The Wood and Fiber Supply Chain Experts
2008: An Industry in Survival Mode
From the January 2009 Forest2Mill newsletter.
Landowners Withhold Timber from Market...Waiting for Higher Prices
Mills Curtail, Close, Cut Costs...Waiting for a Housing Recovery
Pulp and Paper Demand and Price Drop...Waiting to Hit Bottom
Logging Companies Burn Equity...Waiting for Bioenergy Announcements to Become Realities
Funding for Bioenergy Hits Roadblock...Waiting for New Administration Policies to Take
Effect
No matter how you look at it, news from forest-related industries in
2008 has been bad all across the board. From one end of the supply chain to the other and one end
of the country to the other, participants are retrenched and waiting, hoping to persevere until the
economy turns the corner.
Not satisfied with current prices, landowners are withholding their timber from the market,
waiting for higher prices down the road. Sawmills and panel mills are feeling the strain on both
sides. On one side, the collapsed housing market has devastated demand. On the other side, supply
is difficult to come by at what procurers consider reasonable prices (a result of landowners
withholding timber from the market); the lack of available loggers to harvest the timber has led to
supply disruptions as well. While they used to be the bright spot in the industry, pulp and paper
companies are experiencing declining demand and prices for their finished products; as a result,
the latest round of curtailments and closures in the industry have occurred primarily in this
sector.
Logging companies have also been hard hit. They are burning equity — running equipment
overtime (in an attempt to haul more logs with the same amount of equipment and therefore increase
revenue) and extending the life of their equipment by 100 percent in some cases. Despite these
strategies and a range of additional cost cutting measures — holding off buying tires or
discontinuing all but mandatory insurance payments — some estimate that the number of loggers who
have left the industry during this downturn totals 25 to 50 percent.
Bioenergy companies had no trouble raising money when West Texas Crude was at $147 a barrel;
now that gas is cheap and credit is tight, these entrepreneurs have put their plans on hold, hoping
policies enacted by the new administration will provide them with the incentives they need to keep
moving.
Things aren’t likely to get much better in 2009. Companies in all sectors of the industry
will need to operate in survival mode throughout most, if not all, of the New Year, with the key to
survival in the next 12-18 months being the ability to contain costs and develop business plans
that are adaptable and opportunistic. In the remainder of this newsletter, we’ll look at the two
hinges that support forest-related industries: one well-worn and essential to the U.S. economy —
housing, and the other much newer but essential to national security and energy independence —
bioenergy.