Plummeting lumber prices good for consumers, bad for timber industry

Jesse Westrum is owner of Bemidji Building Center in northern Minnesota. He's stacking four-by-eight pieces of oriented strand board, a manufactured sheet board similar to plywood.

"If you pick this one up right here, it's about $6.50 a sheet, you know, give or take," said Westrum. "It's down 60 percent what it was in 2003, 2004. It would have been $18."

That was just a couple of years ago, when lumber prices were at an all-time high. Westrum says the sinking prices include other materials, too.

The price for two-by-four boards used for framing houses has dropped by at least half of what it was at this time last year. He says with low interest rates and material prices so good, he can't think of a better time to start a building project.

But Westrum says with the country on the edge of a recession, people are nervous and contractors are being more cautious. It means that what would normally be the start of a busy construction season is now uncertain.

"I think everybody is playing their hand a little closer to the vest, you know?" said Westrum. "I think where we would have had more projects signed by now, I think people are waiting a little bit longer before really pulling the trigger."

Lumber is sold as a commodity, so prices are driven by supply and demand. Potlatch's Bemidji lumber mill manager Pete Aube, says profits at mills across the country are down dramatically and some are going out of business.

That won't change until people start building houses again, but Aube doesn't expect that will happen any time soon.

"Will housing rebound and will demand increase? Certainly, there isn't any question. And it can't be too soon for a lot of us."

"The industry is predicting 2008 housing starts at 968,000 units, and that's less than half of what was demanded in the United States three years ago, when we went over two million housing starts," said Aube. "Clearly, the demand for housing has dropped off, the demand for lumber, therefore, has, and it's affected all of us."

The wood products industry was fragile even before the housing crisis, largely because of globalization pressures and high raw timber prices.

Just over a decade ago, the industry employed about 7,000 people in Minnesota. Half those jobs have been lost, a thousand of them just in the past two years.

Those recent losses include loggers, but most worked at companies that produce plywood or oriented strand board. There are seven plants that make those products in northern Minnesota. Right now five of them are shut down.

For lumber retailers, the low prices mean lower profit margins.

Paula Siewert, president of the five-state Northwestern Lumber Association, says that's already meant lay-offs for lumber yard workers in places like the Twin Cities, where housing starts have dropped dramatically. But Siewert says things aren't that bad everywhere.

"In the metro areas the housing market is at a complete standstill. But you get into some of the areas where there is a strong ag community, with the grain prices the way they are, and just being in rural communities anyway, they don't have the large fluctuations that you see in the metro areas," Siewert said. "So for those people, these lower prices are going to be a real nice benefit to them, for the home builders."

Some predict the housing market, and along with it the lumber industry, will bottom out this year and begin improving in 2009. In the meantime, analysts say there could be more job losses. And they say there might be consolidations, where companies with capital purchase some of the northern Minnesota plants that are shut down.

Aube says he's seen lots of ups and downs in the industry, and the latest is one of the most dramatic. But Aube says he's hopeful things will improve.

"You have to be optimistic and we know we've seen cycles with this industry," said Aube. "Will housing rebound and will demand increase? Certainly, there isn't any question. And it can't be too soon for a lot of us."

Not all home building materials have gotten cheaper. Anything petroleum based is up, as are materials made from steel. The price of a bag of nails, for example, has climbed 40 percent in the past couple of years.

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