BUSINESS INSIGHTS: The Engineered Lumber Opportunity
How a focus on specialty structural panels can generate higher margins.
BY: LOU ROSSI
Industry pricing and margins on the lumber side of a pro dealer’s business are subject to wide swings due to the cyclical nature of supply-demand driven commodity products. A well-positioned specialty product strategy can provide higher margins and price stability during these cycles. Specialty structural panels are one such product group within engineered lumber products (ELP) that would seem to be a natural product extension to a lumber dealer’s existing ELP lineup.
[When we discuss specialty structural panels, the product types we refer to include: laminated and coated panels (to act as a weather resistant barrier or a radiant barrier and provide reflective insulation); treated panels (that can be water repellent, flame retardant or insect/mold resistant); and structuralrated panels (providing seismic or wind resistance) for such market uses as roof sheathing, subflooring, wall sheathing and siding and trim.]
An expanding economy, rising property values and increased residential/ commercial construction activity will drive demand for commodity and specialty structural OSB and plywood panels over the next years. Progressive pro dealers, having learned from the recession, will ride the growth wave and will develop specialty product strategies to grow profitability during the market uplift and the inevitable down cycle.
Specialty structural panels offer higher performance benefits compared to commodity panels, which enable The Engineered Lumber Opportunity manufacturers to differentiate their products in the market. Specialty panels enjoy some protection from competitive pressures through specification selling, leading to steady demand and higher margins. These products command a price premium; typically $100/ thousand square feet over commodity panel pricing, and as much as 2x standard pricing.
To make the most of this opportunity, lumberyards need to consider what will provide the competitive edge to grow market share and margins in this nearly $1 billion specialty industry segment.
• Do we have the right mix of specialty ELP products?
• What markets and areas will experience the fastest growth?
• Are we aligned with the right channel partners (supplier and customer) to take advantage of market opportunities?
Building codes are a key driver of demand for specialty structural engineered wood panels. A complex maze of building codes with varying adoption rates by states and local municipalities play a large role in how homes and commercial structures are designed, built and remodeled. For example, energy codes are affecting demand for radiant barrier sheathing (RBS) and weather-resistant coated sheathing. California’s recently updated Title 24 energy codes require RBS at the roof in specific climate zones, and the 2012 IECC residential energy codes are driving product innovation and demand for air and moisture barrier products, including coated structural engineered wood panels.
Other building codes affecting the demand for specialty panels include fire, seismic and wind load. Multifamily homebuilders install fire-rated structural panels in areas where the building codes require such protection. Tougher codes requiring fire resistant building products in the wildland urban interface (WUI) areas are spreading from California eastward. Products treated for insect and mold resistance are desirable in wet climate zones including many coastal areas, as are panels designed for fastener connections that protect against seismic disturbances and high winds.
Like is always the case, financial and people resources are limited for most businesses so you have to place your bets strategically. Lumber dealers must formulate strategies that maximize their influence and wallet share with each customer and category served. And hedging against market turmoil by offering specialty products is a smart strategy, in both good times and bad.