Global challenges pressure U.S. lumber interests
While demand was up in 2002, increased imports hurt area producers, who closed sawmills or reduced output

Becky Kramer
Staff writer

Click image to enlarge At a glance Interview with Penn Siegel

Demand for lumber reached record levels last year, even as mills closed temporarily or permanently all across the West.

The situation was bizarre enough to make Butch Bernhardt recall Charles Dickens: "It was the best of times, it was the worst of times. . . ."

Even the most disheartened logger couldn't fault the demand side of the market. The United States consumed 55 billion board feet of lumber last year, mostly through home construction and remodeling of existing homes.

"Even in the face of record demand, however, there was more than enough supply to satisfy the market," said Bernhardt, spokesman for the Western Wood Products Association in Portland.

Production was up in the United States, and so were imports from Canada and other countries. As a result of abundant supply, lumber prices dropped to 10-year lows.

While lower prices benefited builders, Inland Northwest producers felt the impact keenly. Stimson Lumber Co. closed a plywood plant in Libby, Mont., and took downtime at mills in Idaho and Washington. Vaagen Bros. announced that it would close a sawmill in Republic, Wash., putting 90 people out of work.

In Idaho's Boundary County, 300 workers at two Louisiana-Pacific sawmills were out of work in December when the mills temporarily closed due to low prices.

"It was a difficult year," said David Dugan, L-P spokesman. "You compete by being a low-cost producer, and . . . a lot of the higher-cost mills lost the ability to compete and closed indefinitely."

The industry's biggest challenge, according to Bernhardt, is a global economic downturn that has dried up alternate markets for wood products.

Instead of shipping lumber to Pacific Rim countries, Canadians are selling it in the United States. British Columbia mills -- direct competitors of Inland Northwest mills -- increased lumber exports to the U.S. by nearly 8 percent last year, despite a 27 percent tariff. The U.S. market is also experiencing a surge of imports from Europe and Latin America.

"Europe is still in an economic malaise, and Japan's economy has been terrible," Bernhardt said. "There's not a lot of other bright spots for wood products elsewhere in the world."

On a positive note, economists expect the strong U.S. housing market to continue throughout this year. But unless production falls or imports drop, prices aren't likely to recover, Bernhardt said.

One wild card is the outcome of negotiations with the Canadian government over imported softwood lumber. A settlement of the long-running trade dispute could slow the flow of Canadian imports and bring some certainty to the market.

"We're certainly a lot more hopeful than we've been for a long time that we can initiate negotiations," said Hugh Travaille, a vice president at Potlatch Corp.

British Columbia's government responded favorably to the U.S. Commerce Department's overtures for negotiations last month. The department offered to drop the tariff if Canada ends log subsidies to its sawmills. U.S. producers have long argued that Canadian mills buy logs from their government at rates far below market prices.

But British Columbia, because of its high timber employment, has traditionally been more open to negotiations than other provinces, Travaille noted. And some Canadian mill owners are waiting for the World Trade Organization to rule on the legality of the tariff. Unless Ottawa and other provinces are willing to negotiate, the initiative won't get far, Travaille predicted.

"We want the producers in Canada to sustain the same competitive costs we do," Travaille said. "We believe lumber prices continue to sag because the tariffs have not been included in the cost of production. They think they'll get that money back."

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