Improvement in the housing market hiked domestic demand for lumber, offsetting dampened foreign demand and pushing U.S. lumber production higher in 2012. Mills generally enjoyed stronger profit margins on improved lumber and log prices that remained at or below 2011 levels for most of 2012.
Idaho Forest Group Chairman Marc Brinkmeyer told Idaho lawmakers in early January he does not see a downside for the timber industry in 2013. “The only question is what level is the upside?” he said, predicting higher employment and wages for this year.
Potlatch Corp.’s annual earnings report in January also was upbeat, stating, “U.S. lumber demand jumped 6 percent in 2012 and is expected to increase another 10 percent in 2013. Furthermore, sawmill industry capacity is struggling to meet that higher demand after many years of poor performance, and last year’s strong demand for lumber left dealers with relatively low inventory levels with which to meet that increased demand. As a result, lumber prices are trending higher and we expect 2013 prices to remain higher than in 2012.”
Increased demand in 2012 led to higher production at Idaho mills. An increase in output along with higher prices led to significant growth in revenues and profitability. Idaho lumber sales, adjusted for inflation and expressed in 2011 dollars, rose 5 percent from 1.353 billion board feet in 2011 to 1.42 in 2012, up 28 percent from a record low of 1.105 billion feet in 2009.
Lumber prices surged to $400 by the third week in January, the highest level since September 2005 — 41 percent higher than the $283 of 12 months earlier and more than double its low of $195 during the recession.
The Idaho Forest Wildlife and Range Experiment Station at the University of Idaho found in its 2013 forecast that “Idaho’s wood products executives expressed guarded optimism about the coming year with 35 percent of them predicting operating conditions in 2013 to be better than 2012, and 48 percent predicting conditions to be about the same as 2012.”
A HOUSING RECOVERY ON THE WAY
The U.S. housing market is the biggest factor in determining how well Idaho’s wood product industry performs. This could be a breakout year, leading to increased profitability and employment for Idaho mills. Industry executives and analysts are bullish about housing starts with 57 percent of those polled by Random Lengths predicting continued strong increases.
After the housing bubble burst, the lumber market endured its deepest, longest slump since World War II. From 2005 to 2009, U.S. housing starts fell from nearly 2.1 million to slightly more than half a million, and the price of lumber plummeted from $387 per thousand board feet to $222. U.S. lumber production dropped from 19 billion to 10 billion board feet. In Idaho, it fell from 2.1 to 1.1 billion board feet.
Although housing starts rose after 2009, they rose very slowly. Last year they totaled 780,000. That was still far lower than the historic norm. From January 1959 through September 2008, there was exactly one month – January 1991 – when the seasonally adjusted annual rate of housing starts including apartments fell below 800,000. Beginning in October 2008, there were 47 consecutive months below 800,000. This September, it rose above 800,000 for the first time, and the rate climbed to 954,000 in December.
Now the housing market appears to be improving at an accelerating rate. Housing prices are rising again in most markets, up 7 percent through the first nine months of 2012, according to the S&P/CaseShiller Index. In addition, the need to repair damage from Superstorm Sandy should bolster construction.
Prior to the recession, the U.S. exported relatively small amounts of lumber. When demand at home was strong, there was little reason to market lumber abroad. But in recent years, Idaho mills have found new markets, mostly in Asia. The declining U.S. dollar helped increase those foreign sales. Idaho lumber exports grew by 200 percent between 2009 and 2011.
Driving increased lumber exports was China’s bustling construction sector, which consumes about 10 percent of the world’s softwood lumber production. In 2011, China overtook Canada as the main destination for U.S. softwood lumber exports.
Lumber exports to China fell sharply in the first three quarters of 2012 as the Chinese economy cooled after years of rapid growth. The economy strengthened heading into the fourth quarter, and the construction sector showed strong signs of improvement.
Despite its current recession, Japan’s timber imports are rising as it rebuilds after the 2010 tsunami and earthquake. Its new government has pledged to boost the economy through fiscal stimulus and monetary easing, which could lead to significant construction increases.
Exports to Mexico and Canada increased in 2012, making up for some of the slowdown in exports to China.
American companies are experiencing less competition from Canada in export markets. Canada has reduced its exports of log and lumber in the last couple of years because of harvesting cutbacks in Quebec and deforestation caused by mountain pine beetles in British Columbia.
Kathryn.Tacke@labor.idaho.gov, Regional Economist
(208) 799-5000 ext. 3984
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