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Required Report - public distribution **Date:** 2/7/2003

**GAIN Report Number:** MX3304

MX3304

**Mexico**

**Solid Wood Products**

**Marketing Annual**

2003

**Approved by:**

![](media/image1.wmf)Bruce Zanin

#### ATO Mexico

**Prepared by:**

Carlos Zertuche

**Report Highlights:**

The United States has the largest share of the Mexican import market for
forest products. Ninety five percent of lumber imports to Mexico are
sourced from the United States. Potential markets for wood products in
Mexico are the construction sector, the furniture and interior
decoration manufacturing sector, and the handling industry.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Mexico ATO \[MX2\], \[MX\]

***PRODUCTION***

Annual round wood production in 2002 decreased to 7.5 million cubic
meters from 8.1 million cubic meters in 2001. The lower production is
attributed to the continuing weakness in the Mexican economy,
particularly in the construction sector. Round wood production for 2003
is forecast to decrease or remain stagnant due to weak demand for raw
product from the domestic furniture and construction sectors. Softwoods
continue to dominate the Mexican forest products market. Furniture,
flooring and paneling manufacturers in Mexico primarily use softwood in
their products. Production of tropical species is the least developed of
round wood production in Mexico. The annual timber growth rate is
estimated at 35.1 thousand cubic meters a year. The average productivity
in temperate forests is 1.2 cubic meters per hectare per year, and in
tropical forests is 0.5 cubic meters per hectare per year. The most
commercially viable species are: softwood pine-82.5 percent; tropical
species-4.1 percent; oak and fir-11.7 percent; and other softwood
species-1.7 percent. (For more information see GAINS report \# MX2142).

#### Forest Situation/Outlook[^1]

Mexico's total forest resource base is estimated at 56.7 million
hectares. Most of Mexico's forests are located in mountainous areas
without developed transportation infrastructure, making transportation
of logs difficult and costly.

Other challenges facing the wood and forest industry in Mexico include:

-   Questionable land tenure;

-   Poor organization of communal property (*ejido*) as units of
    commercial forest production;

-   Over-exploitation of natural resources;

-   Lack of competitiveness in the world market;

-   Environmental degradation; and

-   Limited use of modern forestry techniques.

Only one‑third of the total forest resource base is used for commercial
purposes, however, this third is under a management plan. Only 45
percent of the established capacity is currently occupied in a series of
sustainable forest management programs. The annual timber growth rate is
estimated at 35.1 thousand cubic meters a year. The average productivity
in temperate forests is 1.2 cubic meters per hectare per year and in
tropical forests is 0.5 cubic meters per hectare per year, due to poor
forest management. Almost all of Mexico's timber production comes from
native forest, as the new commercial forestry plantations are not yet
ready for harvest. Based on SEMARNAT's data, the total standing
inventory of commercial forests is 2.803 billion cubic meters, of which
1.8 billion is in temperate forests and 1.0 billion is in tropical
forests.

***[Solid Wood Products Situation/Outlook]{.underline}***

As mentioned above, the Mexican forest industry lacks sufficient
resources for forest harvesting, has an inadequate basic infrastructure
for distribution of raw materials, and has limited use of modern
forestry techniques. Production of solid wood products in Mexico is
limited because most of the forest areas are owned under the "ejido"
structure, where private forestry companies may contract the rights from
the campesino owners to harvest for only one year at a time. As a
result, these companies find it financially risky to invest in the
necessary infrastructure, as they cannot depend on the right to harvest
the land in succeeding years. The annual statistics of forest production
last published in 1999 by the Mexican Secretariat for the Environment
and Natural Resources showed that Mexico has 2,058 lumber mills, 65
plywood and board panels manufacturers, 515 wooden crates and bins
factories, 60 furniture manufacturers, 64 paper mills, and 735
businesses involved in other types of wood processing.

***[Prices]{.underline}*** Price for standing stump wood and delivered
prices generally conform to market demands, particularly in the higher
grades and species. According to industry sources, currently the
producer price of round wood is \$80.00 per cubic meter. The following
charts provides average prices for wood in Mexico in 2002.

+----------------------------+-------------------+--------------------+
| **Average Hardwood Lumber  |                   |                    |
| Prices**                   |                   |                    |
|                            |                   |                    |
| **USD/Board Foot**         |                   |                    |
+----------------------------+-------------------+--------------------+
| Size                       | Oak               | Ash                |
+----------------------------+-------------------+--------------------+
| 1\"                        | 3.50              | 3.42               |
+----------------------------+-------------------+--------------------+
| 1.5\"                      | 4.86              | 3.76               |
+----------------------------+-------------------+--------------------+
| 2\"                        | 5.30              | 4.08               |
+----------------------------+-------------------+--------------------+

Source: Camara Nacional de la Industria de la Madera

Rate of Exchange: 10.70 Pesos to 1.00 USD.

+----------------------------+-------------------+--------------------+
| **Average Softwood         |                   |                    |
| Prices**                   |                   |                    |
|                            |                   |                    |
| **USD/Board Foot**         |                   |                    |
+----------------------------+-------------------+--------------------+
| Sawn wood                  | 1/2\"             | 3/4\"              |
+----------------------------+-------------------+--------------------+
| Sizes                      |                   |                    |
+----------------------------+-------------------+--------------------+
| 0.10 x 2.50 mts. (4\" x    | 1.50              | 1.25               |
| 98\")                      |                   |                    |
+----------------------------+-------------------+--------------------+
| 0.15 x 2.50 mts. (8\" x    | 1.50              | 1.25               |
| 98\")                      |                   |                    |
+----------------------------+-------------------+--------------------+
| 0.30 x 2.50 mts. (12\" x   | 1.80              | 1.49               |
| 98\")                      |                   |                    |
+----------------------------+-------------------+--------------------+
| Pole 1 ½ x 3 ½ x 98\"      | 0.77              | NA                 |
+----------------------------+-------------------+--------------------+

Source: Camara Nacional de la Industria de la Madera

Rate of Exchange: 10.70 Pesos to 1.00 USD.

+---------------+-----------------------------+------------------------+
| **Average     |                             |                        |
| Tropical      |                             |                        |
| Hardwood      |                             |                        |
| Lumber        |                             |                        |
| Prices**      |                             |                        |
|               |                             |                        |
| **USD/Board   |                             |                        |
| Foot**        |                             |                        |
+---------------+-----------------------------+------------------------+
| Size          | White Cedar                 | Mahogany               |
+---------------+-----------------------------+------------------------+
| 1\"           | 1.79                        | 6.18                   |
+---------------+-----------------------------+------------------------+
| 1.5\"         | 1.79                        | 6.18                   |
+---------------+-----------------------------+------------------------+
| 2\"           | 1.79                        | 6.18                   |
+---------------+-----------------------------+------------------------+

Source: Camara Nacional de la Industria de la Madera

Rate of Exchange: 10.70 Pesos to 1 USD.

# TRADE

***[Overview/Outlook]{.underline}*** In 2003, softwood log exports to
the United States from Mexico are forecast to remain flat. This estimate
is, in part, due to wood and wood product exporters' emphasis on
exporting higher value-added products, such as moldings, rather than
softwood logs. Exports of most US wood products to Mexico were not
strong in 2002 in general, and slow growth in the construction industry
makes a dramatic jump in sales in 2003 unlikely, though 1-2 percent is
possible. However, exports of doors, windows and frames increased in the
year 2002. Exports of wood moldings decreased \$60,000 in 2002 from 2001
to a level of 9.0 million. In 2002 sales of other products such as
fiberboard, wood pallets and cases and structural wood decreased 25 to
40 percent.

***[Tariff Rate Quotas (TRQ]{.underline}***) In 2002, the tariff rate
quotas, under NAFTA were as follows:

[RESULTS OF AUCTION OF PERMITS TO IMPORT U.S. WOOD PRODUCTS IN
2002]{.smallcaps}

+-----------------+-----------------+-----------------+-----------------+
| [Tariff         | [Origin         | [Mexican        | [Quota          |
| numb            | al]{.smallcaps} | Allocatio       | Unallocat       |
| er]{.smallcaps} |                 | ns]{.smallcaps} | ed]{.smallcaps} |
|                 | [T              |                 |                 |
|                 | RQ]{.smallcaps} | [(M             | [(M             |
|                 |                 | T)]{.smallcaps} | T)]{.smallcaps} |
|                 | [(M             |                 |                 |
|                 | T)]{.smallcaps} |                 |                 |
+=================+=================+=================+=================+
| [4407.10.       | [119,7          | [0]{.smallcaps} | [119,7          |
| 01]{.smallcaps} | 00]{.smallcaps} |                 | 00]{.smallcaps} |
+-----------------+-----------------+-----------------+-----------------+
| [4407.99.       | [2,4            | [6              | [1,8            |
| 99]{.smallcaps} | 70]{.smallcaps} | 00]{.smallcaps} | 70]{.smallcaps} |
+-----------------+-----------------+-----------------+-----------------+
| [4407.10.       | [9,5            | [0]{.smallcaps} | [9,5            |
| 02]{.smallcaps} | 00]{.smallcaps} |                 | 00]{.smallcaps} |
+-----------------+-----------------+-----------------+-----------------+
| [4407.91.       | [3,3            | [3,3            | [0]{.smallcaps} |
| 01]{.smallcaps} | 25]{.smallcaps} | 25]{.smallcaps} |                 |
+-----------------+-----------------+-----------------+-----------------+
| [4403.10.       | [14,2           | [0]{.smallcaps} | [14,2           |
| 01]{.smallcaps} | 50]{.smallcaps} |                 | 50]{.smallcaps} |
+-----------------+-----------------+-----------------+-----------------+

Since January 1, 2003, import duties on wood products and the zero
tariff rate quotas were eliminated. However, on August 15, 2002 The
Secretariat of Economy (SE) announced in Mexico's "*Diario Oficial"*
("Federal Register") the initiation of an official global safeguard
investigation against plywood imports. This investigation was in
response to a petition submitted by the Mexico's National Association of
Plywood Producers (ANAFATA).

ANAFATA has been concerned for many years about competition from
tropical plywood imports from Indonesia and Malaysia and softwood
plywood imports from Chile. It is still unclear to what extent this
safeguard action could be directed toward US plywood imports. US
softwood plywood imports have not been a source of concern for ANAFATA
because the niche market they occupy does not compete directly with
Mexican plywood products. A decision on the safeguard investigation will
be issued and published by the Secretariat of Economy on July 4, 2003.
Private sources surmise that the initiation of a safeguard investigation
against the imports of US hardwoods is unlikely since US hardwood
imports do not compete with domestic production. .

***[Competition]{.underline}*** The United States has the largest share
of the Mexican import market for forest products. Ninety five percent of
lumber imports to Mexico are sourced from the United States. Other
countries with major wood and wood products exports to Mexico include
Chile, Indonesia, Canada and Brazil. In addition, domestic lumber
production remains a strong competitor to wood products imported from
the United States because of the relatively less expensive domestic
lumber due to lower shipping costs. In CY2000 softwood lumber imports
increased from 948,875 cubic meters, to nearly 2.0 million cubic meters.
Chile continues to gain market share in the Mexican softwood lumber and
plywood import sector by offering good quality, low‑priced products.
Chilean wood products imported by the Mexican industry, have benefited
from the Mexico-Chile Free Trade Agreement. According to industry
sources, the increase in Chilean imports has come at the expense of both
the Indonesian tropical plywood and the US softwood lumber imports.
Indonesia and Canada continue to effectively enter the Mexican softwood,
tropical hardwood and plywood market by offering low‑priced products. In
2003 wood and wood product imports to Mexico are forecast to increase
approximately 2 percent if there is a modest recovery in the
construction and flooring sector.

[Source:]{.smallcaps} Secretariat of Economy (SE). )

***[Market Development Strategies]{.underline}*** Potential markets for
wood products in Mexico are the construction sector, the furniture and
interior decoration manufacturing sector, and the material handling
industry. The construction sector primarily demands plywood for concrete
forming purposes. The furniture and the interior decoration sector
primarily demand hardwoods. The interior decoration industry consists of
a large number of manufacturers and traders of flooring, paneling and
molding. The material handling industry primarily demands softwood
lumber, softwood plywood and oriented strand boards (OSB) for the
manufacturing of pallets and wooden crates. A niche-market worth
exploring is the input product market for assembly plants (maquiladoras)
located primarily along the US-Mexico border. Maquiladoras assemble most
of the furniture destined for export markets, including structural
woods, bathroom furniture, T.V. cabinets and tables among many other
products.

Selling wood products in Mexico requires that a US company devote
resources to research the market. Potential customers should be
contacted to familiarize them with US hardwood and softwood products.
The US supplier also still has important advantages in the market
including: proximity and lower freight costs, high product quality,
grading uniformity, species desirability and perceived value. USDA's
Commodity Credit Corporation offers credit guarantees for US exporters
to Mexico under the GSM-102 and Supplier Credit Guarantee programs,
which could assist in financing exports to Mexico. (For more information
on the credit guarantee programs see: www.fas.usda.gov/export)

# MARKET SEGMENT ANALYSIS

#### Construction Sector

***[Overview]{.underline}*** The construction sector has experienced a
decrease at an average of 10 percent annually during the last four
years. This factor along with the high interest rates for loans to
purchase houses reduces the demand for new units. Mexico projects a GDP
growth rate of 3.0 percent for 2003 but the economy may slow depending
on the United States' recovery. However, in the social sector, the
Mexican government is aware of a deficit of 4.2 million homes, 1.8
million new starts and 2.4 million units that require renovation.
According to the current demographic population growth, it is estimated
that by the year 2010 Mexico will have 30 million households, reflecting
an average of annual demand for 730,000 new houses. Based on this
figure, the Mexican Government is determined to reach a goal of
financing and constructing 750,000 houses in 2006. Thus, the housing
deficit plus new house demand will increase the need for construction
material.

Source: Mexican Chamber of the Construction Industry (CMIC)

***[Marketing]{.underline}*** Houses in Mexico are built with
masonry/concrete materials. However, wood products play an important
part in construction in the form of timbers, posts, beams, and roof
beams. Mexican consumers are beginning to appreciate the advantages of
US timber frame construction materials, such as the reduced construction
times and improved energy efficiency. Large scale wood frame housing
construction is still limited because of the resistance from end-users,
banks, insurance companies and developers. US wood exporters interested
in the Mexican market should consider participating in some of the major
trade shows targeting the furniture and construction industries in
Mexico. Information about dates and places of some of these events
follows:

**PROMUEBLE 2003**

January 23-25, 2003

Expo Santa Fe, Mexico City

Organizer: Eduardo Contreras

Tel: (011‑52‑55) 5514-1357;

Show Type: Furniture manufacture industry supplies.

**EXPOCIHAC**

October 16-21, 2003

Expo Center Banamex, Mexico City

Organizer: Connie Martinez

Tel: (011‑52‑55) 5661-0844; Fax: (011‑52‑55) 5661-3445

E-mail: expo@cihac.com.mx

Show Type: Supplies for the Housing Industry.

**ExpoMueble Internacional** (Winter Edition)

February 19-21, 2003

Expo Guadalajara, Guadalajara, Jalisco, Mexico

Organizer: Silvia Munoz, Furniture Manufacturers Association

Tel: 011-52-33-3343-3400

Fax: 011-52-33-3671-0978

Show Type: Furniture show. .

##### **TECNO MUEBLE**

June 26-28, 2003

Expo Guadalajara, Guadalajara, Jalisco, Mexico

Organizer: Silvia Munoz, Furniture Manufacturers Association

Tel: 011-52-33-3343-3400

Fax: 011-52-33-3671-0978

Show Type: Trade show for the furniture manufacturing industry.

##### **ExhiMueble**

September 18-21, 2003

Cintermex Expo Center, Monterrey, Mexico

Organizer: Honorio Garza,

Tel: 011-52-81-8369-6435

Fax 011-52-81-8369-6437

Show Type: Trade show for the furniture manufacturing industry.

For more information on show dates and contact information, interested
US wood exporters

may contact the Mexican offices of the following US Trade Associations:

+-----------------------------------+-----------------------------------+
| American Forest & Paper           | American Hardwood Export Council  |
| Association                       |                                   |
|                                   | Luis Zertuche, Director           |
| Claudia Villagomez, Director      |                                   |
|                                   | Tel 011-5255-5282-0909            |
| Tel 011-5255-5282-2111            |                                   |
|                                   | Fax 011-5255-5282-0919            |
| Fax 011-5255-5282-0919            |                                   |
|                                   | Email:                            |
| Email: cvillagomez@infosel.net.mx | luiszertuche@infosel.net.mx       |
+-----------------------------------+-----------------------------------+
| APA The Engineered Wood           | The Southern Pine Council         |
| Association                       |                                   |
|                                   | Dr. Ramon Echenique, Director     |
| Philippe Mercado, Director        |                                   |
|                                   | Tel 011-5255-5228-2812-3622       |
| Tel 011-5255-5281-6087            |                                   |
|                                   | Fax 011-5255-5228-2816-3850       |
| Fax 011-5255-5281-6089            |                                   |
|                                   | Email: <mecam-sa@terra.com>       |
| Email:                            |                                   |
| philippe.mercado@apawood.org      |                                   |
+-----------------------------------+-----------------------------------+

## 

***[Policy]{.underline}*** US exporters must comply with the
phytosanitary requirements for green lumber exported to Mexico. Mexican
regulations require that the exporter fumigate the load at the border.

## *Furniture & Interiors Sector*

***[Overview]{.underline}*** Mexico\'s forest products processing
industry continues to grow, particularly the furniture, molding, and
flooring sectors. As a result, they are prime candidates for US raw
materials. Flooring exports to Mexico continued to drop during the last
two years. This decline is the result of a growing number of Mexican
lumber importers and flooring distributors who manufacture their own
flooring. This trend is reflected in the increase of lumber imports,
especially red oak and maple.

***[Marketing]{.underline}*** The furniture manufacturing areas in
Mexico are located in Mexico City, Guadalajara, Monterrey and San Luis
Potosi. The US species most commonly used by the Mexican industry for
solid hardwood furniture production are red oak, white oak, hard maple,
poplar and ash. Mahogany remains the main competitor for US hardwoods in
furniture production. Currently, furniture manufacturers use 50 percent
imported lumber (primarily oak) with the remainder sourced from domestic
tropical species and domestic softwoods. Many Mexican importers are
unable to import US hardwoods in large quantities because they lack
sufficient cash flow and credit sources. The placing of only small
orders (one truckload or less) makes it difficult for the US exporter to
ship in a cost efficient manner and to sell his products at a
competitive price.

***[Trade]{.underline}*** Mexican exports of wood furniture reached
\$130.1 million in 2002, as opposed to \$129.6 million exports during
the previous year. However, imports of US furniture decreased 3 percent
in 2002 as compared to 2001. Recent consumption patterns indicate that,
while Mexico is the fourth most important export market for both red oak
and tulipwood, these two traditionally popular species in Mexico are
beginning to lose ground to maple, whose volume has increased by 17.3%
and value 29.4%, during the last two years. Experts within furniture
manufacturers' associations throughout Mexico attribute this increase to
the growing popularity of maple furniture and flooring among higher
income families who purchase maple furniture at high-end department
stores. Domestic softwoods currently claim an estimated 90 percent of
the domestic furniture, flooring, and paneling markets in the country. .

# Material Handling Industry

***[Overview]{.underline}*** The Mexican manufacturing industry uses
pallets, wooden crates and containers for handling and shipping.
Supermarkets and large distribution centers like the central markets and
the agricultural sector constitute an attractive market for US wood
handling material exporters. Because buyers in this industry will never
see the packing a gain once they ship the goods, they care little about
the quality, but care much about the price. This segment is supplied by
the domestic softwood lumber industry. Currently, there is a market
segment of the export industry utilizing these "non-returnable" pallets
and crates, which are manufactured with either plywood or OSB. In
contrast, in-bond assembly plants and exporters of higher value priced
products such as electronic components, chemical compounds and
automotive parts tend to ensure the quality and safety of their exports
by using good quality and resistant packing material. This segment of
the industry could provide an important market niche for US suppliers.
Plastic pallets and containers represent only an estimated 10 percent of
the cargo handling equipment as compared to wood manufactured material.
Plastic material is used less frequently in captive handling systems as
compared to wood products because it is more expensive and cannot be
repaired.

***[Marketing]{.underline}*** There are significant market opportunities
for exports of US wood because of the flexibility of the custom-made
pallet design to handle any kind of product, regardless of the product
form, or nature of presentation (i.e., boxes, drums, sacks, bundles,
bulk). The manufacturing of fiberboard and particleboard in Mexico is
one or two generations behind other countries, therefore there is great
opportunity for US d board manufacturers to supply this market sector.

***[Policy]{.underline}*** Wooden pallets classified under HTS Import
Tariff Number 4415.20.01 are not subject to an import duty as of January
1, 2003. Mexico subjects these goods to sanitary regulations, such as
the NOM-014-RECNAT-1997*,* a sanitary standard regulation for the import
of used pallets, crates and other wood packing material. US exporters
must comply with the phyto sanitary requirements for wooden pallets
exported to Mexico by having the Mexican authorities fumigate the load
at the border.

***[Trade]{.underline}*** Captive handling systems provide a good market
for suppliers of wood based structural plywood and An example of a
captive handling system are reusable pallets or agricultural bins. US
exporters are selling reusable panel‑decked pallets in the industrial
market, and sales to Mexico are expected to grow. Sales of panel decked
plywood and OSB panels are also expected to grow.

[^1]: Forest information continues to be based on the National Forest
    Inventory of 1994, as the Secretariat for the Environment Natural
    Resources (SEMARNAT) did not publish the National Inventory
    2000-2001. SEMARNAT officials estimate that the next National Forest
    Inventory will be published in 2005.