Japan utilizes many species of hardwood lumber (Canada hardwood & U.S. hardwood), flooring, mouldings, etc. These include oak cherry hickory maple mahogany walnut teak cedar pine spruce cypress ash redwood and others. Cedar lumber (western red cedar & Alaska yellow cedar) is also popular for exterior applications. Cherry lumber (Brazilian cherry & North American Cherry), oak lumber (red oak & white oak), and maple lumber (soft maple & hard maple) are furniture species. As with the U.S., there are markets for reclaimed lumber and antique lumber. Sawmills cooperate with lumber wholesalers in the professional markets. Globalization and an increase in supplier countries has kept the lumber price pressure down.
The wooden residential construction market is comprised of the traditional Japanese post and beam market which has a 76% share, the modernized post and beam market which has a 6% share, the 2×4 market which has a 12% share, and the prefabricated market which has a 6% market share. Of these four, the modernized post and beam market segment is increasing at the fastest rate. These modern houses often use reclaimed lumber from older structures. The post and beam frame is built upon a cement foundation with a 105 mm by 105 mm sill plate made from Japanese cedar (sugi) or hemlock. Sub floors are made of plywood with dimensions of 900 by 1800 mm and installed upon floor joists (neda) measuring 90 by 90 mm or 105 by 105 mm. The house is supported by vertical and horizontal structural beams with dimensions of 105 by 105 mm, 120 X 120 mm, and 135 X 135 mm. Wall construction is supported by vertical posts with cross bracing. The posts are 3 meters long with dimensions of 105 mm by 105 mm.
Post WW II, imported lumber took a while to take hold in Japan. One reason lumber imports were not a threat was that Japan’s residential construction industry was fragmented and there was little standardization of lumber sizes. Japan houses rarely have a yard. This favored the domestic sawmill industry that had strong relationships with local builders and could mill to local builder specifications. Another reason was that U.S. saw mills concentrated on their domestic market and did not aggressively pursue international markets. A majority of the imported sawn wood during this period was medium to large squares for re-manufacturing. The oil shock of 1973 put the brakes on Japan’s economic growth. Japan housing starts, which increased by a factor of 4 between 1960 and 1972, declined 30% between 1973 and 1975. During this same 2 year period, softwood consumption declined by 22%. Housing starts recovered and between 1974 and 1979 they showed a 13% increase. This growth was largely fueled by imported timber (page 84 Lumber Liqidators).
However, the second oil shock of 1979 and resulting wholesale price increase again dampened the housing market. Between 1979 and 1983, softwood consumption declined due to 23% drop in housing starts. This period also marked the beginning of a decline in hardwood sawnwood consumption. This is due to increased imports of softwood logs and a reduction in the supply of hardwood logs. The percentage of softwood log imports to total log imports began to gradually increase in the mid-1980’s and then accelerated in the 1990’s.
In June of 1990 the spotted owl was listed as an endangered species in the United States effectively cutting off a large percentage of the Pacific Northwest resource. Between 1991 and 1993, U.S. hemlock log prices increased 45% and Douglas fir log prices increased 58%. As a result, imports of hemlock and Douglas fir logs decreased dramatically. However, from 1991 to 1997, demand for lumber was increasing as annual wood housing starts increased. The markets adjusted to reduced supply of Pacific Northwest Logs in three ways. First, the demand for domestic sugi and hinoki lumber increased between 1991 and 1994 from 11.5 million CM to 12.6 million CM. Second, log and lumber imports from western Europe and Russia increased. Third, Japan adopted new technology such as laminated posts and glulam beams. Although all three of these are important shifts in Japan’s forest products market, the focus of this paper will be on the on the adoption of new forest products technology. In addition to reduced supply from the Pacific Northwest, another driver of Japan’s shift to forest products technology has been a change in Japan’s residential construction building technology. Japan has averaged approximately 1.4 million annual housing starts over the last 10 years while the U.S. has averaged 1.3 million. So why does a country with half the population of the United States build approximately the same number of houses? There are three basic reasons. First, much of Japan’s housing stock, built immediately after World War II was not replaced until the 1980′s and 90′s. Second, housing built in the 1960′s and 1970′s was built to last only last approximately 15 years and these houses were being replaced. Third, Japanese culture has an aversion to purchasing “used” itemsand many Japanese families prefer to live in custom built homes rather than previously owned homes.Japan’s residential housing market is split almost equally between steel, concrete, and rebar construction used for multi-family units and wood construction used for single family units.
The Swedish Krona and Canadian dollar also devalued substantially against the Japanese Yen. The currency that held the strongest during the 1990′s was the U.S. dollar devaluing 40% as compared to the average of 98% for the Finnish Markaa, Swedish Krona, and the Canadian Dollar. This put the United States at a comparative disadvantage compared to these other softwood producing regions. Currencies will play a large role in the future of Japan’s softwood lumber and log markets. One key question to ask is how the Euro will trade against the other currencies. Both Austria and Finland are Euro member countries and, as of January 1, 1999, the Schilling and Markaa were pegged to the Euro. These currencies will then be replaced totally by the Euro as of January 1, 2002. The Euro has been trading softly in the currency markets and, if this trend continues, this will give Austria and Finland a comparative advantage. It is important to note that, unlike Finland and Austria, Sweden is not a Euro member country and so the Krona will remain an independent currency.
All currencies of Japan’s major softwood lumber trading partners had one common trait in the 1990′s. The Russian Ruble, Finnish Markaa, Swedish Krona, New Zealand Dollar, U.S. Dollar, and the Canadian Dollar all devalued against the Japanese Yen. In order to examine which countries had a currency advantage, it necessary to assess which currencies devalued the most against the Japanese Yen. The undisputed leader in this category was the Russian Ruble. The Ruble began its plummet in November 1997 and then collapsed in August of 1998. This gave Russian softwood producers a major price advantage and export of Russian logs exports were up substantially in 1999. The Finnish Markaa also suffered during the 1990′s due to the break up of the Soviet economy. Finland had a profitable system of barter trade with the Soviet Union that was a major part of Finland’s economy. When the Soviet Union broke up, so did Finland’s system of barter trade with the Soviet Union. The Russian Ruble, Finnish Markaa, Swedish Krona, New Zealand Dollar, U.S. Dollar, and the Canadian Dollar all devalued against the Japanese Yen. In order to examine which countries had a currency advantage, it necessary to assess which currencies devalued the most against the Japanese Yen (Table 1). The undisputed leader in this category was the Russian Ruble. The Ruble began its plummet in November 1997 and then collapsed in August of 1998. This gave Russian softwood producers a major price advantage and export of Russian logs exports were up substantially in 1999. The Finnish Markaa also suffered during the 1990′s due to the break up of the Soviet economy. Finland had a profitable system of barter trade with the Soviet Union that was a major part of Finland’s economy. When the Soviet Union broke up, so did Finland’s system of barter trade with the Soviet Union.
Although penetration rates of engineered wood products are less than that of North America, the market growth rates are astonishing. From 1991 to 1999 domestic production of glue laminated beams more than tripled from 126,500 CM to 483,400 CM and imported glue laminated beams increased by a factor of 15 from 17,902 CM to 271,264 CM. No study exists as to exactly why Japanese builders are switching from green solid sawn lumber to engineered and kiln dry lumber. However, a 1998 questionnaire conducted of U.S. builders showed low satisfaction levels of softwood solid sawn lumber on important attributes such as product straightness, strength, lack of defects, and price stability as reasons for switching to engineered wood products. It is expected that these results would be similar in Japan. In addition to dissatisfaction of green softwood lumber, Japan has had building reform and legislation that has also propelled the use of engineered and kiln dried lumber. The purpose of this paper is to provide a synopsis of these changes and how they are affecting utilization of new forest products technology in Japan.
There was also recent major housing legislature that propelled the growth of engineered wood products. This was called the Housing Quality Assurance Law. The foundation of this law is a 10 year warranty requirement on all houses built covering deficiencies such as structural damage and leaks. This law went into effect May 2000. The purpose of this law is threefold: to increase the quality of housing, to protect consumer interests, and to promptly mediate disputes in a fair manner. A fee will be assessed to cover the warranty process and the warranty requirement can be waived if mutually agreed upon by the homebuilder and home purchaser.
In addition to the 10 year warranty, this law establishes a certification system that will rank houses on various attributes. Under this provision, each house will be given a performance evaluation across attributes such as structural strength, fire resistance, sound resistance, and energy efficiency. This evaluation will be conducted by an official inspection agency that has been certified by the Ministry of Construction. A standardized score will be provided for each attribute to allow consumers to compare different houses across various attributes and this performance evaluation will be attached to the buyer/seller contract.
The law also establishes a mediation organization to settle claims that arise against houses that have been certified. This organization will be made up of industry representatives including lawyers, builders, and architects. There will be a mediation fee assessed to the party that applies for the mediation. Further information on the Housing Quality Assurance Law is included in Appendix A.
The Japan lumber and building materials market offers tremendous export opportunity for hardwood lumber and softwood lumber. In addition, products such as hardwood flooring, molding, and decking also have tremendous potential. Even though the economy is currently stagnant in Japan with GDP growth hovering between 0-1%, there are some bright spots in the lumber and log markets. In order to understand the Japan wood products market, it is important to examine the history. This country has tremendous resources of their own. Wood species include Sugi (Japanese Pine), Hinoki, and various hardwoods. However, this resource is very expensive to harvest and so the country imports over 50% of wood product consumption. In March of 2002, Japan wood housing starts were down 6.7% from March of 2001. It is expected that annual housing starts will remain at the 1.1 – 1.2 million level. On a global scale this is still 2nd only to U.S. wood housing starts. This is a summary of a paper that you can access at the link located at the bottom of this page. Understanding Japan’s future housing market is part of a key to the puzzle of the global forest products market.
The first is motivation and the second is ability. Although the amount of expertise in Japanese forest products companies is hard to measure, a perspective into motivation can be gained through examining search engine and directory results (Table 3). In order to be listed in the lumber category for Yahoo, firms must actively go to the site and register in the business to business lumber category (http://dir.yahoo.com/Business_and_Economy/Business_to_Business/Construction/Wood_and_Plastics/Lumber/ ). The author did a search for the word lumber word “lumber” (“mokuzai ” in Japanese) on three search web U.S. and Japanese portal sites. The most accurate of the following measures is Yahoo because Yahoo is the number one search directory in both the United States and Japan (Japan Internet White Paper 2000). There are approximately five times more listings for U.S. Yahoo than Japan Yahoo in the business to business lumber category. Although these measures are not scientific, the results imply there is still low participation in the Japan’s internet lumber market. This would suggest that current users could be categorized as “innovators” and that the internet would be a good communication channel to reach the innovator market segment.