Region Rolling In Logs Analysts Say Tree Surplus Behind Malaise At Mills

When Boise Cascade Corp. announced it was closing lumber mills in Idaho, Washington and Oregon last month, it blamed the U.S. Forest Service and uncertain timber supplies.

The “uncertain supply” theme has been repeated several times since the company announced the end to plants in Horseshoe Bend, Idaho; Yakima; and Elgin, Ore.

But some industry analysts say there may be too many trees on the market. Lumber exports to Asia are down 40 percent. Imports from Canada are at record highs.

Engineered wood products - chip board, laminated floor joists and other products - are taking a bigger piece of the market, said Butch Bernhardt of the Western Wood Products Association.

And, until just a few weeks ago, U.S. lumber prices were plummeting.

This combination of factors acting simultaneously - unheard of in the timber industry until recently, Bernhardt said - has ambushed the market so badly that record new housing construction isn’t enough to keep the market rolling.

“When the price drops 30 percent, eventually that’s going to catch up to you,” Bernhardt said. “You are getting close to a third less than a year ago and your log costs haven’t changed and your labor costs haven’t changed.”

Federal timber economists agree.

“This isn’t a case where you can blame the federal government,” said Richard Haynes, a Forest Service economist based in Portland. “The downturn in federal supply is actually relatively certain.”

The market is the bad guy, he said.

U.S. companies that normally ship products to Asia have lost most of that market. So they’re selling their products at home, increasing supplies and depressing prices.

Canadians also are pushing more lumber into the United States because they’ve lost Asian buyers. But the weak Canadian dollar also has them milling for American markets.

“Their costs are denominated in Canadian dollars and their revenue is in U.S. dollars,” Haynes said.

In addition, other regions of the nation - primarily the Southeast - are producing much more lumber. And they do it less expensively, industry analysts say.

Most of the mill closures brought on by the reduction in federal timber sales have worked their way through the system, Haynes said. If the soft Asian market persists, the region should brace for more mill closures.

Even if it doesn’t, the Forest Service predicts another 20 percent of the region’s mills will close between now and 2010, mostly because of sheer economics.

“You are not a terribly competitive region,” Haynes said. “You have relatively high costs of getting raw materials and getting stuff to markets.”

That’s going to hurt some communities, the Forest Service said. But overall, the Interior Columbia Basin is adding 40,000 jobs a year - the equivalent of what the timber industry employs in the entire region, Haynes said.

Timber companies agree the Asian crises and imports are hurting their market. Some even say they have written off federal timber supplies.

But none are talking about closing additional mills. And none are willing to let the federal government off the hook for hardships felt in places like Horseshoe Bend.

“It’s been very perplexing,” Boise Cascade spokesman Doug Bartels said of the current market. “Our demand is good, housing starts are at a pretty strong level, the economy is strong. You would think our industry would be pretty robust.”

The Asian recession and the reduction in timber available from private, state and federal lands are hurting the timber industry, Bartels said. Prices have improved a bit in recent weeks.

Companies that have their own timber supplies, have the cash to buy trees on the open market and have efficient mills will do well, he said. Take, for example, Boise Cascade’s Kettle Falls mill.

“Kettle Falls is one of the most efficient in the country, with a good, experienced workforce; the timber supply outlook is good - even with reductions from the Colville National Forest,” Bartels said. “There’s a lot of open market logs available.”

Bob Hess, a vice president at Crown Pacific, says the Asian crisis isn’t hurting his company. And the declining supply of federal timber is less and less of a major threat.

“For those companies, like Crown Pacific, who have locked up major portions of private timber land, probably not,” Hess said. “Our goal is to have a sufficient supply on our own lands.”

Meanwhile, it’s building a new, more efficient mill in Bonners Ferry with the idea “we want to be one of the last mills running,” Hess said.

Louisiana-Pacific Corp., largest producer of 2-by-4s and other stud lumber in the United States, also says it’s not planning mill closures.

“Our view is, we have to adapt to these realities,” said L-P spokesman Gerry Soud. “We have to look at increasing efficiency, increasing competitiveness.

“That can be retooling, re-engineering - it can be positive.”

In the end, however, all still want the federal government to sell more trees. If nothing else, more federal timber would drive down raw materials prices, giving companies more breathing room, said Bernhardt of the Western Wood Products Association .

The fact that the region has so much federal land also magnifies the consequences of a smaller federal timber supply, Boise Cascade’s Bartels said.

“If they have decided they are not going to sell timber, there’s no way to make up that shortage,” he said.

But some national forest supervisors in the Northwest are quietly asking the bosses in Washington, D.C., to lower timber demands from the forests they manage, according to The Associated Press.

Fewer trees from federal public lands is regrettable and inevitable, the Forest Service says.

“If a mill has been dependant on harvesting from federal land for 20 years, you’d be a fool to say it doesn’t have an impact,” said Chris Woods, special assistant to Forest Service Chief Mike Dombeck.

But he added the change may bring more certainty in the long run.

“What we are committed to is providing an ecologically sustainable supply of timber so we can avoid big downturns that happened when we were providing an ecologically unsustainable supply - and were called on it.”

2 Graphics: 1. Lumber production 2. Canadian lumber exports to U.S.