Southern Gomfort Predictlons of lumber recovery

,Tl"u PRoMISING ourlooK throughout the lumber indusI try is particularly upbeat in the South, where many markers are pointing to a hardy rebound. This, after lumber as an important regional economic driver has been veering off-course for several years.

It's hard for many in southern lumber to imagine economic health, given the depth of the downspin of recent years. The collapse in housing starts between 2005 and 2009 sank lumber prices to lows not seen since the 1930s, and the recovery has been painfully slow. But industry analysts are now saying that a shortage of lumber supply is likely to translate into sustained growth in demand and higher prices for southern lumber producers and timber owners over the next five years.

The South isn't alone in hearing upbeat forecasts. With the demand for lumber tied closely to recovery of the U.S. housing market, it is good news that most predict a continuing recovery of housing starts, perhaps approaching 1.5 to 1.6 million units by 2015-2016.

Growing demand is also fueled by exports of timber and lumber to China, whose economy is expanding at a continuous and stable rate. China's surge in housing needs has led to a jump in lumber and log exports to the country, with North American lumber exports to China surging seventeen-fold to 3.5 billion bd. ft. since 2006. China plans to build 7 to 8 million housing units per year over the next decade to accommodate the migration to the cities and to replace sub-standard units.

At the same time, global lumber and timber supply is constrained. More than half the commercial pine in British Columbia, the largest lumber-producing Canadian province, has been lost to Canada's worst pine beetle infestation on record. The country's output fell to 23.7 billion bd. ft. in 2Ol2 from a peak of almost 36 billion bd. ft. in 2004-a 35Vo decrease.

China has only a few alternatives to North America for softwood lumber and logs. Russia, New Zealand, and Europe are major suppliers, but they have limited capacity to meet the Chinese demand. China has replaced the U.S. as Canada's major lumber customer, and the U.S. has now joined Canada in large-scale shipments to China from ports in the Pacific Northwest. India may follow, and Japan has barely begun to rebuild from its earthquake and tsunami disasters.

But the U.S. South is a long way from China and the Far East, and shipping is somewhat limited by the Panama Canal, the size of which currently restricts the use ofthe largest, most efficient container ships and even larger ones to come. That's about to change.

Panama has spent more than $5 billion to widen and dredge the Panama Canal to support a new class of supersized cargo ships-known as Post Panamax shipsthat are more than twice as big as the traditional cargo shipping fleet. The expanded canal will be complete in 2015. Products from the Southeast headed to Asia have mainly relied on the Ports of Los Angeles and Long Beach, after cross-country shipments via rail and truck. Soon, a much higher proportion of Asia-bound lumber can go to East Coast and Gulf ports, than on to the Far East using the enlarged Panama Canal.

Manufacturers in the South face fewer rigid policy constraints and they have a large over-supply because of several years of lower production. In 2013, lumber production in the U.S. South was recovering. Production was near 15 billion bd. ft., up from the low point in 2009 of 11.6 billion bd. ft., but still far below the 19 billion bd. ft. of production seen in 2005. It's predicted that lumber production in the South will rise to 21 billion bd. ft. or higher by 2016.

Already, softwood sawmills in the South are among the most competitive, according to a survey spanning 32 regions and countries. Since 2102, U.S.-based sawmills have led all regions in financial earnings, mainly from improved demand, rising lumber prices, and low log costs. And since 2008, sawmills in the U.S. South have attained the highest earnings in the nation.

Mill profits are up, leading to capital expenditures that will increase lumber capacity in the South over the next few years. There are already signs of Southem strength, with new mills being built and the upgrading of mills in southern states.

Remaining Ghallenges

Some in the southern timber industry say that they see demand for forest products slowly increasing but fear that a workforce decimated by recession won't be able to meet the demand. The timber industry in the region has been down so long that predicting an upturn seems foolhardy. Some in the sector are forecasting a slowmotion recovery.

Demand for timber products has not yet rebounded to prerecession levels, said Rick Holley, c.e.o. of Plum Creek Timber Co., Seattle, Wa., which owns much southern timberland. "Recovery is on the way, but timber products still have a way to go to pre-recession levels. Nevertheless, we expect lumber production in the U.S. South to increase by SOVo during the next three to five years from present levels."

Insiders ask if the workforce will be there to cut that wood. The lingering forest products downturn pared almost a third of the logging workforce. The downturn forced out marginal operations, leaving only the hardiest and best capitalized. One company executive wonders whether loggers will return to the forests as the industry recovers. "Some will, but the work is hard, does not pay well, requires a lot of capital and young people just don't want to go into logging," he said.

In addition, the workforce is "aging out" of the industry, and loggers and mills wonder where they'11 find employees to replace them. In one southern state, Arkansas, the average age of loggers is 55, about l0 years older than the average in other regions (though the challenge of an aging workforce goes beyond the South). The industry may see a lot of people leaving in the next 10 years, and recruitment of a replacement workforce is

North American Wholesale Lumber Association

not strong. And that puts logging contractor capacity at the top of the biggest challenges facing the mills.

Other obstacles:

Logging is capital-intensive, requiring investments of $l million to $1.5 million for what is now a largely mechanized endeavor. Now that the timber industry really is poised to recover, companies may find product hard to come by.

. Lenders remain wary about providing money to young logging enterprises that are not well established.

Logging, like almost any agricultural effort, is hard work subject to the whims of weather. Wet weather common throughout the South typically shortens logging time to 42 weeks of the year or fewer.

NAWLA visits the Deep South for our 2014 Leadership Summit, March 3O-April l. The Summit will feature eight industry leaders who will speak on the outlooks and opportunities in the South and throughout North America. For details on the Summit-at The Lodge and Spa at Callaway Gardens in Pine Mountain, Ga.- go to www.nawla.org.

As lumber demand improves, there is only one region-the U.S. South-that is in a position to significantly increase output to meet that growth in demand.

"In the South," one lumber leader said, "trees grow really well because we have a fair amount of rain, good soils, and lots of warmth and light. Also, markets are good and the regulatory environment at the state level supports the industry. This is where the growth is going to be in the future."

Certainly, most analysts agree that as the lumber industry navigates the recovery, a primary route will be through Dixie.

ldaho Forest Group Upgrades Mill

Idaho Forest Group is doubling the production capacity of its Lewiston, Id.. sawmill with the installation of new equipment.

The improvements include installation of a new Finnish HewSaw line, marking the facility's largest upgrade since the late 1980s, according to president Scott Atkison. The mill's 15O-employee workforce will remain while the new machinery is added.

IFG anticipates running its first logs through the new system in April.

Spokane Dealer Finds New Home

To cut operating costs, South Regal Lumber, Spokane, Wa., has sold its present location and will build a smaller store and drive-through warehouse at a nearby location.

"l may or may not change the name, since we won't be on South Regal Street," said lumber manager Scott Case. "I just want people to know we'll stay in business and remain committed to our Spokane customers."

According to Case, the idea of letting drivers move through a warehouse is part ofan "anti-big-box" approach. "We haven't seen that in Spokane yet, but I believe we can make it work here," he said.

Measuring 30 ft. wide by 275 ft. long, the new warehouse would allow customers to give their orders as they drive into the warehouse, then have the materials loaded by employees into the vehicle as they drive out.

Brothers John and Harry Case own the business with their sister, Linda Patterson. It was started in 1949 by their grandfather, Cliff Case, as Lincoln Heights Building Supply. After a fire destroyed the first store, the business moved to its present site in 1912.

Most of the store's inventory will be sold by the end of March, with unsold merchandise going to the company's second Spokane location, West Plains Building Supply. The site will then be redeveloped into a mixed-use retail center.

By Wayne Rivers