April 16, 2008

Experts predict U.S. lumber prices to plunge as housing slump continues

SPOKANE, Wash.

The drop in new home construction has timber industry experts predicting a staggering drop in U.S. demand for lumber.

Compared with record lumber consumption in 2005, this year’s demand is expected to drop by 19 billion board feet, industry leaders told several hundred logging contractors at the Intermountain Logging Conference.

The sum is roughly equal to the annual output of sawmills in 12 Western U.S. states.

“We’ve never seen a decline like this in the history of the industry,” Butch Bernhardt, spokesman for the Western Wood Products Association in Portland, told The Spokesman-Review newspaper in a phone interview.

The lumber business has always been cyclical, but Bernhardt said prices are hitting lows not seen since the recessions of the early 1980s and 1990s. When adjusted for inflation, they’re at historic lows, he said.

In March, the wholesale price for Douglas fir was US$245 per 1,000 board feet. Three years ago, the price was US$422.

Output at Western sawmills has dropped 20 per cent from last year.

The drop in wholesale prices — what sawmills get paid — has been much sharper than the price reductions seen by customers buying 2-by-4s at home improvement stores, Bernhardt said.

Analysts predict markets could begin rebounding by next year, but Bernhardt said he expects demand for lumber to remain soft for several years.

Some rural communities are reeling from mill closures and temporary shutdowns.

“Sawmilling is a tough business and nothing is forever,” said Andrew Miller, CEO of Stimson Lumber Co., which is permanently closing mills in Coeur d’Alene, Idaho, and Bonner, Mont., in May.

About 160 people will lose their jobs. The two mill closures will also affect loggers, truck drivers, diesel distributors and tire salesmen.

Joe Fraser’s contract logging company in Missoula, Mont., is among the firms that will lose business. Last year, harvests on Stimson’s Montana timberlands accounted for about 25 per cent of Salmon River Wood’s revenue.

“Does it hurt? You bet,” Fraser said. “But it’s part of this occupation. We’ll run strong for several years and then we’ll hit a downturn.”

Both Stimson mills produced 2-by-4s for home construction. Housing starts are projected at 968,000 this year, down 60 per cent from their 2005 peak.

Weak lumber prices have Stimson joining competitors Plum Creek and Potlatch Corp. in evaluating the real estate development potential of its timber land.

Associated Press

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