Times Are Hard In the Woods

by John Henry  on Monday, Dec. 8, 2008 12:00 am  

(To see the list of the top timber companies in Arkansas, click here. A spreadsheet version is also available.)

Times in the forest products industry in Arkansas are as hard as the wood they grow and cut and turn into the lumber, furniture and paper.

"We're in a condition that is the worst I've seen since the late 1970s, when data [in the forest products industry] first began to be tracked," said Ray Dillon, chief executive officer of Deltic Timber Corp. of El Dorado, the state's only publicly traded timber company.

Within the past 30 to 45 days, Dillon said, there has been "an unprecedented rapid reduction" in demand for lumber – a drop of more than 60 percent – in an "extremely short period of time" that has left the market oversupplied. And that, he added, makes it "hard to make ends meet. It amazed me that the downturn has been so quick that it locked the economy up."

Sawmills in the state, those processing both hardwood and Southern yellow pine, lost some 3,000 full-time equivalent jobs between June 2006 and March 2008, said Matthew Pelkki, a forestry economist with the University of Arkansas at Monticello.

With a national recession now officially declared, the forest products sector is looking at an even tougher future next year as the Standard & Poor's Ratings Services' outlook for the sector has grown more negative.

With economists seeing no recovery of the housing market in 2009, the forest product companies are hunkering down to survive until better times come along – however far into the future that may be. And it will be interesting to see how all the short-term problems will change the industry in the long term.

The key to the wood products manufacturing side of the market is the housing market, and economists don't expect a recovery in housing until the first quarter of 2010. Pelkki thinks it will be even longer – the fall of 2010 – before the housing market begins to recover. He sees a freefall for the next six to nine months for the entire forest product industry.

"Housing starts must go back to a normal level" before a recovery can begin, Dillon said. Currently there are too many houses on the market, he said, and that excess inventory must be disposed of before builders will begin to build new houses. When the builders start up again, they'll have to order lumber and the mills will recover. But that recovery for the lumber industry may not occur until 2011, Dillon said.

For Dillon and the other wood manufacturers in the state – and throughout the nation – it means "hard work to keep our noses above water," Dillon said.

The depressed housing market will continue to put downward pressure on lumber and plywood prices, according to Forest2Market of Charlotte, N.C., until credit markets loosen up and home prices drop enough to increase sales.

The latest U.S. Forest Service's Lumber Market – Status & Trends report, said demand for pine sawtimber, the primary wood product in building homes, is expected to decline 18 percent from last year.



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