Gautious optimism

By William M. Shields Executive Vice President, Wood Products Weyerhaeuser Co.

T"t 1992 ouriook ibr wood prod- I ucts is very encouraging. Demand, weakened during 1990-91 by a deteriorating economy and concern about the Gulf War, should improve and exceed the 1988 peak by 1994.

Interest rates are expected to continue to decline throughout mid1992 and could lead to single family housing starts recovery. We expect starts to be in the l.l-1.2 million range by the fourth quarter. Multi-family starts, however, are expected to remain weak, putting a mild damper on overall demand.

With existing home sales up and interest rates down, the repair and remodel segment should rebound.

Supply will be the key issue for

1992 and, most likely, for much of the remainder of the decade. Public attitudes, combined with government restrictions, are significantly limiting raw material from public and some private forestlands, particularly in the Northwestsupply needed to support the expected rebound in home construction.

The implication for lumber and other building products is that real prices, which have been essentially flat for most of the '80s, ought to rise significantly, well above the 1988-89 levels.

Predicting exactly where prices will go is difficult. We have never been in a situation where demand was increasing while supply response was significantly constrained.

Supply constraint will also affect the kinds of products that will be produced in 1992. With less "solidwood" sawlogs available, look to see increased use of engineered products and products like oriented strand boardproducts made either from lower cost raw materials or residual products such as chips and sawdust.

Also on our minds is the growing awareness worldwide, but especially here in the U.S.. that we need to take a careful look at each of the products we produce to be sure they are as friendly as possible to the environment. Although it's not recognized nearly enough, those of us who manufacture and sell wood products have a big advantage in that area since among major building materials, wood alone is a renewable resource. Often overlooked, too, is the fact that wood building materials require much less energy to produce.

What we need most is a renewed pride in what we do in our industry. We provide products that people needboth in America and throughout the world. And we produce and sell those products with great sensitivity to our country's environment.

Story at a Glance

Affordable housing should be concern of everyone in wood products business...wood building materials have big environmental advantage.

Raw material shortages will affect geographic regions differentially. For example, average tree size will decline in the South. Coastal Canada will be affected by environmental constraints. The U.S. Forest Service harvest plan revisions will affect the West Coast region and could, over time, have an impact upon the inland region.

In summary, we see 1992 as the turning point in the current downcycle. Demand and prices should improve, especially in the second half. We see a shift to more use of engineered wood products and products reconstituted from residuals of other product processes. From a raw material standpoint,1992 and the rest of the '90s will be quite different from the '80swith each producing region experiencing its own supply issues.

Story at a Glance

Outlook encouraging...l .1 -1 .2 million housing start pace by fourth quarter...supply constraints, higher prices, increased use of engineered and reconstituted wood.