Beginning as a promising year for the timber industry in Montana, with modest gains expected as the housing industry continues to bounce back from the recession, 2015 has lost a good deal of its momentum for lumber producers, while plywood and fiberboard production continues to stay strong.
At the start of the year, while economists predicted housing starts would continue to increase, acting as a major boon for the industry, there was also the notion that the pine-beetle kill in western Canadian forests would slow production, giving U.S. lumber mills more of an opportunity to fill the overseas demand for wood products.
But the domestic timber market has hit another stagnant point, with market plunges in China and wildfires across the western U.S. throwing up roadblocks.
Chuck Roady, director at F.H. Stoltze Land and Lumber in Columbia Falls, said the summer started out promising enough after a sluggish spring.
“There was a resurgence earlier in the summer,” Roady said. “But now the market is just totally being overwhelmed by Canadian lumber.”
While the U.S. market was suffering from the Great Recession in 2008, the Chinese markets were booming. U.S. and Canadian lumber producers found a market for their logs there.
But just this summer, China’s market crashed and the value of the yuan depreciated. As of Aug. 24, China was planning on flooding its market with new liquidity to counteract the devaluation.
The juggernaut Chinese economy had caused a massive demand for wood products, but once the financial market started to dip, the need slowed. And at this point, according to Todd Morgan of the Bureau of Business and Economics Research at the University of Montana, the U.S. dollar is one of the strongest currencies in the world, making it the most attractive market.
“The U.S. is a more profitable place to sell to right now,” Morgan, the director of forest industry and manufacturing research at BBER, said. “We’re not booming, but we’re probably the best market in town, so to speak.”
For Roady at Stoltze, that means competing with cheaper Canadian lumber. Since the U.S. and Canada have two different systems for harvesting logs, Roady said Canadian lumber companies have an easier time accessing trees for harvest when compared to the American system.
“It’s two totally diverse systems, but they sell into the same market,” Roady said.
According to Random Lengths, a well-known source of information for the wood-products industry, the American dollar equaled roughly $1.30 Canadian in July, and the softwood lumber agreement (SLA) between the two countries dropped its tax from 15 percent to 5 percent, making the U.S. market more attractive.
“They can way overproduce what they need domestically in Canada so they’re bringing it here and it just smothers our market,” Roady said.
Stoltze has been running its mills in the Flathead at 50 hours per week instead of 80, Roady said. Not only is the market affecting mill hours, but supply is still an issue, he said.
Log prices remain high, up 3 percent from where they were at this time in 2014 and only down 1 percent from the first quarter of 2015, Morgan said.
Mills in Montana are still paying a hefty price for logs, Morgan said, and private landowners tend to be sensitive to price changes and often sell during such times. But state and federal lands are less responsive, and the logs harvested there must be sold through the fair market.
“It can be years from the time they offer the sale and it’s sold until the harvest,” Morgan said. “The timber-supply issue hasn’t changed much and that’s keeping the price of logs high.”
Finding enough logs to keep the mills running is the first order of business for timber producers, Morgan said, and then they deal with the ever-changing markets.
While lumber markets present a challenge to mill owners, the markets for plywood and fiberboard are thriving. Tom Ray, vice president of northwest resources and manufacturing for Plum Creek, said his company feels positive about its manufacturing base this year based on housing starts.
“We’ve had very strong results from our MDF (medium-density fiberboard) and plywood operations so far this year,” Ray said. “We’re pretty positive for the rest of the year. Lumber prices are still depressed but we think you’re going to see more traction with the end of the year.”
Wildfires pose threats to both Stoltze and Plum Creek land, though both companies said so far there haven’t been major burns. But fire restrictions keep logging projects shut down for most of the day; at Plum Creek, Ray said they figured the more-stringent rules were coming for the summer, so they stockpiled logs in anticipation.
Otherwise, the closure of the BNSF Railway line due to the Sheep Fire near Essex caused consternation for Plum Creek. The rail line reopened on Aug. 22, but the threat remains.
“Seventy percent of our MDF goes out by rail,” Ray said. “It’s a very important link.”
Morgan said housing starts weren’t as strong as anticipated, though they hit 1.2 million in July, which is the most since October 2007. Another factor that may affect local timber producers is the ending of the softwood lumber agreement (SLA) on Oct. 12.
The SLA ended a lumber trade dispute between Canada and the U.S. in 2006, and had a nine-year time limit. It was extended for two years in 2012, but there has been little in the way of negotiations between the two countries to renew it.
“Come October and November, when the Canadian softwood lumber agreement ends, I think some folks are nervous that the Canadians are going to flood the market with lumber,” Morgan said. “In the short run, it could be tough for a lot of U.S. lumber manufacturers.”
Still, the Montana timber industry continues to evolve, Morgan said, and there may be headway in regards to accessing forests for harvest.
“The wood-products industry in Montana has gotten more efficient,” Morgan said. “We have the technology and the resources here, it’s just a matter of being able to connect the dots.”