SHELTER
Building a Future for Distributors and Dealers of Building Products

January/February 2006                                Volume 45,  Issue 1

A Changing Market
Manufacturers Predict 2006 Market to be the Same or Better

by Samantha Carpenter

A number of moulding manufacturers have closed their doors recently. Some attribute these closures to the influx of imports, or rather, the failure on the former manufacturers’ part to maintain market share. 

As a moulding manufacturer or distributor, you may be wondering exactly what 2006 has in store for the moulding market, and what strategies your company, domestic or offshore, can employ to maintain, or even gain, market share.

Peter Butzelaar is a senior consultant for R.E. Taylor & Associates Ltd. He was to make a presentation on the moulding market at this year’s AMD Convention in New Orleans that was cancelled. Butzelaar says moulding imports into the U.S. will continue to rise, and “that’s amazingly a story that’s been going on since 1992.”

“North American [moulding producers’ business] is flat. There have been those that have closed their doors, but then there have been others who have been growing … There has been a rise in consumption and that’s gone to importers.”

Butzelaar backed this statement up with statistics.

“According to the USDA, for the last eight months of 2005, the lineal meters for Chile are 280.6 million, Brazil is 263.7 million and Mexico is 88.2. New Zealand is fourth with 34.0, China is 23.3 million (and that is a three-fold increase from where they were this time last year.) Argentina is at 15.5 and Canada is at 11.9. Those are the key players. Really, there are only two [key players] today and those are Brazil and Chile,” Butzelaar said.

Moulding manufacturers who were interviewed said they predict that 2006 is going to be just as good as 2005 has been.

“We won’t see any drastic increase per se, but I think we’ll see it at about the levels we were this year,” said Craig Young, sales manager for TLC Mouldings of Willacoocheee, Ga., a domestic manufacturer.

Tom Williams, president and general manager, of domestic manufacturer Yuba River Moulding and Millwork Inc. of Yuba City, Calif., believes that his company will do the same or slightly better in 2006, being that imports won’t flood the market.

Offshore Optimism

Offshore manufacturers are also optimistic about 2006.

“We expect 2006 to be better than 2005 but less than 2004,” said Jeferson De Zorzi, chief executive officer of Araupel of Porto Alegre, Brazil. 

“The U.S. has higher interest rates than in 2004 or 2005, but less production than in 2004 and 2005. The housing starts [in the U.S.] will be stable by the first quarter but decrease a little by the second quarter, plus we have the reconstruction of the New Orleans area,” he said.

Horacio Fernandez, chief executive officer of Polincay of Santiago, Chile, thinks that 2006 will be very much like 2005, with regard to the demand behavior in the United States, but the volumes of production will increase.

“The overstocking we saw during the last year now has ended, and the distributors are returning to their historical purchasing programs,” Fernandez said.

To deal with the increase in production volume, Polincay has expanded its facility.

Differing Strategies

Butzelaar also discussed the different strategies among domestic and offshore manufacturers. “The offshore producers tend to stay with the common profiles. When they make an order, they don’t tend to do a lot of mixed profiles. They try to go for mass quantities and keep the complexities as simple as possible,” he said. 

Butzelaar said that successful U.S. manufacturers usually offer a broad product mix and avoid the commodity products—the smaller-size profiles—and look for the niche products. 

Butzelaar also suggests that U.S. manufacturers offer a broader array of service features than offshore manufacturers, especially since the big offshore players have been able to identify weaknesses in the market, such as the time it takes to ship product or what to do if there are damaged goods.

“The more [domestic manufacturers] can do in service the better—faster mixed loads, more frequent deliveries, [even companies] offering the distribution themselves.” 

He says if domestic manufacturers wish to continue to offer commodity products, they can consider buying them from an offshore company and blending it in with their own products.

Butzelaar recommended caution if you move up the channel and sell directly to the builder.

“The jobber may no longer want to buy from you, if you are selling to his customer,” he said.

Butzelaar said there are certain product lines that need to be sold to the jobber, and there are other product lines that can go directly to the builder. Manufacturers could clarify their position by maintaining a firm marketing agreement so their distributors know what they are doing.

Facing the Challenge

Whether a moulding manufacturer is domestic or offshore, they will face challenges this coming year.

“There’s always competition from domestic producers and from South America and even China, so that’s always a concern. Resourcewise, I think availability will be fairly stable … We’d all like a very stable market … I think the industry does better without any hiccups,” said Jim Snodgrass, export sales manager of Contact Lumber of Clackamas, Ore.

According to Young, TLC Mouldings’ biggest concerns are fuel surcharge costs and keeping quality labor. 

He goes on to explain that another major concern for 2006 will be the value and price of imported products.
Williams sees challenges across the board.

“I think there will be increase costs in fuel, wages, insurance and supplies like paint and glue. I’m not concerned about supply. I think it will be available. Will it be plentiful? I don’t know,” he said.

De Zorzi says the big challenge for Araupel will be to find a balance between demand and what the company is able to offer.

Fernandez says that in years past, Polincay had to deal with a shortage in raw material, but that it won’t be a problem in 2006 because big board producers in Chile and Brazil have increased their capacity by 30 percent.

Another Look

The United States’ free market has prompted some domestic manufacturers to look to other industries or sectors of the moulding market.

“We’ve done furniture, we’ve done office furniture parts, we’ve done architectural-type jobs that are maybe one time, and that’s all in the wrapped arena,” Snodgrass said.

“We have not gone into other areas, but we have studied other areas, such as medium-density fiberboard moulding production and other areas of non-commodity specialty wood products,” Williams said.

According to Butzelaar, R.E. Taylor & Associates Ltd.’s outlook still shows growth for the moulding market for North America. 

The same free trade agreement offers offshore companies rules and conditions to assure transparent trade, according to Fernandez, which he says will improve the company’s quality and competitiveness.

Whether companies are domestic or offshore moulding producers, each have to find their place in the U.S. market. 

“We expect to see those in the business today in North America will be those that can find new opportunities and grow their business while others exit the business. Status quo is not an option,” Butzelaar said.

Samantha Carpenter is editor of SHELTER magazine.


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