Forest Industry Positioned to Survive Housing Downturn

March 31, 2008; Eugene, OR

Despite the slowing housing market and subsequent downturn afflicting lumber mills, forests in the Pacific Northwest remain a valuable resource with important products that are still in demand, an expert in the forest industry said Monday.

The lumber industry is down 20 percent from normal production levels as many mills reduce shifts, take downtime or permanently shut down, said Gordon Culbertson, Pacific Northwest region manager for price information provider Forest2Market. But, loaded log trucks are still moving down the highway – delivering raw materials unique to the Pacific Northwest.

“Our forests have many unique attributes that cannot be found anywhere else,” Culbertson said. “Even with the negative impacts of the housing sector, the forest industry remains strong in many areas.”

Forest2Market analyzes the prices of logs specific to species, grade, length and diameter as they are delivered to mills. The information allows the company to track log and wood values and identify trends.

One emerging trend is the resurgence of exports to Asian markets such as Japan and Korea. The dollar has weakened against foreign currencies, encouraging sales to offshore customers.

Export grade Douglas fir and hemlock logs are specially selected for high-quality. These logs are cut to special lengths and command a premium of 20 percent more than domestic logs.

Another positive trend is the plywood market, which is less reliant on the housing market. Northwest plywood products are typically used for industrial and commercial building purposes, such as concrete forms.

Pulp mills are driving demand for small logs and wood chips – a byproduct of lumber production with a supply crises related to the housing market. The lack of available chips has produced a big demand for small, lower quality logs. Pulp mills are using twice as many logs as they normally would to satisfy production levels.

Larger logs are also in demand for certain specialty products. Electric utilities across the country have been grabbing up logs that are up to 120 feet long, paying a significant premium of up to $1,100 per 1,000 board feet – a common price for Douglas fir is $500 per 1,000 board feet.

These exceptionally tall and straight trees are used to make poles for utility transmission lines. Power companies have been improving their decaying infrastructures and expanding services to provide for population growth.

Also, sawmills cutting larger, higher quality Douglas fir logs for specialty timbers and non-housing related custom items were more resilient last year.

“These are examples of healthy segments of the Pacific Northwest’s forest industry,” Culbertson said. “Lumber mills are struggling, but the forest industry is positioned to weather the economic downturn that the country is facing.”

Charlotte, N.C.-based Forest2Market has developed sophisticated analytical tools to accurately report timber prices in the South and the Pacific Northwest. Its regional office is in Eugene, Ore.