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In the lumber slump: What goes down must come up — but when?

By John Driscoll

Times-Standard

November 18, 2008

As the Mendocino Redwood Co. moved to take over the Pacific Lumber Co. about 100 days ago, the lumber market was being pulled out from underneath it.
 
Now, just like mills across the West, the new Humboldt Redwood Co. formed out of the long PL bankruptcy is having to take some time off. Both the Scotia mill and Mendocino Redwood’s Ukiah mill will see some downtime clustered around the upcoming holidays.
 
Humboldt Redwood CEO Richard Higgenbottom said the Scotia mill has made some operational improvements and adjustments that have improved the quality of the lumber coming out of the mill. A solid log deck has been built up, ensuring a more consistent supply to the mill, he said.
 
“It’s quite a difference,” Higgenbottom said, comparing operations now to when the company first took over.
 
But it’s the big picture — the one Humboldt Redwood or any other company has no control over — that’s troubling.
 
Housing starts are near all-time lows, which especially affects the sale of Douglas fir lumber. The remodeling sector, which guides demand for redwood, is also in the pits, according to the Harvard University’s Joint Center for Housing Studies. That’s due to less consumer spending because of job losses, and from reductions in home values, the center reported late last month.
 
The slump is likely to last through 2009, said Joe Heitz, an associate editor for the trade publication Random Lengths.
 
“People are pessimistic about any near-term fix for the housing market,” Heitz said.

Because the demand is so poor, Heitz said, many Western mills are cutting back on production in an effort to reduce supply into the marketplace and improve prices. But lengthy downtime risks seeing skilled employees leave to seek other jobs, he said. Some mills are also under contract to supply lumber to customers and can’t cut back severely, Heitz said, or they risk having logs deteriorate if they sit unmilled for any long period of time.
 
Sierra Pacific Industries is in the midst of a short shutdown at its Manila mill and its mill in Burlington, Wash. South Coast Lumber in Brookings, Ore. has announced limited curtailments. Georgia-Pacific’s Coos Bay operation has laid off nearly a third of its workforce. And the list goes on.
 
The California Redwood Co. — formerly Simpson Timber — has been working one week on, one week off in Korbel recently, and will take its regularly scheduled downtime around the holidays, said spokeswoman Jackie Deuschle-Miller. The lumber business has always been cyclical, she pointed out.
 
“It’s an uncertain time,” Deuschle-Miller said. “It was a bad year last year and we’re forecasting that next year isn’t going to be any better.”
 
That seems almost certain to be true. Housing starts are still declining from when they peaked in 2006, said Humboldt State University economist Steve Hackett. It may be awhile before that decline flattens out, Hackett said, and another six to seven months after that before an upswing can be expected.
 
That has to do with a variety of factors, including banks becoming more willing to loan money, consumer confidence and unemployment figures. The housing sector will improve as the economy gets back on track, Hackett said.
 
“That’s going to take a lot of work,” he said. “That’s going to take a lot of time.”
 
Until then, it’s likely to be tough times in the West’s softwood lumber industry, Hackett said.
 
Asked if Mendocino Redwood is still happy that it invested hundreds of millions of dollars in the PL takeover, Higgenbottom said he remains satisfied that it was a good move. And, he said, the best thing to do to weather a downturn is to prepare to take advantage of the market when it improves.
 
“We’re being optimistic,” Higgenbottom said.

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