Sizing up the supply side

Outlooks and observations for 2Oa4

p ecanolEss oF ouR pLAcE in the lumber supply I\chain-logger, mill, remanufacturer, wholesaler, retailer-the immediate future of our businesses will be determined by many forces beyond our control and several very much in our grasp.

The questions of growth and profitability will be impacted by the very small (the mountain pine beetle) and the very large (the urbanization policies of the Chinese govemment), and much in between (the ability of a young family to buy a new home, or the changing credit policies of business lenders). With so many factors in play, what lies ahead for the lumber companies that have persevered and survived the devastating impacts of the great recession and the housing collapse?

Real recovery has been evident in recent months and there are many positive trends, and we are guardedly optimistic as we look at20l4 and beyond. What is clear is that despite generally rosy outlooks for lumber, not everyone in the industry will emerge from the recession and recovery as a winner.

There are many challenges ahead: dealing with credit issues, identifying trustworthy partners, introducing innovative products and practices, and understanding international impacts. Chief among the realities we face is the likelihood that the lumber supply cannot keep pace with growing demand.

Gonstraints on the supply side

While there are varied predictions on how much the lumber supply will tighten, there is a strong consensus among industry experts that supply will not be able to keep pace with demand increases in the U.S. and Chinabeginning this year and continuing over perhaps the next five years.

To dig deeper into this issue, I talked recently with Henry Spelter, a partner and forecaster with Forest Economic Advisors. He predicts that by 2015 or 2O16 demand will double to 1.5 billion board feet-twice the current demand-a level that will come up against major supply constraints.

The biggest constraint is the pine beetle epidemic. It is reaching its climax in British Columbia (B.C.), bur the wood that has been infested is less useful and a good chunk of supply will be taken out in coming harvests. In 2013, demand was up 5Vo to lOVo, but B.C.'s harvest was the same as the previous year and its ability to respond to increasing demand is very low. This is likely to reduce B.C.'s role in the supply mix.

Mill closures due to recession are a factor. but not an enormous one, because much of their output has been replaced by more production at other mills. Still, there has been a loss of about 7 billion board feet in production capacity-about lOVo.

A third supply constraint is government policies, which are especially limiting in the U.S. Pacific Northwest. These include limitation of timber harvests from public lands, lumber trade restrictions, and log

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to grow as China moves to urbanize its population. One result is likely to be higher prices for wood. If demand bumps against constraints, log prices will go up. Now about $400 per 1,000 bd. ft., the price could get to $500 or even $600 or $700. If so, alternative building products such as steel, plastic and composites will become more attractive building products.

What to do

Keep your suppliers close. Regardless of the exact levels or causes of the supply shortage, it is increasingly important for lumber wholesalers to solidify relationships with your suppliers and reach out to new possible sources before we are desperate. The competition will intensify in coming months, and those who are well positioned with suppliers will have an advantage.

Listen to the sound of the future. I invite you to join me for what will be a very important 2014 NAWLA Leadership Summit, March 30-April l, at Callaway Gardens, near Atlanta. It will be a timely gathering for all of us, as we face these challenges. Seven industry leaders have agreed to speak to us about the futureabout outlooks in various regions, U.S. and intemational developments, and navigating changes in the supply chain.

The speakers are Don Kayne, president/c.e.o. of Canfor; Marc Brinkmeyer, chairman of Idaho Forest Group; Jack Koraleski, president/c.e.o. of Union Pacific; Kimmo Jarvinen, secretary general of the European Organization of the Sawmill Industry; Jon Biotti, managing director of Charlesbank Partners; Peter Alexander, c.e.o. of BMC, and Curt Stevens, c.e.o. of Louisiana Pacific. I urge you to consider attending this Summit as we begin a new phase of lumber industry recovery. For more information, go to www.nawla.org.

export duties and restrictions.

Spelter says the high point of production, in 20042005, was 65 to 70 billion board feet a year. Today, there is 50-55 billion board feet of capacity being used of the nominal capacity of 63 billion board feet (effective or real usable capacity is less because some mills are mothballed).

Supply limitations come at a time when U.S. housing starts are trending upward and Chinese demand continues

Position yourself to compete. In this new environment, securing good deals with suppliers will become very competitive. Also, anticipate competition from engineered woods, plastics, vinyl decking and composites, which are likely to become a large part of the market. As one insider said, "We're going to have to stay alert and act decisively to get our share."

Caution: sham elbows mav nrevail.

Mike Thelen has been named chief operating officer for Welco Lumber, Burnaby, B.C. He also continues as v.p. of sales & marketing for SilvaStar, Bellingham, Wa. Jeff Wolgemuth is now sales mgr. for SilvaStar.

Josh Clark has joined Central Valley Builders Supply, St. Helena, Ca., as director of sales & business development, managing its agriculture and contractor sales teams.

Rhonda Hunter has been promoted to senior v.p.-timberlands for Weyerhaeuser Co., Federal Way, Wa., succeeding Tom Gideon, who retires next month.

Nate Freeman is new to inside sales at Advantage Trim & Lumber, Santa Fe Springs. Ca.

Rick Re has been promoted to c.e.o. and board chairman of the Seneca Family of Companies, Eugene, Or. Todd Payne is now general mgr.

Kate Hyatt, ex-Staples, has been named v.p.-talent for ProBuild Holdings, Denver, Co. Steve Russell is new to commercial sales in Eagle,Id.

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Amy Monson was promoted to marketing specialist at J.M. Thomas Forest Products, Ogden, Ut.

Susan Timpe, ex-Concannon Lumber, is a new transaction specialist at Stimson Lumber, Portland, Or.

Frank Parrott, Matheus Lumber, San Marcos, Tx., has retired after 30+ years in the industry.

Frank Carroll, ex-Knaack, has been named general merchandise mgr. for Ace Hardware Corp., Oak Brook,Il.

Bruce Bunn has joined BW Creative Railings, Maple Ridge, B.C., as director of sales. Frank Girard is now senior financial mgr., and Phil Jones, controller. Kalvin Eden has been promoted to sales mgr. for BW Vista Railing Systems. Rob Schmiedel has been appointed national sales mgr. for Do it Best Corp., Fort Wayne, In. Scott Orman is national logistics mgr.

Charles W. Roady, F.H. Stoltze Land & Lumber, Columbia Falls, Mt., has been newly appointed to the Softwood Lumber Board by U.S. Agriculture Secretary Tom

Vilsack, along with Don Kayne, Canfor, Vancouver, B.C., and Danny White, T.R. Miller Mill Co., Brewton, Al. Reappointed to three more years were Francisco Figueroa, Arauco USA, Atlanta, Ga.; Aubra Anthony Jr., Anthony Forest Products, El Dorado, Ar., and Alden J. Robbins, Robbins Lumber, Searsmont, Me.

Art Burne is manning the employee cafeteria at Mungus-Fungus Forest Products, Climax, Nv., report owners Hugh Mungus and Freddy Fungus.

Plycem Buying GertainTeed Fiber Cement Business

Intent on focusing on vinyl and polymer siding, Saint-Gobain has agreed to sell its U.S .-based CertainTeed fiber cement siding business to Plycem USA.

The deal, set to close in first quarter 2014, includes plants in White City, Or.; Roaring River, N.C., and Terre Haute, In., and employs nearly 250.

Plycem and sister company Maxitile are subsidiaries of Elementia of Mexico.

By Brooks Mendell, Forisk Consulting