American Forest and Paper Association
The United States economy slowed to a 2 percent rate of expansion during the second half of 2000, after four years of exceptionally strong growth exceeding 4 percent a year. The slowdown resulted from several factors including rapidly rising energy prices, the lagged impact of Central Bank monetary tightening and a downturn in the United States stock market.
The slowdown has been most pronounced in the manufacturing sector, where production declined by some 2 percent during the fourth quarter of the year, in part because over-built inventories were being drawn down. The manufacturing sector has also been hobbled by the strong dollar and the accompanying rapid expansion of the United States trade deficit.
Most economists believe that the economy will remain weak during the first half of 2001 but not slip into recession. The GDP growth is likely to average around 2 percent for full-year 2001. The economy will gain strength once the inventory correction has run its course and the delayed impact of the Federal Reserve Board's interest rate cuts begin to be felt.
The United States production of paper and paperboard declined 2.8 percent in 2000, to 85.6 million tonnes, marking the sharpest decline in industry production since 1982. United States purchases of paper and paperboard (domestic production plus imports less exports) were off 2.5 percent, which was less of a decline than production because net imports rose slightly. The weakening in production and demand for paper and paperboard was most pronounced during the second half of 2000, when the industry began to feel the impact of the slowing United States economy.
United States production of newsprint rose 2.5 percent in 2000 to 6.7 million tonnes. However, United States purchases of newsprint (domestic shipments plus imports less exports) remained nearly flat last year, as imports declined 1.7 percent to 5.93 million tonnes and exports rose 1.8 percent to 693 000 tonnes. Imports from Canada were up slightly, but imports from overseas declined 45 percent to 225 000 tonnes.
Newsprint consumption was supported by strong Internet and other advertising during most of 2000, but print advertising reportedly softened during early 2001 as the United States economy slowed.
United States printing-writing paper purchases were flat at 28 million tonnes in 2000. However, United States shipments declined by 2.4 percent because of a 12 percent surge in net imports.
Uncoated freesheet paper purchases, which account for some 46 percent of all printing-writing purchases, recorded a 3.3 percent decrease to 13 million tonnes in 2000. Because net imports declined slightly, United States shipments declined at a somewhat lower rate (-3.0 percent). Unlike uncoated freesheet paper, purchases for the other three main printing-writing grades showed gains in 2000. As a group, they increased by a healthy 3 percent to 15 million tonnes. Nevertheless, because of a surge in imports for all three grades, United States shipments of these papers were off by 1.6 percent to 10.29 million tonnes.
United States tissue paper production edged up 0.6 percent in 2000 to an estimated 6.25 million tonnes. This represented a slowdown relative to the 1995-99 period when production growth averaged 2.5 percent a year.
Total containerboard production declined 5.1 percent in 2000 to 30.7 million tonnes. Several factors contributed to the setback, including weak export demand and sluggish growth in domestic box shipments.
Linerboard production for export, as measured by the American Forest & Paper Association, declined 12.8 percent last year to 2.5 million tonnes. Domestic demand for containerboard was hurt by the rapid growth of the United States trade deficit, which constrained manufacturing production and, by extension, domestic corrugated box demand.
Folding boxboard production held stable in 2000 at 7.2 million tonnes. Production of folding boxboard for domestic use inched up 0.4 percent to 6.1 million tonnes. However, production for export declined 2.7 percent to 1.1 million tonnes.
Milk carton and food service production rose 4.4 percent in 2000 to 2.1 million tonnes. Production of these grades for domestic use rose 6.1 percent to 1.7 million tonnes, while export-related production declined 1.9 percent to 426 000 tonnes.
Chemical paper grade market pulp demand fell off sharply towards the end of the year, after a strong first half, leaving demand in 2000 at 6.97 million tonnes, 0.4 percent below that of 1999. Shipments to the United States market from domestic producers dropped by 4.9 percent, while shipments from Canada and Latin America rose by 1.7 percent and 12.5 percent, respectively.
Bleached softwood demand, which at 4.13 million tonnes accounts for 63 percent of United States market pulp demand, fell by 3.6 percent. This compares with a 3.7 percent gain in bleached hardwood pulp demand, which accounts for 36 percent of United States market pulp demand.
Most United States paper and forestry companies reported increased operating earnings during 2000. A survey of 28 paper companies by trade press showed net earnings gained almost 22 percent, while sales rose some 14 percent. The full year results benefited from higher average selling prices for most paper and paperboard grades. However, many companies reported losses in the year's fourth quarter due to higher energy costs and weaker demand.
Production of paper and paperboard is expected to register a modest gain in 2001, with most of the strength materializing in the second half of the year. This outlook is consistent with prospects for a slow economy, but no recession during the first half of the year, followed by stronger growth during the last two quarters of the year.
The American Forest & Paper Association's annual Capacity Survey (December 2000) shows very little growth in aggregate paper and paperboard capacity for the next several years. The anticipated average annual growth rate is 0.7 percent a year for the three-year period from 2000 to 2003, that compared to the annual average of 2.1 percent during 1991-2000. Tissue is one of the few sectors that are adding new machines.
Demand for lumber and other wood products began to taper off during the second half of 2000, following three years of record consumption levels. Housing starts, which are the main driver of wood product demand, totalled 1.594 million units last year, representing a 4 percent decline from 1999.
Consistent with a generally slowing economy, most analysts expect housing starts to total just below 1.5 million units during 2001. Even at this reduced level, housing remains relatively strong by historical comparison. Housing construction is supported in part by stable to declining mortgage rates that recently were hovering below 7.5 percent, almost one percentage point below the year ago rate.
Markets for other major uses of wood products, including repair and remodelling, non-residential construction, and furniture manufacturing are following a trend similar to the economy overall. United States consumption of conifer lumber totalled an estimated 127 million m3 in 2000, down about 2 percent compared with 1999. Total domestic demand for structural panels during 2000 was estimated at 31 million m3. Consumption of non-coniferous lumber totalled approximately 32 million m3 during 2000. Shipments of particle board and medium density fibreboard (MDF) were off approximately 2.5 percent last year.
A paradox in the current market situation is that, while demand for wood products remains strong by historical comparison, realized market values have dropped precipitously. Contributing to this condition have been a combination of factors, including expanding capacity in both the United States and Canada, lower exports due to a strong dollar and a sluggish economy in Japan, higher imports, and the downward turn in domestic housing construction. Weather patterns have also been a contributing factor, as ice storms and drought-induced fires have hurried substantial volumes of damaged and dead trees to market.
Certification of forest management practices is a growing trend in the United States, Europe and elsewhere. The volume and value of certified wood and paper products labelled as such is currently very small, but is increasing as more retail outlets formulate policies to encourage their sale. In the United States and Europe, the demand is being driven almost entirely by buyers groups and direct actions by environmental groups against major retailers.
The American Forest & Paper Association sponsors the world's largest sustainable forestry and certification programme: the Sustainable Forestry Initiative (SFI) SM. The SFI programme is gaining wide acceptance and is having a positive impact on the management of our forests and consumer acceptance of wood and paper products. Since its inception in 1994, the SFI programme has grown to include over 29 million ha in the United States and Canada. About 23 million ha of these forestlands will have been independently third-party certified by the end of 2001. The SFI participants represent about 70 percent of industrial roundwood consumption in the United States. Under the SFI programme, some 2.6 million ha of forestland have been reforested and over 44 000 independent loggers and foresters have been trained in sustainable forestry practices.
During the last few months of the previous Administration, several policies were implemented that dramatically curtail access to wood fibre on 59 million ha of forestland controlled by the federal government. The recent policy changes will prohibit road building on 24 million ha of previously undeveloped forestland and, through other new regulation, essentially preclude forest management on most of the national forests. While harvesting in national forests already has been reduced substantially - these forests contribute less than 5 percent of industrial wood - the new regulations are problematic from many different points of view. To offer one example: the new rules make controlling an insect infestation on public lands difficult if not impossible, thereby also placing nearby private lands in jeopardy of insect damage.
The previous Administration also sought to include forestry activities under requirements of strict permitting procedures that apply to point sources of water pollution, treating forestry similarly as pollution from factory discharges. The proposal was withdrawn after numerous landowners protested that water pollution from forestry activities are de minimis and that forestry activities are non-point sources of pollution and should be treated as such.
The industry has invested billions of dollars to increase productivity of forestland and improve efficiencies and utilization in manufacturing. In the long term, demand for forest products can be expected to follow the historically upward trend. To meet the anticipated increases in demand, new technologies need to be applied to forest management and product utilization. The United States is well positioned to meet these challenges in fostering forest productivity and enhancing value to our products.