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2008: Forest Products Industry in Survival Mode

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.