Energy and the US hardwood industry – Part 1: Profile and impact of prices

According to the Energy Information Administration two fifths of the energy used by US wood products manufacturers comes from electricity and natural gas, the costs of which have pointedly increased over the last decade. Empirical indications exist that higher energy prices affect the industry’s profitability. Together with other developments such as, for example, unfavorable trends in hardwood stumpage prices, higher transportation costs, increasing government regulations, a challenging economic situation, or the ongoing globalization of markets, the US hardwood industry has to cope with some serious challenges threatening its profit potential. To understand the impact of energy prices on wood products manufacturers’ profitability and to gain insights regarding actions the industry is taking to respond to energy-related challenges, a survey was conducted among Eastern US primary hardwood products manufacturers in late 2010. Results show that, overall, the share of energy expenses on total production costs of respondents was 7.9%. A majority of respondents (61.8%) agreed that their energy expenses have increased by an average of 18.7% during the last five years. Half of the respondents reported a 5% or higher negative impact of higher energy prices on their profits over the same period. Actions undertaken by the industry to alleviate the negative impact of rising energy prices are presented in a second paper in this two-part series.