Times Are Hard In the Woods

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

Jim Crouch, who heads the Jim Crouch & Associates forestry consulting firm at Russellville, agrees that housing holds the key to recovery.

"There's simply no demand right now for boards or OSB," he said. OSB is oriented strand board, an engineered wood product similar to plywood but cheaper and is commonly used as sheathing in walls, floors and roofs.

"No segment of the forest product industry has escaped the downturn," Crouch said. While the sawmills have felt it the hardest, the paper and packaging sector has also collapsed in the past couple of months.

Industry Restructuring

"In the past few years," Crouch said, "the industry has restructured itself. It's more fragmented." A decade ago, most of the large operations were fully integrated, owning timberland, sawmills and paper mills. During downturns, "at least one of those segments would be making money." Now those companies have divested their timberland – International Paper Co., once the largest private landowner in the state, now owns no timberland. Ditto with Georgia-Pacific. – or shed their paper mills or sawmills to focus on what they see as their core business.

And in the current economy, that makes it tougher to hang on, Crouch said.

Pelkki said he thinks the restructuring was short-sighted in a bid to keep shareholders happy, leaving companies with no fallback business when the market takes a hit.

Deltic, which remains a diverse company with timberland, sawmills and real estate, now finds itself in a better position than some in the state.

In its third-quarter report to the Securities & Exchange Commission, in noting a big jump in net income, Dillon said, "The continued depressed environment in the lumber and residential real estate markets, which has been exacerbated by tightened credit markets, have exerted downward pressure on the financial performance of forest products companies, including Deltic. However, the company's positive financial results for the third quarter and the improvement in these results from a year ago reflect the benefit of the quality and diversity of Deltic's assets. ... We continue to believe that owning and operating efficient sawmills is necessary to protect the value of our timberlands by providing a ready outlet for the fiber from our forests."

Still, Dillon said Deltic, like others in the state, has adjusted mill production to match demand by reducing hours and output.

"It going to take deep pockets and staying power" to survive the prolonged recession, he said.

Pelkki said the country will slowly chew its way through the 10- to 11-month inventory of houses, but it could be a couple of years before a return to normalcy.



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