As Markets Decline, Timber Industry Hangs On

By Beacon Staff

Over the last several weeks, the news out of Western Montana’s forest products industry reads like an all-too-familiar litany of job losses, shuttering mills and falling commodity prices.

At the end of September, Plum Creek Timber Co. laid off 24 employees when it suspended operations at its finger-joint stud plant in Kalispell. At the same time, the Tricon Timber mill in St. Regis laid off 40 full- and part-time workers, citing a soft lumber market. Less than two weeks earlier, Plum Creek eliminated 35 jobs at its fiberboard plant in Columbia Falls. In August, Stimson Lumber Co. laid off the final dozen workers from its finger-joint plant in Libby, just a few months after the company closed its Bonner sawmill, putting 92 people out of work.

A log loader organizes felled trees at a thinning project on state land near Echo Lake.

In an industry that has always operated in boom-and-bust cycles, the current job losses can be chalked up to the same old causes: depressed lumber prices that no longer cover the cost of production, a construction slowdown and increased international competition. But then there are the factors that may not subside in the foreseeable future, like increased fuel prices, a national economic crisis with the potential to dramatically alter the number of people able to purchase a new home and a decline in timber harvests on federal land that has continued throughout the tenure of a conservative presidential administration.

While Montana’s timber workers have weathered downturns before, with every mill that doesn’t just suspend workers but closes, it grows more difficult for the industry as a whole to bounce back when lumber markets, housing markets, and the national economy eventually do rebound.

“I don’t think there’s any question we’ve got enormous challenges,” Keith Olson, executive director of the Montana Logging Association, said. “I’m hearing it’s the poorest market that people working today have ever seen.”

Despite these setbacks, loggers and sawmill operators are nothing if not resilient, noting that demand for wood products continues to increase and the timber industry is likely to remain a fixture of Western Montana’s economy. But analysts and industry workers disagree on what – when it emerges on the other side of the current downturn – the breadth and size of the state’s forest products industry will be.

Pulp sustains market

On a recent morning at the bottom of Jewel Basin Road, a five-man crew employed by Stoken Logging of Eureka, thins stands of Grand firs, Hemlock, Spruce and a handful of White Pines. It’s a sunny, early autumn day, and the work goes quickly, but many of the felled trees reveal a dark brown core in their trunks, the result of a fungus infection. As the feller buncher moves through a stand, many of the trees simply tip over once the machine’s teeth grab it. Sawing through the trunk isn’t necessary.

For this job, however, the lack of much good timber doesn’t matter; most of this wood will be loaded onto a truck and taken south to the Smurfit-Stone pulp mill in Frenchtown to be made into cardboard. The market for pulp, along with post and pole products is, according to Olson and others interviewed, responsible for sustaining much of Montana’s forest products industry. In other words, a market persists for materials unrelated to residential or commercial construction.

“It seems like, with all the mills being shut down, there are less chips for pulp,” Mike Stoken, co-owner of Stoken Logging and the head of this crew, said. “If the pulp market falls off, we’re pretty much done.”

In many ways, Stoken represents the successful logging operations currently working in Montana. This thinning project, while on state land, is in a residential area. Stoken has taken many of the nearby homeowners on tours of the work underway and goes out of his way to answer their questions and concerns. The result, he said, is that most homeowners are pleased.

A dangle head processor strips felled trees of their limbs and cuts them into sections at a trimming project on state land near Echo Lake.

Stoken currently has two other logging crews working around the valley, and with the heavy fires of 2007, there’s enough salvage logging to keep busy. The good logs from this site will go to Plum Creek’s facilities in Columbia Falls and Evergreen for processing, and he’s got more jobs lined up when the current one is complete. As a contractor for Plum Creek for more than 30 years, when there’s a job, Stoken is near the top of the list to get hired.

“The ones that are on the bottom of the list?” Stoken ponders, then shrugs.

Profit margins

The problem for loggers, according to Olson, isn’t that they are lacking for work, but that plummeting lumber prices have made it increasingly tough to turn a decent profit.

“The profit margins are extremely thin and it doesn’t take much of a hiccup to hurt them,” Olson said. “There’s no margin of error when you’re negotiating a contract.”

He also cites an aging workforce, fewer bids on federal lands and obstruction by environmental groups among other factors besetting the timber industry. Yet Olson remains optimistic because the demand for wood products continues to increase, despite the current state of the market. For him, the challenge is to ensure that Montana producers are among those contributing to the supply.

“The question is not whether we’re going to log and manufacture and distribute, the question is, who is going to do it?” Olson said. “If we don’t make every effort to make sure we’re a player, we are going to consciously transfer that opportunity to surrounding states, and surrounding countries.”

But Tom Power, professor emeritus of the economics department at the University of Montana, is pessimistic that the timber industry here will rebound in a big way. He believes extractive resources are no longer the “engine that drives” the state economy and that diversification is a good thing for Montana. The recent economic downturn has only exacerbated problems that already exist for the timber industry here, including the cold climate, distance from population centers and steep terrain.

“This is a high-cost, slow-growing area that can’t really be managed in an ongoing way for commercial timber, especially compared to the southeast,” Power said. “If you’re going to make ongoing investments, why would you do it up here?”

Power points out that milling infrastructure across the Pacific Northwest has actually increased over the last two decades, through the construction of large, highly automated mills located near coastal cities – not through smaller mills located where the logs are.

“They’ve been able to get their costs down low enough that they’ve been able to survive,” he said. During boom-and-bust cycles of the past, smaller mills would typically shut down, then come back online when the market picked up, but “now, no one expects them to come back; they’re just so out of it because of the cost structure,” he added.

Power sees future loggers as workers looking very much like Stoken’s crew: a small group of highly skilled heavy equipment operators capable of a wide range of work in addition to logging, adding, “I think that in the future we’re going to see a much different timber industry.”

Ready for a comeback?

Regardless of what Montana’s timber industry eventually becomes, it currently employs approximately 9,000 people across the state, earning $400 million in labor income annually and accounting for 10 percent of the state’s economic base, according to Todd Morgan, director of forest industry research for UM’s Bureau of Business and Economic Research.

But those statistics are all trending downward. The number of mill production workers employed in Montana dropped from more than 3,300 in 2007 to 3,068 by June of this year. Their production wages dropped from $64 million in 2007 to less than $60 million this year. Lumber production is down 21 percent from what it was two years ago. According to Morgan, national forest timber harvests under the current President Bush are 28 percent of what was offered under his father.

Other states across the West, like Colorado and Arizona, allowed their milling infrastructure to shut down during economic downturns, Morgan said, such that when markets picked up, the timber industry there couldn’t capitalize on the boom. While the timber industry in Montana is undergoing a gradual decline, a recession that permanently shutters even more mills could accelerate the trend – even when the larger economy regains its health.

“Eventually, it will come back,” Morgan said. “The question is, will Montana be able to respond to that resurgence?”

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