June 18, 1995 in Business

Price Swings Rock Timber Industry Logs May Be Worth More As Chips Than Lumber

Eric Torbenson Staff writer
 
Tags:economy

The long husk of white pine at logger John Anderson’s feet would have end up in a slash pile just a few months ago.

Today, the dead tree’s headed for the chipping machine, destined for superheating and compression into wafer board. One day it could shore up a new home’s sidewalls.

Or perhaps the log may be shredded and baled for a pulp mill, cooked into a pulpy froth and sent through rollers to end up as a newspaper.

Wood that used to burn now churns in chippers and pulp mills around the Inland Northwest.

“These smaller logs that don’t quite make the grade for stud logs, we used to toss ‘em in the pile,” Anderson said. “But now it makes sense to chip ‘em.”

So dramatic has been the rise in pulp prices, that the other end of the market also is affected. Perfectly millable logs worthy of being shorn into dimensional lumber are now worth just as much if not more sent to the chipper.

These circumstances were created by an unlikely intersection on the economic roller-coaster that sets timber prices. The lumber market has taken a deep plunge in the last year. At the same time, the pulp market has staged a dramatic climb.

This shift has forced a few changes in forest-management practices, but so far has done little to help timber companies’ bottom lines.

The winners with the roller-coasters in this position are the long-suffering paper companies that make high-grade office paper and newsprint, and mills that chip and make pulp products.

Take a marginal log, one that would barely make a few two-by-fours in a sawmill and that in some cases might not make it out of a slash pile.

Though pulp mills and sawmills figure out the worth of a load of logs dramatically differently, most timber marketers say it’s a push right now to see which way the marginal logs would make more money.

Two factors produced this peculiar market: the bottom falling out of the lumber market coupled with incredible demand for paper products, and hence, pulp. Both factors intersect at mills around the region.

The supply and demand tug-of-war for lumber changed abruptly last year when home builders, stung by a slowing housing market, let go of their end of the rope.

Mills and timber producers are still reeling on the other side of the open market pit. Many worry that more regional sawmills will close if the housing market doesn’t start pulling its weight again soon.

Sawmills face a variety of impediments to making a profit on lumber. Having a group of buyers who need it is one part.

A more basic, and ongoing, problem is finding logs to process into lumber. The diminishing availability of timber on federal lands already has starved some mills out of existence. Competition from pulp mills for usable logs multiplies the problem.

Then there’s the controversial Canadian lumber influx. The Canadian’s share of the U.S. lumber market has shot up in just a year because of the struggles of Pacific Northwest mills and government subsidies that make Canadian lumber cheaper, says Ken Kohli of the Intermountain Forest Industry Association in Coeur d’Alene.

The Canadian mills dispute this alleged advantage, and the issue continues to be negotiated on an international level.

This lumber market has Inland Northwest mills limping. LouisianaPacific Corp., Crown Pacific Ltd. and other big timber interests have closed mills and sent workers home for short-term layoffs.

For loggers like Anderson - an 18-year veteran of the woods - the struggling mills mean he has fewer places to send his logs.

“L-P won’t take my logs at their Chilco mill anymore,” he said. He now hauls them to Idaho Forest Industries’ mill in Coeur d’Alene. “I don’t get as good a price, and who knows how long they’ll be around.”

The surging wood chip market gives some consolation for Anderson and other loggers who’ve watched lumber prices plummet.

The chips get sandwiched into fiber wafer board, pulped into newsprint, paper of all types, tissue, packaging and cardboard to name just a few.

Paper producers can empathize with the sawmills’ woes. They’ve been there.

The paper industry suffered through nearly a decade of lower prices until the economy began to reheat early this decade, said Wayne Andresen, general manager for Inland Empire Paper Co.

In a stronger business climate, businesses use substantially more paper than in a recession, he said. That demand for high grades of office paper and for newsprint from newspapers seeing more advertising has pulled the pulp market up by its bootstraps, he said.

While declining housing starts have helped drag down lumber prices, the pulp boom appears to have no end in sight, he said. “It’s probably the most interesting time in the newsprint business that I’ve been involved in.”

Most chips come from buzzing big logs through sawmills. Inland Empire gets its chips as remnants from mills around the region, Andresen said.

But facing shortages and a miserable lumber market, it makes little sense for the mills to buy a lot of expensive trees to produce cheap lumber, Kohli said.

Fewer logs through the mills means less chips. Less chips means a higher price, and coupled with the paper boom, the sky’s the limit on prices.

“I don’t see any of the market factors changing right now or in the near term,” Andresen said. “We’re paying 150 percent more for chips than we were last year.”

As of September of this year, the price of newsprint will have risen nearly 85 percent since last January, according to Pulp & Paper Weekly, a trade publication that tracks prices.

Even more than rising chip prices, the factor making newsprint so pricey is the cost of old newspapers, which make up about 40 percent of newsprint.

Types of old newspapers, in demand because of the popularity of recycled newsprint, have escalated in price faster than at any time in recent memory, Andresen said. According to Pulp and Paper, prices are up 700 percent from last year in places.

Inland Paper pays 350 percent more for old newspapers to blend with pulp than it did last year, Andresen said.

But higher pulp prices don’t always translate into higher prices for products.

For Potlach Corp.’s mills and pulping operations in Lewiston, higher fiber prices simply eat into their profit margins.

Potlach’s facilities make tissue paper and paperboard products used in packaging. Since the products are so widely produced, demand for them is usually the sole factor in how expensive they are, said Mike Sullivan, communications manager.

The hunt for wood fiber hasn’t been this tough for a long, long time, Sullivan said. Potlach traditionally scours mills in a 150-mile radius, and gathers about 90 percent of its fiber there.

As mills run low on logs, Potlach runs out of fiber sources. Sullivan doesn’t see things getting any better. “I can’t see the picture changing in the short term,” he said. “A lot depends on what happens at the federal level with timber sales.”

If Congress and President Clinton authorize large-scale salvage operations, mills may find enough timber to stay solvent, and then provide fiber.

Until then, being in the wood products business remains a daily challenge.

For Anderson, the market is his primary worry. But add to that increasingly nit-picking state regulations and unpredictable landowners, and it’s enough to make him think about leaving the business.

Meanwhile, cheap lumber and pricey chips have changed the way people make decisions in the forest, from the smallest loggers to the biggest timber owners in the Inland Northwest.

For timber giant Plum Creek Timber Co., the market means that thinning operations can be profitable, rather than a costly necessity, said Jim Lehner, the unit manager for Plum Creek in Coeur d’Alene.

“It’s a unique opportunity for us right now,” he said. “We’re trying to take full advantage of it. We’re utilizing a lot more of the timber that would have just ended up slashed.”

Plum Creek brought a chipping machine out to a recent thinning operation in Northwest Montana, Lehner said. “We’re utilizing much more of the material out there.”

, DataTimes ILLUSTRATION: 2 Color Photos; Graphic: To pulp or not to pulp?

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