries and more
encompassing fringe benefits rather than reporting profits on its income statement.
Profitability ratios can be used as a guide when analyzing such firms, but certainly do not
define the final story. Thus, whereas insulation board manufacture is dominated by large
plants, large firms, and manages as a publicly-held enterprise, hardwood, plywood and
veneer manufacture is the province of the small, privately held firm; plant closure decisions
in the two segments are likely to be based on substantially different criteria.
123
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IV. COSTS OF COMPLIANCE
The costs of compliance vary considerably union;; these several sectors. Costs of
effluent control are estimated in the Development Document based on the following unit
processes:
• Wet log storage and handling, i.e., ponding and wet decking
• Processing operations, e.g., sawmilling or veneer drying
• Finishing operations, e.g., gluing, application of surface coatings, and appli-
cation of sealers, stains, dyes, primers, and fillers.
In addition, since insulation board manufacture represents a distinctly different process and
generates large volumes of process water, guidelines and attendant costs were developed
specifically for the manufacture of insulation board. Further, since particleboard manufac-
ture is also a different manufacturing procedure, distinct guidelines and costs were de-
veloped for this product as well.
The details of abatement costs are presented and discussed for the specific industry
sectors within the specific economic impact analysis in Section V. However, Table 1,
prepared by the EPA from this Contractor's estimates, presents a summary of the potential
incremental pollution control costs for operations within the sectors under consideration.
As Table IV-1 indicates, the level of costs associated with the proposed guidelines is
generally modest, even for small operations which are typified by manufacturers of con-
tainer-grade veneer. In no other sector does the annual cost represent more than 4% of
annual sales revenues. For container-grade veneer manufacturers, and one insulation board
mill, capital costs of abatement represent a significant percent of net assets, i.e., 11% for
container grade veneer, 267r for the one insulation board mill. In all other cases, capital
costs of abatement represent less than 10% of net assets.
125
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TABLE IV-1
POTENTIAL INCREMENTAL POLLUTION CONTROL COST
Total
No. Plants
18
7,323b
1,400
1,000
250
50
75
115
230
59
526
452
74
2,729
236
Plants
No. Affected
8
285
120
142
28
32
48
84
5
11
75
74
680
75
Capital
Cost
(OOO's)
$400-3,500
132
3-8.6
3-8.6
3-14.1
3-14.1
3-16.2
3-16.2
3-44
8.6
3-14.1
3-8.6
13.4-35
2
2
% Alet Assets
3-26
1
Less than .1%e
Less than .14e
.4-1.9
2.4-11
.6-3.2
.4-2
Less than .4
1.7e
3-8.6
.4-e
1-2d
Less than d 1
Annual Cost
(OOO's)
0-800
20
1-3
1-3
1.-3.9
1.-3-.9-
1-4.4
1-4.4
1-11
3
1-3.9
1-3
4.8-14
.48
.48
% Sales
.5-4
- .1
.01-4
.5-3.3
.05-.25
.9-4.3
.05-.25
.05-.22
Less than
.1
.2-. 8
.5-1.5
Less than
Less than
Less than
.1
.15
0.1
0.1
Segment
Insulation Board BPT
BAT
Sawmills
Softwood
Hardwood
Hardwood Plywood & Veneerc
Commercial Grade Veneer
Container Grade Veneer
f3 Plywood & Veneer Stock Panels
°^ Plywood & Veneer Semi & Speciality Grade
Softwood Plywood & Veneer0
Hardwood Dimension & Flooring
Hardwood Flooring
Dimension
Special Purpose Sawmills
Particle Board
Millwork
Fiefabricated Wood Structures
a. BPT and NSPS costs are the same. BAT effluent limitations are identical to BPT (zero discharge) except in the case of Insulation Board.
b. 1971 Census of Manufactures (more than 10 employees). Most of these mills are seasonal or part time operations, and are not likely to be affected by
wet log storage guidelines. The 2400 mills shown represent well over 90%of industry capacity.
c. Includes costs associated with Phase I guidelines.
d. As percent of toal assets
e. As percent of new plant
Sntirftf PPA Arthur D I ittlo Inr octimatjx
-------
V. ECONOMIC IMPACT ANALYSIS
A. INSULATION BOARD
1. Cost of Compliance
After examining the potential subca'tegorization of the insulation board plants in the
United States, the Development Document concluded (hat such factors as plant age,
location, product mix, plant capacity, etc., were not sufficiently variable to result in
identifiable differences in effluent quality. Thus, the principal subcatcgorization adopted
was based on process technology in use and the 18 manufacturing facilities were classified as
follows:
• > Little or no steaming of furnish and no hardboard production — 8 facilities.
• Steaming or hardboard production — 10 facilities.
Most of these facilities produce mineral board and/or hardboard in addition to the
insulation board and the total capacity on a tons-per-day basis for each facility includes that
for all three products. However, most facilities do not separate the effluent deriving from
each product and thus the analysis of water quality did not differentiate among products.
Examination of the treatment technology presently in use for each of the eighteen
facilities shows that five plants discharge into municipal systems or expect to do so by
July 1, 1977 (BPT), two plants either have or will implement a closed system by that date,
two plants practice spray irrigation as a means of water disposal, and of the remaining eight
plants, one plant uses bagasse as its raw material and is not covered by the proposed
Guidelines. Two already meet BPT control and treatment technology but would have to
make additional investment to satisfy BAT, and the other six must do both. The eight plants
are:
National Gypsum; Mobile, Alabama
Johns-Manville; Jarrett, Virginia
Armstrong Cork: Macon, Georgia
Kaiser Gypsum; St. Helene, Oregon
Boise Cascade; International Falls, Minnesota
Simpson Timber: Shelton, Washington
Weyerhaeuser; Craig, Oklahoma
Temple Industries; Diboll, Texas
127
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The approach in conducting the economic analysis was thus to examine the technology'
in use at each of the remaining eight facilities and decide on what equipment and processes
must be installed to meet the proposed Guidelines. The resulting investment and operating
costs were then used to measure the potential economic impact. Many of the criteria used in
assessing impact incorporate the implications of conversations held with industry executives
on options and likely actions open to individual firms.
Certain assumptions were made in this analysis:
• The cost and efficiency of the equipment selected is as shown in the
Development Document.
• The size and cost of equipment required by an individual plant would be
directly related to that needed for the model plant of 300 ton-per-day
capacity, using linear escalations based on flow rates to estimate both
investment and operating costs. In practice, of course, some economies of
scale can and would be achieved, but we have not been given data on the
effect of scale, and, further,believe such data would not alter the substance
of our conclusions.
• It is probably possible to reduce the process water flow rates in order to
limit the required treatment investment but the conditions under which this
can and would be done will be unique to each plant and depend on product
mix, equipment layout, and other factors. We have thus not assumed any
reduction in the quantities of process water used, except where companies
gave us specific data in this regard.
• All estimates of required price increases assume that the current returns on
net assets will be maintained by each producer to recover the full incre-
mental costs.
• Investment and operating cost estimates are in mid-1973 dollars and are 25%
above the August, 1971, costs used in the Development Document. This
factor allows for both the effects of inflation and the increased costs of
construction. The recommended alternative technologies, capital investment
requirements and total yearly costs for the model plant with a capacity of
300 tons per day and a flow rate of 3,120 gallons per ton, are shown in
Table V.A.I.
2. Price Effects
Implementation of the BPT Guidelines (1977) would result in price increases ranging
from 0.57 to 47 for the eight plants, based on 1973 fob selling prices and assuming that the
current return on net assets is maintained (Table V.A.2). The full range is equivalent to
128
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TABLE V.A.1
MODEL PLANT - INVESTMENT AND YEARLY COSTS OF COMPLIANCE
(Mid 1973$)
Plant Capacity - 300 Tons/Day
Flow Rate - 3120 Gallons/Ton
BPT( 1977) and
New Source BAT (1983)
Subcategory I
Guideline Alternative C-1 D-2
Technology Activated Sludge Removal of SS
Total Investment Cost (OOO's) 1193 1325
Total Yearly Cost (OOO's) 378 398
Subcategory II
Guideline Alternative C-1 D-2
Technology Activated Sludge Removal of SS
Total Investment Cost (OOO's) 1370-1451 1502-1583
Total Yearly Cost (OOO's) 453-490 473-510
Source: Development Document.
TABLE V.A.2
SUMMARY OF ECONOMIC IMPACT
Total Total
BPTM977) BAT (1983)
Investment Required
Range (SMM) 0- 1.5 0.1- 5.7
% of Net Assets 0-28 1-32
Total Yearly Costs
Range (SMM) 0-0.8 0 - 1.1
Price Increase % 0-4 neg. — 4.5
Max. Price Increase (S/MSF) 0-2 0 - 2.25
Source: Arthur D. Little, Inc., estimates.
129
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SO.25 to S2 per thousand square feet, 1/2" basis; we believe tluit price increases can be
made without any reduction in the future market size or late of groulh discussed earlier.
These price increases are solely attributable to the water pollution control expenditures and
do not reflect other price increases that ma\ be necessitated In air pollution contiol costs,
increases in raw materials or labor costs, or other reasons.
Price increases to cover the costs of implementing ll>83 Guidelines will range up to
4.5'' (S0.50 to S2.25 per thousand square feet) if (he current returns on net assets are to be
maintained. We conclude that price increases of this order of magnitude \\ill be imple-
mented, although plants do have the opportunity of changing their product mix in order to
sell relatively more of the finished products which enjoy higher average revenues and profits.
No other secondary price effects are anticipated.
3. Financial Effects
a. Potential Effects on Profitability
If competitive conditions for an individual facility are such that the above mentioned
price increases cannot be achieved, water pollution control costs would have to be absorbed
and thus would reduce profitability. For both BPT and BAT requirements, the direct effect
of cost absorption would be to make two plants marginally profitable on the basis of return
on net assets.
Because we project a full pass through of costs of compliance profitability will not be
affected.
b. Availability of Capital
The total capital required to implement BPT Guidelines would be in excess of S6
million among the eight plants. Relative to net plant assets, individual plant investment
requirements range from 0 to 28". If a plant is operating in isolation of any other forest
products operations and if that company has no unusual pressures on its capital availability,
it is probable that any capital required for pollution control expenditures ranging up to 15%
or 20% of current net plant assets would be provided. In the range of 20% to 40%, the
company would look very closely at other potential expenditures, realizable product prices,
future demand, and competing alternatives for capital utilization. Beyond 407&, the chances
are very good that a company would consider closing a plant or curtailing capacity. It
should be pointed out that the required water pollution control investments are sometimes a
large proportion of what a company might typically invest in any one year, and are often
considered "non-productive" investments.
On the basis of these criteria and other considerations, such as product mix and the
availability of raw materials, two plants can be regarded as marginal; one of these two
facilities is part of an integrated forest products complex, considerably lessening the
likelihood of closure. The second marginal plant will probably have to review its options
more closely before reaching a decision; we estimate that a 507( probability of closure exists
lor that facility.
130
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By 1983, the total capital required to implement BAT Guidelines, would be in exeess
of S10 million. As the incremental investment requirements to meet BAT Guidelines (S4
million total) are minimal, it can be concluded that no incremental impact due to capital
requirements is anticipated by 1983.
4. Production Effects
a. Curtailment of Production
Pollution abatement costs are unlikely to result in curtailment of total production by
the insulation board industry.
b. Plant Closures
Based on the analysis presented in previous paragraphs, (V.B.3.b) we estimate that
plant closures would represent about 4$ of insulation board production in the United States
today.
c. Industry Growth
Independent of the market environment and its impact on future industry growth,
discussed earlier, price increases as a result of water pollution abatement costs are likely to
result in little or no incremental effect. Obviously, however, the volume of industry sales
will be reduced in proportion to the withdrawal of capacity as a result of plant closings but
the loss will be compensated for in part by market trends away from insulation board and
also by the start-up of a new facility in 1976 (by Weyerhaeuser).
5. Employment and Regional Effects
Closure of the one marginal facility in the West could result in the unemployment of
up to 200 workers. Almost all of these workers can be classified as plant hourly or
non-relocatable supervisory personnel who would have to seek new employment locally. It
is unlikely that new insulation board plants would be built at or near the present location
although it is possible that another type of forest products operation could be located there.
6. Balance of Payments Effects
Even with the eventuality of plant closures, it is unlikely that the present balance of
payments position will be affected. The new plant which will be built by 1976 by Weyerhaeuser
will compensate for the possible shortfall in production that might be necessitated by a
reduction in capacity and thus eliminate the need for incremental imports. In addition,
current manufacturers may enjoy better prices with less available United States capacity and
thus be encouraged to maintain their current production levels of insulation board rather
than to convert to alternative products.
131
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B. HARDWOOD PLYWOOD AND VENEER
1. Costs of Compliance
Table V.B.I presents the costs of compliance for a representative hardwood plywood
mill. (The costs are as presented in the Development Document.)
The technology recommended* here is recirculation to contain wet deck water. An
estimated capital investment of S8,dOO plus a total yearly cost of S3,000 is the estimated
cost level for compliance. These costs will be borne by any veneer or plywood manu-
facturing mill which utilizes wet decks for its log inventory. Companies utilizing dry decking
are not controlled. Ponds are controlled to the extent that large floatable solids must be
"screened out." This can be accomplished by using a submerged weir. All mills using pond
storage are believed to have a weir or other techniques to achieve this level of control; thus,
no incremental abatement costs are incorporated for ponds.
Table V.B.I a describes the log handling practices for firms in these segments. There
appears to be no pattern within the two major segments to differentiate specialty vs.
TABLE V.B.1
HARDWOOD PLYWOOD MILL COSTS OF COMPLIANCE
For Mill Operations
Manufacturing
Location
Log Vats
Glue Washwater
Dryer Washwater
TOTAL
Wet Decks
Recommended
Treatment
Lagoon Treatment
Recycle
Lagoon Treatment
Lbs./Day
BOD Load
47
0
0.60
Capital
Investment
$3,000
2,000
50
Land
Cost
$2,500
Yearly
Operating
Cost
$600
300
50
$5,050 $2,500
For Log Handling and Storage Operations
Recirculation
S8.600
$950
$3,000
Total
Yearly
Cost
$ 870
480
50
$1,400
$3,000
Based on a 5 MMSF/Yr. hardwood plywood mill (3/8" basis)
"See Development Document for details.
132
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TABLE V.B.Ia
PLYWOOD AND VENEER1 LOG HANDLING PRACTICES
Access to
Municipal Sewers Log Handling
Category
I. Veneer Manufacturers
A. Commercial Grade
B. Container Grade
II. Hardwood Plywood &
A. "Stock" Panels
B. Semi & Specialty Grade / # plants'
154 336
1. Extrapolated from Survey.
Source: HPMA Survey - March-April 1974; Arthur D. Little, Inc., estimates.
| % plants
J # plants'
jer Manufacturers
1 % plants
/# plants'
No
33%
99
29%
55
Yes
67%
201
71%
135
Dry Deck
47%
141
47%
89
Wet Deck
36%
108
18%
35
Ponds
17%
51
35%
66
-------
non-specialty product producers on the basis of these factors. Similarly, there does not
appear to be a definitive trend based on the size of plant related to these factors. Thus, in
distributing costs across the industry, the information on log handling practices can be
applied directly to the industry sectors and does not need to be corrected for the smaller,
unrepresented firms. Our survey data indicates that 67% of veneer manufacturers (this
extrapolates to 201 plants within the industry sector), and 71% of the plywood and veneer
manufacturers (this extrapolates to 135 plants), presently have access to municipal sewers
and can thereby save the costs necessary to introduce process changes, such as recycling of
dryer washwater, related to mill operations. The companies which will have to absorb the
major portion of the impact are those companies which do not have access to municipal
sewers and practice wet decking for log handling. It is interesting to note that 36% of veneer
manufacturers (108 plants) use wet decks, whereas one half as many - 18% (35 plants) —
hardwood plywood and veneer manufacturers use wet decks. But, in both cases, major
portions of the industry have no costs to bear at all; they are already in compliance.
Figure V.B.I distributes the costs of compliance across the various industry segments.
Cost factor A equals costs due to process changes. Cost factor B refers to costs to meet log
handling guidelines. As the figure indicates, only 12% (36 plants) of the veneer manu-
facturers are forced to absorb the maximum level of costs, which is:
• Capital = S 14,100
• Annual = $ 3,870
Similarly, only 5% (10 plants) of the hardwood plywood and veneer manufacturers have to
absorb the maximum level of costs, which is:
• Capital = S16,150
• Annual = $ 4,400
Further, 43% (129 plants) of the veneer manufacturers have no cost of compliance, and 58%
(111 plants) of the hardwood plywood and veneer manufacturers also have a zero cost of
compliance.
2. Price Effects
The likelihood of cost increases being passed on as increased prices for consumers is
analyzed in Table V.B. 1 b. the methodology of this analysis is discussed in section III above.
Our conclusion based on this analysis for all segments is:
• There will be no increase in end product prices due to compliance with
effluent guidelines; rather, costs of compliance will be absorbed by the
manufacturers.
134
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Industry Segment
Veneer
Manufacturers
Municipal Sewer Cost Factor A Log Handling Practices
Tie-In (Process Changes)
Capital Annual
Dry Decks
€^/ or Ponds
-------
ON
TABLE V.B.Ib
PRICE INCREASE ANALYSIS MATRIX
Factor
Ratio of BT Treatment*
Cost to Sell ing Price (%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost Differences
Price Elasticity of Demand
Basis for Competition
Market Share Distribution
Number of Producers
Condition for
Constraint
High
High occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Commercial Grade
Veneer
Low
< 1%
Moderate
Moderate
High
Low
High
Unequal
Moderate
Quality, Price
Fragmented
Many
Container Grade
Veneer
Model ate
4.3%
High
Low
Low
Low
None
Unequal
High
Price
Fragmented
Moderate
Stock Plywood
Panels
Low
< 1%
High
Moderate
Moderate
Low
High
Unequal
Moderate
Price
Fragmented
Many
Semi-Specialty
Plywood
Low
s* 1 (v
<- 1 /o
Moderate
Moderate
Low
Moderate
High
Unequal
Moderate
Quality, Price
Fragmented
Moderate
'Maximum level of expenditure.
-------
For 3 out of the 4 segments (container grade veneer is the exception), the ratio of before tax
treatment cost to selling price is a low, insignificant amount (less than 1%). Thus, for
those segments, the need to increase prices is negligible. However, for manufacturers of
container grade veneer, the ratio of treatment cost to selling price is significant (4.3%).
For container grade veneer, the price increase analysis matrix indicates that for every
factor, except two, container grade veneer meets the condition for constraint. For the other
two factors (ratio of treatment cost to selling pi ice = moderate; number of producers =
moderate), container grade veneer scores in the moderate category, rather than in the high
category. Clearly the balance of evidence indicates that no price increase is likely.
The most important factors inhibiting a price increase for container grade veneer
include the fact that abatement cost differences will not be absorbed equally by the
industry, i.e., 43% of the segment will absorb no costs at all, 12% of the industry will absorb
the maximum expenditure. There are substitute products, and demand is quite price elastic,
indicating that product acceptance and sales volume is quite sensitive to price increases.
Further, the basis for competition, among suppliers of container grade veneer, as well as
among other competitive packaging materials, is price; since there is little if any product
uniqueness the lowest cost material will be used.
Thus, prices will not be increased to reflect the rising operating costs due to pollution
control. Rather, these costs will affect the financial condition of firms operating in these
segments.
3. Financial Effects
Each segment of the industry has been discussed above and a representative financial
profile has been developed, and discussed, in Section II.B (Tables II.B. 10-13). Since the cost
of compliance will have to be absorbed by firms operating in these segments, the income
statements and balance sheets have been reanalyzed to compute the effect of this absorption
of cost. Tables V.B.2a and 2b assess the financial impact on firms due to the absorption of
costs of compliance.
Commercial grade veneer manufacturers are not seriously impacted by the absorption
of the cost of compliance. For example, the net profit margin (net after tax income — % net
sales) decreases only by 0.1%, to absorb the maximum cost burden. Similarly, profitability,
expressed as return on net assets, decreases by only 0.3%, to go from no cost to maximum
cost. It is worth noting that treatment cost does represent a significant percent of net after
tax income (13.4% in the maximum case). However, even in the most severe case, cash flow
remains at a level of $65.600 per year, and the necessary capital investment in abatement
equipment represents a small percentage of net assets (2.7%). Thus, the impact on the
financial condition of mills with commercial grade veneer operations is not serious.
137
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TABLE V.B.2a
FINANCIAL IMPACT ASSESSMENT
Veneer Manufacture
Commercial Grade
Code
Cost Factor
Capital
Annual
# Plants
% Total
# Employ
Net Income - % Sales
RON A1 -%
V, V2
0 $8,600
0 $3,000
108 60
43% 24%
7,095 3,960
2.0% 1.9%
4.0% 3.9%
Treatment Inv./Net Assets - % - 2.0%
Treatment Cost/Net Inc
Cash Flow ($1,000)
Key: Sector
V,,VS
V2,V6
V3,V7
. - % - 10.3%
$67.5 $66.5
Discharge Characteristics
V3
V4 Total
$5,500 $14,100
$ 870 $
52
21%
3,465
2.0%
4.0%
0.7%
2.9%
$67.0
3,870
30 250
12% 100%
1,980 16,500
1 .9%
3.7%
2.7%
13.4%
$65.6
vs
0
0
22
43%
440
2.5%
2.0%
—
—
$8.75
Container Grade
V6
$8,600
$3,000
11
24%
220
1.1%
0.8%
6.9%
60.0%
$7.25
V7
$5,500
$ 870
11
21%
220
2.3%
1.7%
4.4%
34.8%
$8.32
VR
$14,100
S 3,870
6
12%
120
0.6%
0.4%
11.3%
77.4%
S6.81
Total
—
50
100%
1,000
Municipal System; Dry Decking or Pond Storage
No Municipal System; Dry Decking or
Municipal System; Wet Decking
Pond Storage
No Municipal System; Wet Decking
1. Return on Net Assets = Net Income T Net Assets.
Source: Arthur D. Little, Inc., estimates.
-------
U)
TABLE V.B.2b
FINANCIAL IMPACT ASSESSMENT
Plywood and Veneer Manufacture
Stock Panels
Semi/Specialty Products
Cost Factor Code
Capital
Annual
# Plants
% Total
^Employ
Net Income — % Sales
RONA1 -%
Treatment Inv./Net Assets — %
Treatment Cost/Net Inc. - %
Cash Flow
Key: Sector Discharge
PI , PS Municipal
P.
0
0
34
58%
5,220
2.6%
8.8%
—
_
$69.0
Characteristics
P:
$8,600
$3,000
19
13%
1,170
2.5%
8.6%
3.0%
7.0%
$68.0
PS
$7,550
$1,400
14
24%
2,160
2.5%
8.6%
1.5%
3.2%
$68.8
P4 Total
$16,150
$ 4,400
8 75
5% 100%
450 9,000
2.4%
8.3%
4.5%
10.2%
$67.3
PS
_
—
53
58%
8,550
3.0%
7.5%
—
_
$100.0
P6
$8,600
$3,000
29
13%
1,915
2.9%
7.4%
1.9%
5.0%
$99.0
Pv
$7,550
$1,440
21
24%
3,540
2.9%
7.4%
1.9%
2.3%
$99.3
PS
$16,150
$ 4,400
12
5%
735
2.9%
7.2%
2.8%
7.3%
$97.8
Total
_
-
115
100%
14,750
System; Dry Decking or Pond Storage
No Municipal System; Dry Decking or Pond Storage
Municipal System; Wet Decking
No Municipal System; Wet Decking
1. Return on Net Assets = Net Income -r Net Assets.
Source: Arthur D. Little, Inc., estimates.
-------
Iii contrast, container grade veneer manufacturers face a serious, negative effect on
their financial condition due to absorption of costs of compliance. For example, net profit
mar:in drops from 2.5r,'c in the base case (Vs = /ero cost of compliance) to 0.6^ in the
maximum case. Further, cash How, which was a marginal S8,750 in the base case, drops to
even closer to the breakeven point, S6,810, in the maximum case (V8). The fact that the
capital investment in abatement equipment represents more than 1 \7c of net assets, and
perhaps as much as 30-40'; of net fixed assets, in the worst case, indicates a serious impact.
Container grade veneer manufacturers which have to invest significant capital for
abatement (categories V6 and V8) will not be able to finance abatement investments out of
cash flow. Those firms which are not sufficiently liquid will be forced to resort to debt to
cover capital investment needs. Being in tenuous financial condition, with such investments
in non-productive equipment representing a substantial percentage of the value of net plant
and equipment, these firms are likely to confront a capital availability problem.
Thus, firms in container grade categories V6 and V8 (34^ of the plants, 17 plants, 340
employees) will be most seriously affected.
Generally manufacturers of plywood and veneer, either of stock panels or specialty
products, have a strong enough financial condition to absorb costs of compliance with no
serious financial impact. In fact, firms in this sector of the industry could finance the capital
appropriation necessary out of cash flow, and would not have to face capital markets to
raise the necessary funds.
Thus, with the exception of firms in container grade veneer categories V6 and V8,
plants in this industry will not be severely impacted, financially,by absorbing the costs of
compliance.
4. Production Effects
Since there is relatively little advantage to be gained by reducing output at a hardwood
plywood or veneer plant, production effects will evidence themselves in plant closures rather
than production limitations. The magnitude of plant closures is dealt with as a three-stage
process, namely;
• to determine those segments in which plant closures are likely based on
financial impact;
• from that financial impact analysis, to develop a preliminary number of
plant closures, allocating plants into a high probability of impact category;
140
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• to refine the preliminary closure analysis by deducting baseline closures* and
determining the type and number of plants within high impact categories
which would invest in abatement rather than shutdown.
Table V.B.3 summarizes the financial impact discussed in the previous section in terms
of the plant closure analysis. As the table indicates, only for container grade veneer
manufacturers is the resultant financial condition poor enough to suggest a relatively large
degree of plant closures. Cash flow, at S6,810 (Table V.B.2a), is essentially at a breakeven
level. The ratios of treatment cost to net income, and abatement investment to net fixed
investment, are high enough to indicate a capital availability problem.
Based on Tables V.B.2 and 3, Table V.B.4a, an estimate of the number of plants which
would fall into a high probability of impact category was developed. For the container grade
manufacturers (segment I.B.), segments V6 and V8 are those segments identified as most
tenuous financially. With this first level analysis, all the plants in those two categories are
considered preliminary plant closures.
Table V.B.4b takes the preliminary analysis to the final step, i.e.. a determination of
the net plant closures. To accomplish this step, an estimate of baseline closures was made
based on discussions with the industry, and the development of a list of known closures
during the last five years by the HPMA. There is some tendency for plants to come in and
out of production depending upon prevailing prices, but this is not nearly as strong a trend
as is true in softwood plywood manufacture, or in lumber production.
As Table V.B.4b demonstrates, the only impact will be on manufacturers of container
grade veneer. Plant closures here will represent 27c of the number of plants and persons
employed (2 plants, 40 employees).
To graphically illustrate the point that plants in this industry would be impacted
at a very modest additional increment of compliance cost (e.g., S 10.000 incremental capital)
the following Table V.B.5 is presented as extracted from a prior analysis of economic im-
pact. Of course, most of the plants (11 out of 20; 55%) categorized as likely closures are con-
tainer grade veneer manufacturers.
' Baseline closures refer to those operations which are economically marginal and would be forced to
close based on low profitability or operating losses, independent of the requirement to meet effluent
guidelines.
141
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TABLE V.B.3
PLANT SHUTDOWN ANALYSIS MATRIX
Plant Shutdown Decision
Condition for Commercial Grade
Factor
Ratio of AT Treatment*
Cost to AT Net Income (%)
Cash Flow
(Including Treatment Costs)
Shutdown
High
Negative
Veneer
12.9%
Positive
Container Grade
Veneer
77.4%
Breakeven
Stock Plywood
Panels
10.8%
Positive
oyec. ex
Semi-Specialty
Plywood
7.3%
Positive
Ratio of Investment in
Treatment* Facilities to
Net Fixed Investment (%)
High
2.7%
11.3%
4.5%
2.6
'Maximum level of expenditure.
-------
TABLE V.B.4a
PRELIMINARY PLAINT CLOSURE ANALYSIS MATRIX
Sector
I. Veneer Mfg.
A. Commercial Grade
B. Container Grade
V6,V8 (100% of sector)
Subtotal
II. Plywood & Veneer Mfg.
A. Stock Panels
B. Semi & Spec. Plywood
Subtotal
GRAND TOTAL
# Plants
% # Employees
17
17
0
0
0
17
35%
35%
0
0
0
340
340
0
0
0
340
TABLE V.B.4b
NET PLANT CLOSURE ANALYSIS MATRIX
Sector £ Plants % i Employees
I. Veneer Manufacture
A. Commercial Grade
Preliminary Estimate
less: Base-Line Closures
Net Closures - I.A.
B. Container Grade
Preliminary Estimate
less: Base-Line Closures
less: 85% — invest, in abatement
Net Closures - I.B.
Subtotal Net Closures - I.A.B
II. Plywood & Veneer Manufacture
A. Stock Panels
Preliminary Estimate 0 0
less: Base-Line Closures 3 360
Net Closures-11.A. ~~0 0
B. Semi & Specialty Plywood
Preliminary Estimate 0 0
less: Base-Line Closures _3_ 390
Net Closures-I I.B. ~0 0
Net Closures - II.A,B 0 0
TOTAL NET CLOSURES - I & II 2 .4% 40
0
0
0
17
2
15
13
2 4%
2 1%
0
0
~6
340
40
300
260
40
40
143
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TABLE V.B.5
HARDWOOD PLYWOOD AND VENEER - PLANT CLOSURE AND
EMPLOYMENT EFFECT FOR VARYING LEVELS OF COMPLIANCE COSTS
Sector
V
O
Total
V
O
Total
V
O
Total
- Plant
Closures
0
0
• Employees
Displaced
0
0
TT Employees
in Sector
2
0
11
9
20
40
0
40
220
770
990
0
4%
0.1%
22%
2%
2.4%
Guideline Option
I. Process Changes Only
(Maximum Cost:
capital = $5,500
yearly = $3,000)
II. I + Recirculation from
Wet Decks1
(Maximum Cost:
capital = $14,100
yearly = $ 3,870)
III. II + Screening from
Wet Decks & Log Ponds2
(Maximum Cost:
capital = $24,100
yearly = $ 3,870
V = Commercial Grade Veneer
0 = Other Sectors
1. Proposed Guideline
2. Guideline requiring a significant amount of screening of very small particles.
Source: Arthur D. Little, Inc..estimates.
We do not anticipate secondary effects on users of container grade veneer. There is a
certain amount of underutilized capacity in the industry which could be employed to make
up this loss of production. Further, users have options of using other packaging materials to
accomplish their objectives.
5. Employment Effects
Plant closures will cause 40 employees to be displaced as indicated in Section V.4.
Not all of the persons displaced will be unable to find comparable employment. These
mills tend to employ a relatively high percentage of older, relatively low-skill employees; we
estimate that approximately 30% of the employees will be able to find other comparable
jobs. Approximately two-thirds of the administrative employees should be able to find
comparable employment, while only about a quarter of the production workers will be able
to do so.*
'Approximately 20% of total employment represents administrative employees.
144
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Our estimate that 707c of the employees will be unlikely to find other comparable
employment is a relatively high ratio. It is so high due to the older age distribution and lo\\
skil! level of the employees. Additionally, many of these operations are located in small,
remote communities in which there are not a lot of readih-available employment
alternatives.
6. Resultant Regional Effects
Since only two plant closures are likely, there will be no noticeable community
impacts due to plant closures and subsequent unemployment.
However, Table V.B.6 presents an estimate of the regional distribution of employee
displacement if other Guidelines were implemented at higher levels of costs, yielding
significant impacts. As the table demonstrates, 47f,' of the plant closures and dislocated
persons would be located in the states of the mid-South, i.e., the Carolinas, Virginia,
Kentucky, and Tennessee. Most of the plant closures would be located in rural communities.
Our prior studies of investment patterns in the forest products industry in the United
States suggest that for several reasons, including wood availability and generally lower
operating costs, the domestic forest products industry will be investing relatively more
heavily in the states of the South and Southeast than in any other region. This suggests that
workers displaced from these plants could be utilized in new plants. However, the lead time
from investment decision to plant start-up for a pulp and paper mill is 3-5 years; it is about
12-18 months for a large saw mill or veneer and plywood mill. Thus, while there will be
some new opportunities available in these regions, they will not be available immediately.
Further, rather than being located in a number of small communities distributed throughout
the region, they will tend to be concentrated as larger complexes in fewer communities.
Skills applicable to work in a plywood and veneer mill are, on balance, translatable into
other manufacturing operations. Certain operations, such as the actual peeling of veneer
from a debarked log, are high-skill occupations. However, the bulk of the operations
performed in a plywood mill can be readily learned. Thus, employees displaced from plants
will generally not have skills so specific they could only find employment in another
plywood plant, nor would they be in demand as highly-skilled labor.
145
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TABLE V.B.6
POTENTIAL REGIONAL EMPLOYEE DISPLACEMENT DISTRIBUTION
Plant
Region %
Mid-South 47
North Central 21
Southeast 16
Northeast 11
Rest 5
100
Secondary effects should be minimal in this industry. Most of the small plants are
relatively self-contained, even to the extent of having their own logging crews. The closure
of a small veneer mill will probably not imply displacement of logging personnel as well.
Also, many of the persons who supply logs to plywood and veneer mills are farmers and
other landowners who cut logs to augment their income but are not sclely dependent on
logging fees to support their families. Further, in the case of the container grade veneer
segment where there is loss of production, there are alternative sources of packaging
materials and additional container grade veneer capacity to avoid secondary impacts due to
loss of supply.
7. Balance of Trade Effects
Hardwood plywood imports account for approximately 75% of the total domestic
consumption of hardwood plywood. The imported product competes on the basis of lower
price due to substantially lower labor costs and ready availability of quality peeler logs. In
the past 20 years there has never been a substantial export of domestically-produced
hardwood plywood. We do not anticipate a shift in this basic trend.
We anticipate no effect on balance of payments due to pollution abatement cost
requirements. Only two plant closures are projected; the net effect will not be a significant
reduction in industry output or growth. Thus, domestic supply will not be materially
affected and, for that reason, imports will not materially increase. Further, both plants are
container grade veneer manufacturers, a product for which exports and imports are virtually
nonexistent.
In effect, the balance of payments will not be materially affected by pollution
abatement requirements under the assumptions used for this analysis. Other factors have a
far more important influence on the balance of trade here than do environmental control
costs.
146
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C. SOFTWOOD PLYWOOD AND VENEER
Tliis analysis is based on an intensive survey of softwood plywood mills conducted
during April and May 1974. The survey was presented to 150 softwood mills and was
administered by the quality control inspection field service of the American Plywood
Association. The questionnaire was prepared by Arthur D. Little and the completed ques-
tionnaires were processed under oiir supervision. 114 questionnaires were returned and were
usable. In addition, since some veneer mills lire not integrated with plywood manufacturing
(38 mills) we contacted these isolated mills separately.
The purposes of these surveys was to determine the effluent practices of these mills
and to enable us to estimate the specific compliance costs which these mills must bear in
order to meet the proposed Guidelines. In addition data was gathered about 1973 capital
expenditures and 1973 production (million square feet 3/8ths inch basis) to allow us to
estimate the economic affects of compliance.
1. Costs of Compliance
a. Industry Survey Results
The survey results have been cross tabulated by the following characteristics:
• Mill Size
Each question is separately tabulated by the volume of 1973 production in
million square feet 3/8ths inch basis. The categories used are small (under 40
million square feet), medium (40 to 99 million square feet), and large (over
100 million square feet). •
• Type of Operation
Responses are shown separately for plants producing plywood products only
versus plants located at sites where other wood processing activities occur.
• Water Pollution Impacts
The tabulations are divided into three categories: mills with no impact, mills
with impact due to log handling and storage, and mills with impacts resulting
from manufacturing processes.
• Geographic Area
Tabulations were made separately for Western mills and Southern mills.
147
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b. Capital Expenditures Pattern
Plywood mills spent heavily for capital improvements for pollution control as well as
plant expansion during 1973. Out of 100 mills responding to the question of their 1973
expenditures, 76 made expenditures for air pollution, 62 made expenditures for water
pollution, and 86 made expenditures for safety (under the Federal OHSA requirements).
Interestingly only 59 mills made capital expenditures for the purpose of improving plant
productivity during that year indicating the higher priority which was attached to pollution
and safety expenditures.
For the plants responding, a total of $127,345,000 in expenditures were made in 1973
by 95 of the plants. Of these funds, 80% were expended for new or replacement productive
facilities while the remaining 20%- were used to control air and water pollution or to increase
plant safety. Air pollution was a priority item during 1973 as it received 14% of the money
spent. In comparison water pollution expenditures equalled only 3% of the total as did
safety expenditures. These results are consistent with our prior analyses - that air pollution
control was a far more serious problem than water pollution or safety. However, the results
also showed that water pollution and safety are not totally overshadowed by air pollution
requirements and together amount to a sizable portion of capital equipment expenditures.
A breakdown on a regional basis shows that the Southern plants tended to spend
considerably more funds for pollution control and safety as compared to productive
facilities than did plants in the West. However, the results for the Western plants are
somewhat misleading as there were several large new mills constructed in the West and a
laraer portion of the cost of a new plant tends to be for productive facilities than for
pollution control or safety.
For the three plants constructed during 1973, the total capital expended was
564.800,000 and of this total, only 7% was expended for pollution control or safety, while
93% went to construction of productive facilities. In comparison a total of 562,545,000 was
spent at 92 existing plants and fully 1/3 of this was spent for pollution control or safety. At
these existing plants air pollution expenditures were 23% of the total, more than twice the
level expended for water pollution and safety which received 5% each.
The capital costs of compliance for the 63 mills not in compliance are estimated to be
51,175,000. This compares to $43,860,000 reported spent by those mills in 1973 for all
capital equipment and is equal to 3% of that sum. The average Western mill is expected to
spend $18,000 for equipment and $4,000 for operating expenses while the average Southern
mill will spend $20,000 for equipment and $4,000 for operating expenses. For each group the
total capital costs of compliance are equal to 3% of the funds actually expended for new facil-
ities in 1973. We feel there is no significant difference in the likely impact on mills in the
South as opposed to the West; they can be treated as a group.
148
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Examination of the capita! spending patterns of the 63 mills not in compliance showed
the following expenditures reported were made in 1973:
Type Amount Percent
Air Pollution Control S11,793,000 27
Water Pollution Control 2,168,000 5
Safety 1,952,000 4
New Productive Equipment 27,947.000 _64
Total 543,860,000 100
c. Findings
The findings are further summarized in Appendix A to this report.
d. Softwood Veneer
Table V.C.a. estimates the incidence of direct discharging and the costs of compliance
to reach BPT for veneer mills. The 21 mills expected to be affected represent 55% of the
total number of plants (38) estimated to be in operation.
2. Price Effects
Prices in the plywood industry are established as a function of supply and demand and
are not directly impacted by increases or decreases in production costs. Any change in cost
will have an impact first on supply and second on price but only in the long run. However,
the expected change in operating costs for the incurring violations is so small hi our
estimation as to be almost completely negligible. The typical annual costs of compliance are
a matter of only a few cents per thousand square feet produced. This is equal to 0.1% of
annual mill sales. This change in cost will not have any measurable impact on supply nor
ultimately on price.
Table V.C.I presents the price increase analysis matrix for softwood plywood and
veneer. The evidence is not strong for a cost pass-through price increase. Therefore we
anticipate no price increases due to the added costs of complying with the proposed effluent
Guidelines.
149
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TABLE V.C.a.
MILLS EXPECTED TO BE AFFECTED AND CORRECTIVE COSTS - SOF TWOOD VENDER
Effluent Practice
I. Wet Deck Discharges to
Stream or River
II. Log Pond Discharges to
Stream or River
III. Veneer Dryer Discharges
(8 mills only)
IV. Log Washing Effluent Discharges
V. Hydraulic Debarker Discharges
VI. Treatment Pond Discharges
Total
1. Total # mil Is in industry = 38.
Source: Arthur D. Little, Inc., estimates.
— of Veneer
Mills Likely
Impacted
2
12
2
2
3
21'
Capital Cost
of
Corrective
Measures
S 8,600
3,000
1 1 ,300
15,000
3,000
$40,900
Totiri
Sector
Capital
Cost
S 17,200
36,000
22,600
30,000
9,000
$114,800
Annu,il
Operating
Cost
$ 3,000
500
3,280
3,000
500
$10,280
Tot.tl
Sector
Operating
Cost
$ 6,000
6,000
6,560
6,000
1,500
$26,060
TABLE V.C.I
PRICE INCREASE ANALYSIS MATRIX FOR SOFTWOOD PLYWOOD AND VENEER
Parameter
BT Treatment
Cost-^Selling Price
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost Differences
Price Elasticity of Demand
Basis for Competition
Market Share Distribution
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Plywood
Low; < 0.1%
Moderate
High
Low
Moderate — High
Low — None
Moderately Unequal
Moderate
Price
Moderately Fragmented
Veneer
Low; < 0.2%
Moderate
High
None
Moderate — High
None
Moderate
Moderate
Price
Fragmented
150
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3. Financial Effects
a. Effect on Profitability
Absorption of costs of compliance will not have any notable or measurable impact on
either industry profits or profits for the average mill.
b. Effect on Availability of Capital
Our findings indicated that 63 out of 114 softwood plywood mills reporting would
require investment to reach BPT. This number represents 55% of the group. However, their
total capital expenditures in 1973 represented only 34% of the total expended in the
industry. This is because these mills tended to be existing mills while a sizable portion of
industry capital expenditures are made for the construction of completely new mills. The
mills not in compliance were expected to have to spend an amount equal to 2% of their
1973 capital expenditures to bring them into compliance with the recommended Guidelines;
therefore the likely capital drain on the entire industry to make such expenditures is equal
to approximately 1% of the total industry capital expenditures. This level of expenditure
will not have a measurable effect on the availability of capital for the entire industry or for
those units affected.
It is necessary to examine the situation faced by individual mills to determine if the
burden for any single producer will be too great and/or whether producers will be able to
technically comply with the proposed regulations.
Our first measure to determine whether a mill might encounter financial difficulty is
based on estimated profitability. To estimate profitability for 1973 we used the average
selling price for 3/8ths inch standard exterior Douglas Fir plywood as reported by Random
Lengtlts Yearbook which was SI 12 in 1973 and multiplied that figure by our projected
profit before income taxes attained in 1972 as described in Section II.B. This yields an
estimated net profit before income taxes for our typical mill of 11.7% of sales. Multiplying
these two figures indicates the average mill should produce a profit of about S13.10 per
thousand square feet of production and it is against this standard that we measured possible
economic impact.
The calculation showing dollar costs of compliance per thousand square feet of
production for the 63 mills not in compliance shows only two mills which will be required
to expend more than S1 of capital for each thousand feet of production. These are mills
which respectively are expected to spend $7.50 and $1.36 per thousand feet produced in
1973. AH other mills are expected to spend under $1.00 of capital per thousand square feet
of production or less than 1% of their 1973 sales.
151
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The two mills which appeared to be financially vulnerable were contacted by tele-
phone. The first mill suffered from a log pond overflow and expected to spend SI5,000 to
screen these discharges. In fact the manager of that mill reported that the mill actually had
two log ponds, the second of which was being converted to a catch basin for the first and
that when this conversion was complete (expected to be finished by late summer 1974) no
more overflows would reach a stream or river. Therefore this mill would, at that time, be in
compliance with the proposed Guidelines and would not be required to expend funds for
compliance purposes.
The second mill considered to be financially impacted produced 11 million square feet
of plywood in 1973. This mill also suffered from a log pond overflow and was also taking
steps to bring discharge under control by alternate means. The mill manager reported the
principal source of water for this pond was clear cooling water discharged from the mill.
This producer was constructing ditches around the pond to divert that cooling water
elsewhere and stop overflows from this one acre pond, thereby bringing the mill into
compliance.
These were the only two mills considered to be vulnerable on a financial basis and,
based on our further interviews with the managers, we do expect closure. (It is interesting to
note as well that the steps these mills were taking to bring themselves into compliance could
be used by a number of their mills; thus lowering the expected total costs of compliance to
the industry.)
For veneer mills the analysis yields the same conclusion. The maximum capital
expenditure for a veneer mill would represent only 2% of net assets. Most mills could readily
finance That amount out of cash flow. Further, the annual increase in operating costs is only
0.2Tf of sales revenues, at maximum.
4. Production Effects
The only other basis which might preclude compliance would be a lack of land to
construct lagoons for log conditioning water discharges. Six mills were discharging log
conditioning overflows to a stream or river. The questionnaire for each was examined to
determine if the mill either had a log or treatment pond to which conditioning waters could
be diverted or if land was owned or available to construct a treatment pond. Of the six mills
suffering from this problem 4 had log ponds or treatment ponds where we assume the log
conditioning water could be discharged and the remaining two reported they were able to
purchase more than 1 8 acres of land adjacent to the mill sites which could be used for
lagoon construction. Since less than one acre of land is estimated to be required for lagoon
construction this is clearly sufficient to bring the mills into compliance. Therefore, on a
technical basis, we conclude no mills would be required to close due to a lack of ponds to
accept log conditioning discharges or due to a lack of land to construct such ponds.
152
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Since we concluded above that financial effects where minimal, there will be no
closures of mills resulting from institution of the recommended guidelines. Table V.C.2
summarizes the plant closure circumstance for the segment as a whole.
Therefore, there will be no lost production, no plants closed, and no measurable effect
on industry growth.
TABLE V.C.2
PLANT CLOSURE ANALYSIS MATRIX
SOFTWOOD PLYWOOD AND VENEER
Condition for Softwood Plywood
Parameter Closure Segment
AT Treatment
Cost-^ AT Net Income High Low; 0-4%
Cash Flow Negative Positive, Strong
Degree of Integration Low Moderate
Abatement Investment-:-
Net Fixed Investment High Low;<1%
Other Facilities on Common
Site Isolated Moderate
Ownership Large, Multi-industry Large, Multi-industry
5. Employment Effects
There will be no losses of jobs due to implementation of the proposed guidelines.
6. Resultant Regional Effects
There will be no difference between regions of the country in terms of the measurable
effects of the proposed guidelines.
7. Balance of Payments Effects
The effect of the proposed guidelines is so minimal that there will be no measurable
effect on the U.S. balance of payments.
153
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D. SAWMILLS AND PLANING Ml LLS, GENERAL - SIC 2421
This section estimates the economic effect on the hardwood and softwood sawmill
industries of complying with recommended effluent control standaids. The suggested
standards are developed for discharge of waste waters from "mill operations" and from "log
storage activities." Our analysis indicates the industry will be fully able to comply with the
required standards for mill operations, since essentially no processing changes or investment
in equipment will be required.* However, to control waste water from log storage activities,
a number of firms will be required to invest in abatement facilities. This analysis focuses on
these standards.
1. Costs of Compliance
It is assumed that mills employing more than one form of wet log storage (i.e. ponds
and wet decks) will be able to channel the effluent from both sources into one facility. It is
also assumed that the required expenditure per violating mill will be 38,600 capital
investment; $3,000 annual charges.* Some mills will be able to employ smaller installations
and will not be required to spend the full sum. To the extent this occurs this analysis
represents a "worst case" calculation. Finally there will undoubtedly be some mills which
will be able to comply with the required standards without installing any facilities through
the use of water collection or diversion systems or by changing their method of operation.
Presumably a mill will follow an alternate course only when that course is less costly than
that required by the proposed screening technology. Again to the extent this occurs this
analysis represents a "worst case" situation.
To improve the available data base, we conducted a survey of 195 softwood and
hardwood sawmills by telephone during March 1974. The mills surveyed were selected at
random from trade directories and an effort was made to make the sample as representative
as possible. The number of mills interviewed by state is shown in Table V.D.I. A total of
144 softwood mills and 51 hardwood mills were interviewed. The sample of softwood mills
is roughly equal to 10% of the total number of mills estimated to be operating in the
industry while the sample of hardwood mills is equal to about 5% of those mills known to
be operating.** We feel a 10% sample of the softwood mills is sufficient for statistical
reliability and a 5% sample of the hardwood mills known to be operating is also sufficient.
*See Development Document for details.
**We estimate approximately 1,000 hardwood mills are operating full time and known to be identifiable;
industry sources estimate there may be an additional 1,000 mills who operate at various times but are
not identifiable through conventional trade sources.
154
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SAWMILL SURVEY
TABLE V.D.1
SURVEY SAMPLE BY TYPE OF MILL AND LOCATION
Area Softwood Mills Hardwood Mills
Northwest
California
Idaho
Montana
Oregon
Washington
Subtotal
Other U.S.
Alaska
Alabama
Arizona
Arkansas
Colorado
Florida
Georgia
Maine
Michigan
Mississippi
New Mexico
North Carolina
Louisiana
Maryland
Kentucky
Ohio
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Wyoming
Wisconsin
Missouri
Subtotal
TOTAL SAMPLE
21
8
8
28
12
77
2
6
1
4
3
1
8
1
4
6
2
4
2
-
-
—
—
5
1
8
6
2
1
-
67
144
2_
2
5
5
4
1
3
5
2
7
4
4
49
51
155
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Our survey shows there will be significant regional differences in the impact of the
proposed regulations. For example, as shown in Table V.D.2, 53','r of the softwood mills
surveyed in the Northwest could be affected by the proposed log handling and storage
regulations.* In contrast only 13% of the softwood mills operating in the balance of the
United States are expected to be affected. None of the hardwood mills operating in the
TABLE V.D.2
LOG STORAGE METHODS EMPLOYED
Northwest Other Northwest Other
Softwood %. Softwood % Hardwood % Hardwood %
Mills Potentially Impacted:
Ponds Method
Ponds Only 55------
Pond, Wet Deck
and Dry Deck 68------
Pond and Wet Deck 45____2 4
Pond and Dry Deck _L _! -H _Z — - - ;_
16 20 - - - - 2 4
Other Wet Methods
Wash Logs and Dry
Deck 1 1 - _____
Wet Deck Only 23 30 4 6 - - 6 12
Wet Deck and Dry
Deck _7_ ' _9 _5 _7 _- -_ _4_ 8
31 40 9 13 - - 10 20
Subtotal 47 61 9 13 - - 12 24
Mills Not Impacted
Dry Methods JO _39 58_ 87 _2_ 100 37 76
Total 77 100 67 100 2 100 49 100
'I.e., these mills use wet handling and storage techniques. Since the EPA has suggested that wet decking
operations be "decontrolled," only those firms operating pond will be impacted, i.e., 21% of Northwest
softwood mills.
156
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Northwest will be affected (there are very few hardwood mills in that area) while 24% of
those operating in the balance of the U.S. operate in a fashion which would cause them to
be affected by the log storage regulations.
Table V.D.3 shows additional detail on the operations of mills employing wet deck log
storage. Most significant is the fact that the majority of mills employing wet deck storage
already recirculate log spray water. In the Northwest 19 of 40 mills reporting (48% of the
group) have installed systems for recirculating log spray water; among softwood mills
operating elsewhere in the United States, fully 89% presently recirculate log spray water
while; 50% of the hardwood mills do so as well.
It is also significant that the use of log spray equipment tends to be a seasonal
operation. Northwest softwood mills spray logs an average of only 4.8 months per year (the
median producer reported spraying for 12 months). Among hardwood mills the mean and
median number of months logs were sprayed was the same, seven months.
TABLE V.D.3
WET DECK OPERATIONS
Northwest Other U.S. Other U.S.
Softwood Softwood Hardwood
Mills Mills Mills
Number of Mills 40 9 12
Sze in Acres
Range 2-100.0 0.5-10.0 0.5-10.0
Mean 13.5 3.6 3.2
No. Months Deck is Sprayed
Range 2-12 1-12 3-12
Mean 4.8 8.3 7.0
Median 4.0 12.0 7.0
No. of Mills Who Recirculate
Spray Water 19 Q Q
Percent Recirculating Spray Water 48% 89% 50%
Table V.D.4 provides additional information on operators using log or mill ponds for
storage. Among Northwest softwood mills 7 out of 18 reporting indicated their ponds never
overflowed while only 1 had a pond which always overflowed. The balance incurred
occasional or seasonal water discharges. Among other U.S. softwood mills 3 out of 7
157
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TABLE V.D.4
POND OPERATIONS
Northwest Other U.S. Other U.S.
Softwood Softwood Hardwood
Mills Mills Mills
No. Log or Mill Ponds1 15 - 2
Size in Acres:
Range 1/4-40 - NR
Mean 7.2 - NR
No. Oxidation/Sedimentation
Ponds 18 7 6
Size in Acres:
Range 1-15 1/4-1 1/2-1
Mean 4.3 ' .75 .75
Do Ponds Overflow
Always 1 ) - —
Occasionally 8 > 11 3 1
Seasonally 2 ' — —
Never 734
No Answer — 1 1
18 7 6
NR = Not reported
1. Excludes mill using inland lake.
reporting indicated no overflows; one did not answer; and three had occasional overflows.*
Only one out of six hardwood mills with an oxidation-sedimentation pond stated that facility
overflowed while four reported theirs did not. We assume mills employing oxidation-
sedimentation ponds only will not require additional investment to meet effluent guidelines.
In that case we note that 40% of mills reporting will apparently not be required to install
screening equipment for log ponds.
Table V.D.5 analyzes the mills reporting according to whether or not other wood
converting facilities were located and operated at the site of the sawmill. In the Northwest
only 38% of the softwood mills expected to be affected were located at sites where other
wood converting facilities operate. In the balance of the United States 33% of the softwood
mills affected shared their sites with other wood converting operations. The opposite was
"This data applies to oxidation-sedimentation ponds only since no softwood mills operating outside the
Northwest used log or mill ponds for log storage.
158
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1/1
Northwest Softwood
Other U.S. Softwood
Northwest Hardwood
Other U.S. Hardwood
TABLE V.D.5
HARDWOOD AND SOFTWOOD MILLS WITH MULTIPLE FACILITIES AT SITE
Mills Potentially Impacted
Total
iod 47
>od 9
x>d —
ood 12
Number With
Multiple
Facilities
18
3
-
8
Percent Total
38 30
33 58
2
67 37
Mills Not Impacted
Number With
Multiple
Facilities
16
25
1
15
Percent
53
43
50
41
Number
of
Mills
77
67
2
49
195
Total Mills
Number With
Multiple
Facilities
34
28
1
23
86
Percent
44
42
50
47
44
-------
true for the hardwood mills expected to be affected, however, with 67',' of those mills
sharing common mill sites. In total, for ;ill mills reporting (both those expected to be
affected and those not expected to be affected), 56',' were stand-alone operations and 4>\'"c
shared the mill site with some other facility.*
Mills sun-eyed were asked to report their total 1973 lumber production in board feet.
One hundred sixty-one mills answered this question and 34 did not. Table V.D.6 shows the
results for those mills reporting. The answers indicate that mills affected by the proposed
regulations tend to be somewhat larger than the average. In the Northwest, for example, the
mean production in 1973 for mills expected to be affected was 50,000,000 board feet while
the average for those not affected was 41,000.000 board feet. In this situation we do not
view the difference in unit production to be significant for economic impact purposes. In
the balance of the United States, however, the mean production for softwood mills
expected to be. affected was 35,000,000 board feet in 1973 while the mean production for
those not expected to be affected was only 16,000,000 feet. In this case we believe
significance can be attached to the difference in unit production; it reflects the fact that
larger mills are more complex in their operations and more inclined to invest in spraying
equipment to protect larger log inventories.
TABLE V.D.6
1973 REPORTED PRODUCTION
(million board feet)
Mills Impacted
Mills Not Impacted
Number
Production
Number
Production
Reporting Range Mean Median Reporting Range Mean Median
Northwest Softwood
Other U.S. Softwood
Northwest Hardwood
Other U.S. Hardwood
w = withheld to prevent accidental disclosure
40
7
_
10
6-198
15-
3.5-
7,5
—
32
50
35
—
13
40
32
—
8
29
45
2
28
7-112
.2-
1.5-
48
w
15
41
16
w
6
40
10
w
6
A similar pattern is found among hardwood lumber producers with those affected re-
porting a 1973 mean production of 13,000,000 board feet as compared to an average of only
6,000,000 board feet for those not expected to be affected. In the case of the hardwood
mills, however, the median mill size was only 8,000,000 board feet for those affected as
compared to 6,000,000 board feet for those not expected to be impacted. We caution,
again, that in the hardwood situation a number of unidentified, smaller producers will be
affected as well.
"The implication of the data relates to our opinion that mills with multiple operations on a single site will
be more resistant to pressure for closure, vis-a-vis "stand-alone" facilities.
160
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2. Price Effects
The industry will absorb the increased costs due to expenditures required for water
pollution control, it will not be able to pass these costs along to consumers. The rationale
for this conclusion is:
• Fewer than half of the total/producers operating in the industry will be
required to make such expenditures. Because of the extremely competitive
nature of the business we do not expect these producers to be able to
increase their prices without losing business to their competitors.
• Prices in the industry are historically established by the relationship between
supply and demand and not by the cost of production. As costs go up or
> demand declines prices and sup"pl^ are adjusted to reflect the new economics
of the industry. Because of this pricing mechanism the results of a small cost
change such as this cannot be directly traced to any specific shift in price.
• The level of expenditure involved in this situation is so small as to make
virtually no impact on very large producers; while it may have some
impact on the smaller firms their prices are not established independently
and they would be unable to adjust their prices without coming under
increased competitive pressure.
For these reasons we feel there will be no directly measurable price effects as a result
of these regulations.
3. Financial Effects
Table V.D.7 reports capital equipment expenditures made in 1973. On average the
annual capital equipment expenditures reported were significantly larger than those required
under the proposed regulations. For example, for Northwest softwood mills which made air
pollution control equipment expenditures in 1973 (16 mills), the mean cost of these
facilities was 5151,000; for those making water pollution control equipment expenditures
(18 mills), the average cost was 5184,000; and for producers purchasing new production
equipment, the mean cost was $1,083,000. A much lower expenditure level prevailed among
softwood mills operating elsewhere in the United States although again the figures were
considerably higher than the 58,600 maximum expected under the proposed regulation.* A
similar pattern exists for hardwood mills.
Table V.D.8 presents a summary of the capital expenditures we estimate will be required
to control water pollution among sawmills.
*See Development Document for cost details and rationale.
161
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TABLE V.D.7
Air Pollution Control
Equipment:
No. Reporting Expense
Mean Cost ($1,000)
Other Pollution Control
No. Reporting Expense
Mean Cost ($1,000)
Capital Equipment:
No. Reporting Expense
Mean Cost ($1,000)
Other Pollution As Percent
Total Capital Expenditures
CAPITAL EXPENDITURES IN 1973
(all mills)
Northwest
Softwood
Mills
16
$151
18
$184
6
$1083
Other U.S.
Softwood
Mills
2
NR
$14
3
$222
Hardwood
Mills
2
$200
6
$ 70
2
$115
All
Mills
20
$156
24
$156
11
672
15
38
19
TABLE V.D.8
SUMMARY OF ESTIMATED WATER POLLUTION CONTROL CAPITAL EXPENDITURE
REQUIREMENTS FOR SAWMILL INDUSTRY
Total Mills Operating
Percent Potentially Impacted
No. Potentially Impacted
Estimated Total Capital Investment Re-
quired ($ million)2
Estimated Total All Mills
Average Annual Capital Expenditures for
Sawmills and Planing Mills (1965-1971)
($ million)
Water Pollution Capital Expenditures as
Percent Total Annual Capital Expenditure
Northwest
Softwood
650
521
338
$2.9
~— —
Other U.S.
Softwood
750
13
98
$0.8
—— ''v^- •*
$ 5.8
Other U.S.
Hardwood
1.000
24
240
$2.1
^ , i —
^^^••Ml
$182.50
0.9%
1. Adjusted for Northwest softwood ponds which do not overflow.
2. No. mills x $8,600 each.
162
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Based on the results of our survey we have estimated that 52' '< ot" the approximately
650 softwood mills operating in the Northwest will be obliged to spend $8.600 each. For
the group this represents a total of $2.9 million to be expended by 338 plants. For the
balance ot" the softwood industry, 13/7 of the group (98 mills) aie expected to spend $0.8
million. In the case of hardwood mills we are estimating expenditures will be required by
240 mills for a total of $2.1 million.
In aggregate all mills operating in the United States are expected to spend $5.8 million
for water pollution control equipment. In comparison the entire industry has averaged
annual capital expenditures of $182.5 million during the period 1965 to 1971. This means
the estimated required expenditures for water pollution control equal only Q.9% of the
average capital expenditures made by the industry each year.
On the basis of this factor we conclude the proposed standards will not have a
significant impact across the industry as a whole, or at least not as measured against
historical capital expenditures. However, because the costs of compliance fall unevenly
across the industry, i.e., not all mills will be forced to make expenditures, it is, necessary to
carry the analysis further and compare the required expenditure against estimated sales and
profits for the mills impacted.
a. Northwest Softwood Mills
Table V.D.9 estimates the financial impact of the proposed log storage regulations on
the Northwest softwood mills reporting in our survey. The two columns of the table
estimate the results of the required expenditure on the average size mill reported expected
to be impacted and the smallest mill reporting expected to be impacted. In the first case the
average mill produced 50 million board feet in 1973, and we have estimated sales for that
mill at S6.3 million with after tax profits of $265,000. In this case the required expenditure
of $8,600 represents 0.1 % of 1973 sales and 2.8% of estimated 1973 after tax profits.
The parameter of abatement expenditure as a percent of after tax income was used as a
; closure decision criterion, because:
— Net value of assets data was unavailable;
— The industry practices rapid write-off of such expenditures;
— Showing the impact on the income statement of expensing the abatement
expenditure is a "worst case" analysis which, as noted above, will yield the
maximum impact; to the exent there is an impact, actual impact will be less.
i
In the case of the smallest Northwest softwood mill reported expected to be impacted
1973, production was 6 million board feet with estimated dollar sales of S760,000. We have
estimated after tax profits for that mill at $32,000. The estimated investment of $8,600
represents 1% of 1973 sales and 237c of estimated after tax profits.
163
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TABLE V.D.9
FINANCIAL IMPACT OF LOG STORAGE REGULATIONS ON NORTHWEST
SOFTWOOD SAWMILLS
Average Mill Smallest Mill
Reported Impacted Reported Impacted
Sales in Thousand Board Feet 1973 50,000 6,000
Estimated Dollar Sales (S million)1 $6.300 $0.760
Estimated Dollar Profits After After Taxes2 .265 .032
Required Expenditures as Percent of Sales 1% 1.0%
Required Expenditures as Percent of After
Tax Profits 2.8% 23.5%
1. B,asf>d on 1973 average prices for Douglas Fir studs as reported in Random Lengths.
2. Based on 1965-1972 average of 4.2% of sales from Western Wood Products Association and
Commerce Department Reports.
In neither case will the expenditure have a serious impact on these mills. In the case of
the average mill reporting in the Northwest this expenditure is so small as to be incon-
sequential. In the case of the smallest mill expected to be impacted the expenditure
represents a sizable portion of one year's estimated after tax profits but it is not greater than
the mills likely capability to pay. Although we do not have cash flow information on
Northwest softwood mills we note that most mills charge the cost of logs into the mill at a
"market" price and to the extent that mills own fee timber they enjoy additional cash floW
from that as well.
b. Other Softwood Mills
Table V.D.10 estimates the economic impact of the proposed regulations on softwood
mills operating elsewhere in the United States. These are essentially Southern Pine mills
TABLE V.D.10
FINANCIAL IMPACT OF LOG STORAGE REGULATIONS ON OTHER
U.S. SOFTWOOD MILLS
Average Mill Smallest Mill
Reported Impacted Reported Impacted
Sales in Thousand Board Feet 35,000 15,000
Estimated $ Sales (million)1 $5.010 $2.150
Estimated S Profits After Taxes2 .210 .090
Required Expenditure as Percent of Sales . .3% .3%
Required Expenditure as Percent of After Tax
Profits 3.5% 8%
1. Based on 1973 average prices for Southern Pine studs.
2. Based on 1965-1972 average reported profit of 4.2% for Lumber and Wood Products Com-
panies, op cit.
164
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operating in the southeastern United States. Again the results are reported for the average
mill expected to be impacted as well as the smallest mill expected to be impacted. The
average producer in 1973 manufactured 35 million board feet of lumber with an estimated
sales value of S5.010 million. We have estimated its after tax profits at 5210,000 and the
required expenditure represents only 0.1% of estimated sales and 3.5% of after tax profits.
This expenditure level will not seriously impact the average mill reporting.
In the case of the smallest softwood mill operating in the southern United States the
production in 1973 was 15 million board feet with an estimated sales value of 52,150,000.
We have estimated after tax profits at 590,000 and the required expenditure is 0.3% of sales
or 8% of after tax profits. This expenditure will not seriously impact this producer.
Table V.D.ll provides additional, operating data for small Southern Pine sawmills
based on a 1972 survey undertaken by the Southern Forest Products Association. The data
presented is for 11 mills producing 0 to 10 million board feet each of lumber and the results
are reported for the average producer (6.225 million board feet) and as well as for the range
of producers. Annual sales revenues for the average producer were 5868,000 and net income,
was 558,000. In this case the required expenditure of 515,000 represents 0.8% of the
producer's sales and 13% of producer's profit. This expenditure is bearable, even for the very
small Southern Pine producer.
It should be noted that among the operating results shown for the 11 Southern Pine
mills one mill did suffer an operating loss of 52.32 per thousand board feet produced.
Obviously, if a mill is presently operating at a loss a requirement that an additional 58,600
be expended for water pollution control contributes to the financial instability of the
TABLE V.D.11
1972 OPERATING RESULTS FOR 11 SOUTHERN PINE MILLS
PRODUCING 0 TO 10 MILLION FEET
Production (million feet)
Sales Price Per Thousand
Total Costs Per Thousand
Net Income Per Thousand
Sales for Average Producer
Net Income for Average Producer
Required Expenditure as Percent of Average Producer's
Sales
Required Expenditure as Percent of Producer's Profit
Range
' 2.0-9.8
$105.66-$168.00
$107.98-3149.50
($2.32) -$ 25.70
$868,014
$58,764
0.8%
13%
Average
6.225
$139.44
$130.00
$ 9.44
165
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producer. That mill can reasonably be expected to close in a short period of time anyway;
such a mill would be considered a base line closure; the necessity to spend for pollution
control would not he the central factor causing mill closure. Such firms, considered "base
line closures," are subtracted from any gross closure estimate to yield a net closure figure
due to effluent abatement.
c. Hardwood Mills
Table V.D.I 2 presents an estimate of the financial impact of the proposed regulations
on U.S. hardwood producers. During 1973 the average mill expected to be impacted
produced 13 million board feet of lumber with an estimated sales value (based on 1972
prices) of S2.080 million. We have estimated that the required expenditure of $8,600
represents only 0.4% of estimated 1973 sales and 10% of estimated aftertax profits which
were $87,000. For the average hardwood mill we believe the cost of complying with the
proposed regulations will not be too large a burden to bear.
The analysis indicates a greater impact on the smallest hardwood mill reporting
expected to be impacted. In 1973 this mill produced 3.5 million board feet with an
estimated sales value of $560,000. We estimate the profits after taxes for this producer were
$23,000. The required expenditure for pollution control facilities represents 1.5% of this
producer's sales and 37% of its after tax profits. However, even the small hardwood
producers will be able to comply with the proposed regulations without suffering exces-
sively.
d. Total Industry
On an industry-wide basis the $10 million we have estimated will be required to bring
all producers into compliance is not an overwhelming burden. As previously noted this
expenditure level represents only about 5% of the annual amount the industry has
historically expended on new capital equipment; this is not a serious diversion of capital.
i
TABLE V.D.12
FINANCIAL IMPACT OF LOG STORAGE REGULATIONS ON
U.S. HARDWOOD PRODUCERS
Average Mill Smallest Mill
Reported Impacted Reported Impacted
Sales in Thousand Board Feet (1973) 13,000 3.500
Estimated Dollar Sales (million)1 $2.080 $0.560
Estimated Dollar Profits After Taxes .087 .023
Required Expenditure as Percent of Sales 0.4% 1.5%
Required Expenditure as Percent of After Tax Profits 10% 37%
1. Based on 1972 average estimated sales price of $160 per thousand board feet.
166
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4. Production Effects
We estimate there will be no loss of production due to implementation of these
regulations. We do not expect any mills to close as a result of these standards; the diversion
of capital involved is significant enough to seriously slow industry growth.
5. Employment Effects
Based on the conclusion there will be no plant closures there will be no employees
displaced as a result of these standards.
6. Resultant Regional Effects
We anticipate no regional affects due to implementation of the proposed standards.
7. Balance of Payments
No measurable impact is anticipated on the United States balance of payments as a
consequence of these regulations.
167
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E. OTHER SECTORS
These sectors are those portions of the Timber Products processing industry not
expected to be affected, based on the analysis of industry structure; i.e., the issues were
obvious enough at that level of analysis to obviate tiic need lor a detailed examination of
economic impact.
1. Hardwood Dimension and Flooring Mills
There are a total of 585 hardwood dimension and flooring mills reported by the Census
of Manufactures in 1967. We are able to identify 59 flooring producers leaving a maximum
of 526 firms which could be hardwood dimension mills.
a. Hardwood Flooring
Firms in this sector will have to make eftluent abatement investment only if they also
operate sawmills. Further, only those firms also utilizing wet deck log storage will have to
make the maximum investment (58,600 capital costs; $3,000 annual costs). Only the larger
firms in this industry will have to make this investment. For the firms affected, capital costs
represent less than 2% of total assets; annual operating costs are less than 0.1% of sales
revenues. These firms will be able to make this investment; thus, there will be no impact on
this sector.
b. Hardwood Dimension Manufacturers
/. Costs of Compliance
Dimension producers are potentially subject to water pollution abatement costs only if
they also operate sawmills employing wet storage techniques or if they engage in extensive
gluing activities.
In each case, only a small number of firms in this sector are likely to be affected and
those affected will either be financially able to bear the burden or have alternate means of
complying at lower cost.
2. Wet Decks
A survey of the Hardwood Dimension Manufacturers Association revealed 32% of the
members of this association also operated hardwood sawmills. However, firms which are
members of the Hardwood Dimension Manufacturers Association tend to be much larger
than the average producer, and we estimate that no more than 10-15% of all hardwood
dimension manufacturers also operate sawmills. Figure V.E.I graphically depicts the ensuing
analysis which indicates that 5 plants (1% of total) will be affected.
168
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Total in
Industry
Operate
Sawmills
Wet Deck
Log Storage
Presently
Recirculate
Direct
Discharge
NET
Number of Plants
Not Affected
Number of PI;
Affected
526 Plants
fl»^460 pits.
(No Effect)
/•i^Nk.
p%*-66 pits.
ne>°lV 50 pits.
^(No Effect)
16 pits.
8 pits.
Effect)
3 Pits.
Effect)
8 pits.
521
Source: Arthur D. Little, Inc., estimates.
FIGURE V.E.I PLANTS AFFECTED BY PROPOSED EFFLUENT GUIDELINES
FOR LOG HANDLING AND STORAGE - HARDWOOD DIMEN-
SION MANUFACTURERS
-------
A survey of hardwood sawmill operators showed only 24f,' employ wet decks for their
Sou storage. Multiplying 24',i x 10-15%= 2-4'', of the total number of hardwood dimension
plants which jKo have wet decks.
Our analysis of hardwood sawmills with wet decks showed 509? were already recircu-
lating their spray water. If 50% of the hardwood dimension mills with wet decks do
ai'-u-m!} recirculate spray water this would lower the total number of hardwood dimension
n-ip, \vhitii would be impacted from 2-4% to 1-2%.
Finally, our analysis of Southern plywood operators showed that of mills which
operated in the South and did not recirculate their spray water, 1/3 allowed the unrecir-
culated spray water to run into a pond or on to dry land while 2/3 allowed it to run into a
stream or river. This means that of the hardwood dimension manufacturers still potentially
impacted, 1/3 would probably not be affected because the water from their operations is
likely to go somewhere other than to a stream or river and 2/3 of those might be allowing
their imrecirculated spray water to run into a stream or river. However, 2/3 of 1-2% means
that only about \c'( of the total hardwood dimension manufacturers are likely to be affected
by the proposed regulations.
The expenditure expected to be required to install recirculating equipment for a mill
presently spraying the wet deck but not recirculating is $8,600. Most hardwood dimension
mills do not operate sawmills. In order for a dimension manufacturer to be in the sawmill
business, it must be considerably larger than the average hardwood dimension plant. This
means it has more assets and a bigger business base to draw on for the funds necessary to
make an S8.600 investment. The mills that are still impacted have the financial strength
required to invest $8,600 in a recirculating system.
The recently released 1972 Census of Manufactures covering hardwood dimension and
flooring indicates that in 1972 firms manufacturing both hardwood dimension and flooring
expended SI5.1 million on new capital expenditures that year. This is out to an average of
$1 o.OOO per firm. Obviously the larger firms spent more and the hardwood dimension plants
opcrniiv: sawmills would fit into the larger category. This means that for the 1% of the
firms affected, the capital expenditure requirement is much less than 50% of the likely
amount they exper.drct in 1972, perhaps as little as 10-20%.
3. Gluing
The capital cost of compliance for firms with extensive gluing operations which are
direct discharging is estimated at $9,000. (This is the cost level estimated for the smaller
"model" plans as contained in the Development Document.)
A survey of hardwood dimension manufacturers showed 29% were engaged in exten-
sive j/iuing operations. Our analysis of those firms with extensive gluing operations, in terms
of employment si?e, showed lhat firms that did extensive gluing are much larger firms than
170
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the industry average. The industry average showed that half the firms had fewer than ?U
employees; our analysis showed that 2/3 of those with extensive gluing activities had more
than 30 employees, a significant difference in firm size.
Besides expending the required funds as a means of compliance, the options to a firm
entzaszed in eluina also include:
1 i_fc» w-.\.
• The firm could drop the product line which requires the extensive gluing.
Since a wide variety of products are offered for sale from hardwood dimen-
sion plants, it is quite possible some firms could stop gluing .md still not
damage their businesses materially.
• The firm could reduce its consumption of water used in glue makeup and
glue washing as some producers in the softwood plywood industry have
done. This would mean they would not be obliged to install expensive
recirculating equipment nor would they be obliged to install evaporating
ponds; rather they could collect a small amount of water whit h is used in
washup and makeup and dispose of it at land fill sites.
The majority of firms will be successful in changing their operations to avoid the
necessity to install glue control equipment. The balance of the firms which are engaged in
extensive gluing activities have the financial strength to comply with these requirements;
capital investment for abatement is less than 27< of net assets, annual costs are less than
0.3Tc of sales revenues.
• Price Effects: Since the costs of compliance are unequally distributed across
the firms in this industry sector, it will not be possible to pass on cost
increases due to effluent abatement.
• Financial Effects: The absorption of the costs of compliance is negligible,
since only large firms face these costs.
• Production Effects: No plants are likely to be forced to close.
• Employment Effects: None
• Regional Impacts: None.
2. Special Product Sawmills
The key group of manufacturers in this section to focus upon are those companies
producing shakes and shingles. While there are many small mills in this sector, the companies
only face the costs of compliance for log handling and storage. Incremental annual costs will
171
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represent 0-1 S7c of annual cash flow and 0-3'/< of annual sales revenues; incremental capital
costs will be 0-9T of net assets. Thus, the companies will invest, and there will be no impact
on the sector.
The other manufacturers incorporated in this sector, companies which produce
cooperage stock (the material from which barrels and kegs are produced), do not use wet
storage practices. Thus, there is no effluent pollution problem, no cost of compliance, and
no impact.
3. Particleboard
Particleboards are manufactured by a dry process and utilize very little process water.
The product is in high demand, i.e., output should increase at between 10-15% per year
through 1980. •
The costs of compliance are insignificant. Capital costs of effluent abatement represent
0.47c of the necessary investment to build a new plant of minimum economic size. Further,
total yearly costs represent 0.15% of the average selling price (1972) achieved by the plant
with the lowest unit selling price. Much higher levels of cost could be passed on through
price increases.
There will be no economic impact of effluent abatement in this sector.
4. Millwork
Operations in the various millwork subsectors do not include sawmilling, nor do they
include extensive gluing operations requiring water for cleanup. Further, the firms are
relatively large, in good financial position, and generally tied into municipal treatment
plants. Thus, costs of compliance are essentially zero.
There will be no noticeable economic impact in this sector.
5. Prefabricated Wood Structures
'\lthough extensive gluing is encountered in the production of laminated beams, the
manufacturing process is quite capital intensive. Thus, the maximum costs of $2,000 for
capital investment and $480 in total yearly costs, represent insignificant ratios to capital
invested in operations (< 1%) and other operating costs (< 1%).
There will be no economic impact due to effluent abatement in this sector.
172
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VI. LIMITS OF THE ANALYSIS
Tliis analysis faces a generic problem common to all forward looking analyses, i.e., the
difficulty of projecting future events. In addition, the two central problems limiting the
accuracy of the present analysis are:
• A limited availability of data in suitable form; and
• The nature of the industry segments.
A. DATA LIMITATIONS
Data on these industry sectors is generally present only in a broad, descriptive format.
What information is available of a detailed nature tends to focus on the operations and
characteristics of larger firms and their large plants. However, these industry sectors are
typified by small, privately-owned firms which are more likely to be affected by effluent
guidelines than their larger counterparts. Thus, as noted in Section III on methodology, it
was necessary to gather new data through a series of industry surveys.
Since insulation board manufacturers are few in number (18), it was possible to
contact each of the operations individually and to develop specific data on a plant-by-plant
basis. The operators were quite cooperative, and we believe the data accurately represents
the operating and financial characteristics of the sector.
However, in the other sectors there were too many firms (e.g., more than 8,000
sawmills) to contact each installation separately. Thus, we performed representative surveys
of the industry rather than a comprehensive survey as done for insulation board. The data
developed from these surveys represents what we believe is an accurate description of the
industry segments.
For example, while we were able to identify only 2,500 sawmills in operation, out of
more than 8,000 reported by the Department of Commerce (1972 Preliminary Census of
Manufactures), our surveys suggest that the 2,500 firms are those firms operating full time in
this industry sector, and those firms which will be affected by the proposed Effluent
Guidelines. The remaining firms are largely seasonal operators or other part-time operators
not really affected by the proposed Guidelines.
Similarly, the hardwood plywood and veneer survey was intended to cover all manu-
facturers in this industry, and it was distributed to all known manufacturers. However, the
useful responses came mainly from the medium-sized and large-sized producers. Thus, it was
necessary to adjust our representative plant models to incorporate smaller firms. This
adjustment was made based on the characteristics of those small mills which did respond,
and specific discussions with industry sources in terms of the characteristics and problems of
the small mills.
173
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Excepting the insulation board manufacturing sector, these industries are composed of
small, privately-held, famih-managed firms, which is an additional data limitation. Due to
the fragmented nature of the industry and the fact that privately-held firms do not publish
as much data as do publicly-held firms, it is difficult to get accurate financial data. Even
where financial data is available, that data is not always directly comparable to similar data
from publicly-held firms, since a small firm may choose to pay its principals higher salaries
and fringe benefits, rather than reporting such earnings as net income, which is the more
standard practice for a publicly-held corporation. As such, net income and, more impor-
tantly, annual cash flow may be understated for these firms.
However, the costs of compliance are relatively modest and the technological alter-
natives relatively straightforward. Further, the consistency of our data within the vaiious
industry sectors gives us confidence that is indeed representative. Thus the analysis can be
used to judge the economic impact of proposed Effluent Guidelines on the industry.
B. NATURE OF THE INDUSTRIES
The most difficult issue to analyze in these sectors is the likelihood of plant closure. A
larce, multi-industry, publicly-held firm such as those active in insulation board manufacture
tends to make a shutdown decision based on objective business analysis, such as effects on
profitability or importance of a product line to overall corporate strategy. Such a firm
would likely have specific criteria for each of its operating facilities to meet. However, a
private owner tends to have a greater subjective commitment to staying in business even if
profitability is substantially reduced. This is true for such factors as commitment to a
facility which has been operated by the family for generations, and for such specifically
economic reasons as the fact that this may be a particular family's sole or primary source of
income. Further, the privately-held firm considers the magnitude of cash flow as the
important issue, rather than profitability ratios. The management of such firms is not likely
to perform a discounted cash flow analysis as part of its shutdown decision-making.
Thus, the factors listed in the plant closure analysis matrices (see Table 1II.C.1) can be
used as a guide and to highlight the central issues related to plant closure, but must be
assigned different weights when analyzing the decision-making process and the likelihood of
closure for a publicly-held firm versus a private enterprise. Where costs approach a level of
significance, such as for hardwood plywood and veneer (particularly commercial grade
veneer manufacture) the plant closure analysis becomes more suggestive than definitive. On
balance, however, the costs of compliance are relatively modest, not relatively high, and the
plant closure decision is more straightforward.
174
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C. RANGE OF ERROR ESTIMATES
Table VI.C.l suggests the range of error for the different portions of this analysis. The
parameter used to measure range of error is what we term "substantive" range of error, i.e.,
it covers the range of error for those sensitive issues which critically influence the final
conclusion on economic impact. Thus, for example, while the range of error in terms of
number of sawmills actually in operation is at least moderate (± 2090 and likely broad
(>± 209c), we do know about the firms most likely to be affected, and the conclusions on
economic impact for those operations are quite accurate. The substance of the analysis
would not change even if the "unknown" producers were identified.
TABLE VI.C.1
RANGE OF ERROR ESTIMATES
Industry Segment
Insulation Board
Hardwood Plywood & Veneer
Softwood Plywood & Veneer
Sawmills
Other
Substantive Range of Error1
Narrow
Narrow
Narrow
Narrow
Narrow
Most Variable Portions
of the Analysis
Price Increase Analysis
Plant Closure Analysis
Number of V'jneer Mills in
Operation
Number of Mills in Operation
Number of Mills in Operation
1. Narrow: ±10%; Moderate: ±20%; Broad: >±20%.
Source: Arthur D. Little, Inc., estimates.
For insulation board, the most variable portions of the analysis relate to the price
increase analysis. In this case we project that individual plants will be able to implement
specific price increases and thereby will maintain their present returns on investment.
However, since firms have the option,of changing their product mix or absorbing cost
increases to gain a strategic advantage vis-a-vis regional competition, we cannot with full
confidence indicate the the firms will increase prices; rather, our analysis suggests they can
increase prices if they desire to, and most will probably elect to do so.
At the present levels of costs of compliance, hardwood plywood and veneer manufac-
turers will not be significantly impacted. However, the small, privately-held firms, particular-
ly those manufacturing container grade veneer, could be impacted by modest abatement
investment cost increases (an additional 510,000); thus, in the case of increased costs the
plant closure analysis would become a far more sensitive issue. At present levels of cost, the
plant closure analysis and the entire economic impact analysis is accurate within a narrow
band of error (± 10%).
175
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For none of the other sectors does the fact that our information is not comprehensive
regarding numbers of mills in operation affect the substantive range of error. We have
identified and focused upon those firms and plants most likely to he affected. The total
number of mills in operation is an interesting piece of data for completeness, but is not a
crucial factor to determine the economic impact.
176
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APPENDIX A
SOFTWOOD PLYWOOD SURVEY FINDINGS
(1) Sample Analysis: The sample .response, 76% of those contacted, corresponds
reasonably well with the known distribution 9f mills by production size. For example, eight
mills producing under 40 million square feet annually in 1973 responded to the question-
naire and during 1972 it was estimated there were only 12 mills in the country producing
less than 40 million square feet of softwood plywood. Sample respondents also appear to be
reasonably distributed geographically. Eight-five mills responded in the Western United
States out of an estimated 131 mills operating in that area. This is equal to 65% of the units.
In the South 27 mills responded out of ari estimated 61 operating in that area or 44% of the
universe. In each case the proportion of mills responding is felt to be sufficient for statistical
validity. .
It is significant that of the 114 mills, responding 37% performed plywood operations
exclusively while 63% were located at sjtes where other wood processing activities were
performed. Obviously to the extent mills are capable of sharing pollution control facilities
with other converting activities they will seek to do so, and our survey response indicates
this might be possible for a large proportion of the industry.
The survey sample also strongly indicates that mills with log storage or log processing
operations will be likely to spread the costs of pollution control across other facilities. This
possibility is indicated by the extent of the usage of common log yards. For example, 58
plywood mills were located at sites where sawmills were also located and of that group 52 of
the sawmills used the same log yard as the plywood mill; 4 plywood mills were located at
pulp mill sites and two used the same log yards; 6 plywood mills were located at plywood
prefinishing plant sites and 2 used the same log yard; 26 plywood mills were located at sites
where log sorting and merchandising took place and 19 used the same log yard; and 12 mills
were located at sites where other operations took place with 9 of these mills using the same
log yard.
(2) Usage of Public Sewers: Usage of public sewers does not appear to be a viable
discharge option for plywood mills. Out of 111 mills answering this question only 48 were
served by public sewers at their sites and of this group only 18 were allowed to use public
sewers for waste water from manufacturing operations.
(3) Log Storage Methods: Ninety-nine of the 105 mills responding to this question
stored logs at the plywood mill site. Of the 105 responding only 21 used dry decks
exclusively while 84 employed some form of wet storage.
(4) Frequency of Pond Overflows: The responses to this question indicate that mills
employing ponds are likely to encounter an overflow although usually only on a seasonal or
occasional basis. Out of 39 mills reporting they had ponds only 8 indicated those ponds
177
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never overflowed while 20 showed seasonal overflows. Three showed occasional overflows,
and 8 ponds overflowed constantly. Cross tabulation for the geographic area indicates that
all of the ponds identified were located in the West and no plywood mills in the South em-
ployed pond storage.
Further, mills employing ponds as a method of storage generally do suffer from
overflows which would be identified as water pollution violations. Twenty-six of the 31
reporting overflows indicated these waters flowed into a stream or river.
(5) Wet Deck Usage: A total of 36 mills responded to the question "how many
months is the wet deck sprayed?" Only 6 mills sprayed for the full 12 months and 4 of
these were located in the South. The median number of months that wet decks were
sprayed was 5 months although there was a slight difference between the Western and
Southern mills reporting with the Western mills indicating a median of 5 months of spraying
and the Southern mills indicating a median of 6 months per year of spraying.
There is a mixed pattern with respect to the usage of spray water recirculating systems.
Eleven of the 35 mills reporting indicated they recirculated all of the log deck spray water
while 16 of the mills recirculated none of these waters. The balance of the operators fell
somewhere in between. On a regional basis the Southern mills were more likely to
recirculate some portion of the spray water than the Western mills but overall there does not
appear to be a significant difference.
However, unrecirculated spray water tends to be diverted away from streams or rivers.
Of 24 mills responding to this question only 8 allowed unrecirculated spray water to flow
into a stream or river while 7 diverted these waters to treatment ponds or log storage ponds
and 9 diverted them on to dry land.
(6) Log Washing Operations: Log washing was performed only by Western mills. In
total only 7 out of 103 reporting indicated that logs were washed at the mill site, and of this
group 2 mills recirculated all of the log wash water. Further analysis of the disposal of
unrecirculated log wash water indicated only 1 mill discharging unrecirculated log wash
water to a stream or river. The others disposed of this effluent in a log storage pond or onto
dry land.
(7) Hydraulic Debarking: The practice of hydraulic debarking was somewhat wider
spread than anticipated. Thirteen out of 109 mills reporting (12%) indicated using hydr^'Mc
debarking equipment. Eleven of these were in the West although 2 Southern mills indk,....
using hydraulic methods exclusively. Effluent from this source was generally not recircu-
lated. Of the 9 mills indicating the disposal of unrecirculated debarking water, 5 discharged
into a stream or river while 4 discharged into a log storage pond.
(8) Log Conditioning: Log conditioning, in one form or another, is practiced by
almost 60% of the ;ndustry although there is a significant disparity between the West and
178
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the South. Forty-four out of 76 reporting in the West (58% of the group) reported they did
not condition logs while 26 out of 27 mills reporting in the South did condition logs. This
result is consistent with our earlier findings and basically represents a difference in the
species of log used in plywood mills. These results tend to confirm the industry claim that
Southern Pine logs must almost always be conditioned prior to peeling while many Western
species do not have this requirement.
Only 15 out of 60 mills answering indicated they were currently able to recirculate all
of their log conditioning water and more than half (32 out of 60) presently recirculated
none of this discharge.
However, only 6 out of 45 mills reporting discharged log conditioning waters into
streams or rivers. The balance discharged to some intermediate point such as a treatment
pond, log storage pcnd, or used dry land disposal techniques.
(9) Veneer Dryers: Veneer dryers were used by 110 of the 114 plywood mills. Of this
group 16 mills were equipped to recirculate all veneer dryer wash water while 87 were
currently equipped to handle none of it. Only 22 of 88 mills responding indicated their
veneer dryer wash down water discharged to a stream or river while the other 66 mills
utilized some other method of disposal.
(10) Glue Operations: One hundred ten out of 112 mills responding to this question
engaged in some form of gluing activity. A surprisingly large percentage of those mills
responding (55 out of 109) indicated they presently recirculated all glue wash waters. Of the
remainder 31 mills claimed they recirculated none of it while the balance recirculated some
portion but not all. These results indicate a relatively high degree of existing compliance.
Only 7 out of 53 mills responding indicated using sewers for glue wash water disposal
and none of the mills dumped glue wash water into streams or rivers. Six of the seven
violating mills were located in the Western United States.
(11) Treatment Ponds: Ninety-nine producers responded to this question. Out of the
group, 47 had no facility for treating waste water in any way at the plant site while the
balance used a variety of sources. The most commonly used treatment technology was some
form of oxidation-sedimentation pond and 34 of the producers reported having such ponds
at the plant site. In addition 13 producers used some form of dry land disposal, 6 used
chemical treatment, and another 6 had some other form of waste water treatment facilities.
Only 15 out of 32 treatment ponds for which results were reported did not overflow.
Of the balance 7 overflowed constantly while the remainder overflowed seasonally or
occasionally. Mills in both the West and South suffered from overflow problems although a
slightly higher percentage of the Southern mills appeared able to completely control
treatment pond overflows.
Fifteen out of 16 responding mills indicated their treatment ponds overflowed into a
stream or river.
179
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APPENDIX B
INDUSTRY
IMPACT
SUMMARIES
181
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TABLE B-1
HARDWOOD PLYWOOD AND VENEER - PLANT CLOSURE AND EMPLOYMENT EFFECT
FOR VARYING LEVELS OF COMPLIANCE COSTS
oo
10
Guideline Option
I.- Process Changes Only
(Maximum Cost: capital = $5,500
yearly = $3,000)
II. I + Recirculation from Wet Decks*
(Maximum Cost: capital = $14,100
yearly = $3,870)
III. II + Screening from Wet Decks and Log Ponds
(Maximum Cost: capital = $24,100
yearly = $3,870)
Sector
V
0
Total
V
0
Total
V
0
Total
No. Plant
Closures
0
0
0
2
_0_
2
11
_9
20
No. Employees
Displaced
0
0
0
40
0
40
220
770
990
No. Employees
in Sector
0
4%
0.1%
22%
_2%
2.4%
V = Commercial Grade Veneer
0 » Other Sectors
'Proposed Guideline
Source: Arthur D. Little, me., estimates.
-------
TABLE B-2
INDUSTRY SUMMARY
Industry: Insulation Board Only - SIC Code 2661
No. of Plants in Segment 18
Percent Total Plants in Industry 85%
No. of Plants Direct Discharging 9
Percent Total Plants in Segment 50%
No. of Plants with BPT Treatment in Place 2
Percent Total Plants in Segment 11%
BPT BAT
Cost of Pollution Abatement
Capital Costs for Segment
Total Capital Cost 12.7 19.2
Total Capital Expenditures as Percent of Average Annual n.a. n.a.
Investment
Total Capital Expenditures as Percent of Total Capital 10 15
In Place
Annualized Costs for Segment
Total Incremental Increase Including Capital Charges 3.9 4.9
Total Incremental Increase Excluding Capital Charges 3.0 3.5
Total Incremental Increase Including Capital Charges 1.8 2.2
as Percent of Sales
Expected Price Increase
Expected Increase Due to Pollution Control 2.0% 4.0%
Plant Closures
Total Closures Anticipated 1 —
Percent Reduction of Segment Capacity Due to Closures 4.0% —
Employment
Total Number of Employees Affected —
Percent of Total Employees in Segment —
Community Effects — —
Impact on Industry Growth — —
Balance-of-Trade Effects — —
183
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TABLE B-2 (Contined)
INDUSTRY SUMMARY
Industry: Hardwood Plywood and Veneer - SIC Code 2435
No. of Plants in Segment 490
Percent Total Plants in Industry 100%
No. of Plants Direct Discharging 251
Percent Total Plants in Segment 51%
BPT, BAT
t in Place
Percent Total Plants in Segment
No. of Plants with BPT Treatment in Place 239
(Sx106)
Cost of Pollution Abatement gp-j-
Capital Costs for Segment
Total Capital Cost 2 5
Total Capital Expenditures as Percent of Average ^ j%
Annual Investment
Total Capital Expenditures as Percent of Total Q 7^
Capital In Place
Annualized Costs for Segment
Total Incremental Increase Including Capital Q Q
Charges
Total Incremental Increase Excluding Capital Qg
Charges
Total Incremental Increase Including Capital Q ^
Charges as Percent of Sales
Expected Price Increase
Expected Increase Due to Pollution Control _
Plant Closures
Total Closures Anticipated 2
Percent Reduction of Segment Capacity Due Q •]%
to Closures
Employment
Total Number of Employees Affected 4Q
Percent of Total Employees in Segment 0.1%
Community Effects 1
Impact on Industry Growth _ '
Balance-o; "rade Effects
184
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TABLE B-2 (Continued)
INDUSTRY SUMMARY
Industry: Softwood Plywood and Veneer - SIC Code 2436
No. of Plants in Segment 192 plywood, 38 veneer
Percent Total Plants in Industry 100%
No. of Plants Direct Discharging 122
Percent Total Plants in Segment 53%
No. of Plants with BPT Treatment in Place
Percent Total Plants in Segment 48%
BPT, BAT
Cost of Pollution Abatement
Capital Costs for Segment
Total Capital Cost ^2,095,000
Total Capital Expenditures as Percent of Average Annual Investment 0.9%
Total Capital Expenditures as Percent of TotaJ Capital In Place < 0.1%
Annualized Costs for Segment „ n
Total Incremental Increase Including Capital Charges $ 250,000
Total Incremental Increase Excluding Capital Charges < 250,000
Total incremental Increase Including Capital Charges as Percent of Sales 0.1%
Expected Price Increase
Expected Increase Due to Pollution Control _
Plant Closures
Total Closures Anticipated _
Percent Reduction of Segment Capacity Due to Closures —
Employment
Total Number of Employees Affected —
Percent of Total Employees in Segment —
Community Effects —
Impact on Industry Growth —
Balance-of-Trade Effects —
185
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TABLE B-2 (Continued)
INDUSTRY SUMMARY
Industry: Sawmills and Planing Mills - SIC Code 2421
No. of Plants in Segment 2,500
Percent Total Plants in Industry 100%
No. of Plants Direct Discharging 635
Percent Total Plants in Segment 25%
No. of Plants with BPT Treatment in Place 1,875
Percent Total Plants in Segment 75%
BPT, BAT
Cost of Pollution Abatement
Capital Costs for Segment
Total Capital Cost S3,795,200
Total Capital Expenditures as Percent of Average Annual Investment 2.1%
Total Capital Expenditures as Percent of Total Capital in Place < 0.1%
Annual ized Costs for Segment
Total Incremental Increase Including Capital Charges 81,000,000
Total Incremental Increase Excluding Capital Charges < 1,000,000
Total Incremental Increase Including Capital Charges as Percent of Sales 0.1%
Expected Price Increase
Expected Increase Due to Pollution Control —
Plant Closures
Total Closures Anticipated —
Percent Reduction of Segment Capacity Due to Closures —
Employment
Total Number of Employees Affected —
Percent of Total Employees in Segment —
Community Effects —
Impact on Industry Growth —
Balance-of-Trade Effects -
186
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TABLE B-3
INDUSTRY SUMMARY - OTHER SECTORS
Industry: Hardwood Dimension and Flooring
SIC Code: 2429
No. of Plants in Segment 585
% of Total in Segment 100%
No. of Plants With BPT Treatment in Place 569
%of Total Plants in Segment 97%
Cost of Pollution Abatement BPT, BAT
Capita) Costs for Segment
Total Capital Cost <$100,000
Total Capital Expenditure as % of Average Annual Investment 1.0%
Total Capital Expenditure as % of Total Capital in Place <0.1%
Annualized Costs for Segment
Total Incremental Increase Including Capital Charges < 50,000
Total Incremental Increase Excluding Capital Charges < 50,000
Total Incremental Increase Including Capital Charges as
% of Sales <0.1%
Expected Price Increase —
Plant Closure -
Unemployment • —
Community Effects —
Impact of Industry Growth —
Balance-of-Trade Effects —
187
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TABLE B-3 (Continued)
INDUSTRY SUMMARY - OTHER SECTORS
Industry: Special Purpose Sawmills
SIC Code: 2429
No. of Plants in Segment 452
% of Total Plants in Industry 100%
No. of Plants Direct Discharging 66
%of Total Plants in Segment 15%
No. of Plants with BPT Treatment in Place 386
% of Total Plants in Segment 85%
Cost of Pollution Abatement BPT, BAT
Capital Costs for Segment
Total Capital Cost $450,000
Total Capital Expenditures as % of Average Annual Investment < 1.0%
Total Capital Expenditures as % of Total Capital in Place < 0.1%
Annualized Costs for Segment
Total Incremental Increase Including Capital Charges $150,000
Total Incremental Increase Excluding Capital Charges <150,000
Total Incremental Increase Including Capital Charges as
% of Sales 0.5%
Expected Price Increase
Expected Increase Due to Pollution Control • —
Plant Closures
Total Closurss Anticipated
% Reduction of Segment Capacity Due to Closures -
Employment
Total No. of Employees Affected
% of Total Employees in Segment —
Community Effects —
Impact on Industry Growth —
Balance-of-Trade Effects —
188
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TABLE B-3 (Continued)
INDUSTRY SUMMARY
Industry: Prefabricated Wood Structures
SIC Code: 2433
No. of Plants in Segment 236
% of Total Plants in Industry 100%
No. of Plants Direct Discharging
% of Total Plants in Segment Negative
No. of Plants with BPT Treptment in Place 161
% of Total Plants in Segment 68%
Cost of Pollution Abatement BPT, BAT
Capital Costs for Segment
Total Capital Cost <$25,000
Total Capital Expenditures as % of Average Annual Investment < 1.0%
Total Capital Expenditures as % of Total Capital in Place < 0.1%
Annualized Costs for Segment
Total Incremental Increase Including Capital Charges < 50,000
Total Incremental Increase Excluding Capital Charges < 50,000
Total Incremental Increase Including Capital Charges as
% of Sales <0.1%
Expected Price Increase
Expected Increase Due to Pollution Control ~
Plant Closures
Total Closures Anticipated
% of Reduction of Segment Capacity Due to Closures —
Employment
Total No. of Employees Affected
% of Total Employees in Segment —
Community Effects —
Impact on Industry Growth —
Balance-of-Trade Effects -
191
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II I IIMI \l Rl PORI I I Keport No.
DA I \ PAM
EFA 2
2.
4 1 iliV arid Subtitle
Economic Analysis of Proposed Effluent Guidelines - Timber Products
Processing Industry -- Phase II
7 Aiitlioils)
Thomas L. Doorley, Karl P. Pagans, Ronald Levy, Lauren S. Ward
'J lYilcirinmi; Oij-'.ini/ation Name and Address
Arthur D. Little, Inc.
i Acorn Park
Cambridge, Mass. 02140
I 12 Sponsoring OiL-am/alion Name and Address
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
X Recipient's Accession No.
5. Report Hate
August 1974
8. Performing Orpini/ation Kept. No.
C-75917
10. Project/Task/Work Unit No.
Task Order No. 17
11. Contract/Grant No.
68-01 -1541
13. Type "1 Report &. Period Covered
Final
14.
Supplemental) Notes
Abstract1;
An analysis of the economic impact on certain timber products processing industry sectors (insulation board, hardwood
& softwood plywood & veneer, general purpose sawmills, special purpose sawmills, hardwood dimension & flooring
mills, particleboard, millwork, and prefabricated wood structures), to meet 1977 and 1983 Effluent Guidelines. Only
modest impacts are expected at present levels of cost and proposed standards. Effects are concentrated on insulation
board manufacturers, small hardwood plywood and veneer producers, and small sawmill operators. For smail firms,
abatement capital and operating costs are not severe, but at modest increments (e.g., $10,000 additional investment),
many plant closures are likely to result. As is, plant closures are few (3 of 10,000+), and price increases to consumers
minimal (only likely for insulation board and particleboard products).
! 17. Key Words and Document Analysis. 17a. Descriptors
Effluent Abatement
Economic Impact Analysis - Timber Products Processing
17b. Identifiers/Open-Ended Terms
I7c COSAII Held/Croup
IK. Availability Statement
ironmental
n Center; Rm. W327,
.C. 20460
19. Security Class (This
Keport)
lINfl ASS1M1 1)
20. Security ( lass ( 1 his
Papo)
UNO. VSSil II D
21. No.ot'Pajtes
204
22. Price
I (MM N1IS-.15 (RI'V. 3-7
l'7-'
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