Uptick awakens lumber industry hope

State mills may have seen worst

A pine log is cut as it begins its journey through the Anthony Timberlands sawmill in Bearden on Thursday.
A pine log is cut as it begins its journey through the Anthony Timberlands sawmill in Bearden on Thursday.

— Many in the lumber industry are hopeful that the worst is over after the steep decline in home building and other construction in recent years.

Arkansas has lost about a third of its lumber production since 2005, according to Matthew Pelkki, a forest economist with the University of Arkansas at Monticello. The state’s forestry industry shed more than 3,200 jobs from 2006 through 2010, according to the University of Arkansas Division of Agriculture.

“I think we’ve seen pretty much all the [mill] closures we’re going to see, and I think we’ve bottomed out,” Pelkki said.

Forty-one sawmills have shut down in the state since March 2008, according to the Arkansas Forestry Commission. Some, such as the Potlatch mill in Prescott, will never reopen. Pelkki said Potlatch is disassembling the mill and selling off its parts out of state. There are apparently about 350 mills still operating in the state, though more mills may have closed temporarily.

Many of the remaining mills have cut jobs and production, and have little hope for dramatic improvements in the near future. But there are some signs things are stabilizing.

David Cawein, vice president and general manager of Green Bay PackagingInc.’s Pinecrest Lumber Division, said demand for lumber picked up during the first half of last year. The company’s Plumerville sawmill made a profit, even after demand dropped off during the last half of 2010.

Pete Stewart, founder and president of Forest2Market said lumber production is stabilizing across the South. Forest2Market, based in Charlotte, N.C., tracks timber prices across the region.

Production of pine saw timber in Arkansas was up 8.5 percent in 2010 over 2009, according to Forest2Market’s data. Production fell 17.2 percent in 2009 from 2008.

“There has been a modest turnaround in demand, albeit emphasis on modest,” Stewart said. “In 2009, we just had this incredible drop-off. Everybody was just trying to save as much cash as they could.”

‘IT WAS JUST UGLY’

“The first couple years we were in this downturn were horrible. There was no first few months of the year where things were good - it was just ugly,” Cawein said. “Last year was kind of a bright spot.”

The decline in construction is the biggest obstacle to a rebound in lumber production. Residential construction peaked in 2006 with more than 2 million starts a year. In January, construction began on 596,000 units on an annualized basis, a 14.6 percent increase from December, according to a U.S. Commerce Department report released earlier this month. But construction on single family houses, which makes up about 70 percent of the market, declined.

Pelkki said he expects the supply of foreclosed houses on the market to slow a construction rebound. A separate Commerce Department report released last week showed that purchases of new houses fell 13 percent in January.

Between 55 percent and 60 percent of wood harvested and processed in Arkansas is softwood lumber used in construction, Pelkki said. Much of the rest is hardwood, which isused in kitchen cabinets, millwork and flooring, and thus is tied to home building.

Steve Anthony, president of Anthony Timberlands, said lumber prices have been steady but low for the past several years. Anthony Timberlands cut one shift, about 100 workers, at its Bearden sawmill. Its pine sawmill in Malvern and its hardwood mill at Beirne are still running at full capacity.

“I have not seen any uptick in demand which would indicate increased activity on the construction side,” he said.

BRIGHT SPOT

The bright spot for mills is lower timber prices. For a time, sawmills were still paying high costs for timber and not getting much for the finished product, a combination that Pelkki said helped push some mills to shutter operations.

“They were trying to cut that timber and sawmills were trying to mill it at 2006 prices, when prices actually dropping to the point where every board they sawed, they were losing money on it. The more they cut them the more they lost money,” Pelkki said.

From 2008 to 2009, prices mills paid for saw timber logs and plywood logs in Arkansas fell 15.6 percent, or $7.84, to an average $42.56 per ton. Last year, prices stabilized somewhat, according to Forest2Market data, up22 cents a ton to an average $42.78 per ton. This includes stumpage prices, or the price of the trees before they are harvested, as well as transportation and harvesting costs.

“The worst from an operating standpoint is probably over. When timber prices decreased, it allowed sawmills to operate at least without losing money. I think the folks that are left are probably OK,” Anthony said.

But lower prices are not good news for landowners. Dry weather accessibility throughout the fall and winter has increased the volume of timber on the market, pushing prices down even further.

“I’ve had to tell my landowners to hold on to their timber. The market’s been so poor the last three years, I’ve advised them just to let their timber grow,” said Dan Estes, a forestry consultant who advises landowners on how to manage their timberland.

Landowners got used to the high prices paid for logs during the housing boom years, but with a deflated housing market, lower prices “probably reflect the new reality for landowners,” Pelkki said. Even once home sales recover, it could take several years for landowners to see higher prices.

“I don’t think the industry is going to fall any further, but the climb back is going to take longer than we’d like,” he said.

Business, Pages 63 on 02/27/2011

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