The Oregon sawmill industry: 1981

By Ralph Lamon

1980 was a wicked year for the Oregon sawmill industry. l98l may be worse.

So far Oregon has had a balmy open winter. There has been more golfing than skiing in the Bend area which is certainly unusual. There are no log shortages. No labor problems exist and none seem possible for 1981.

Since logs represent 6590 of the cost of lumber, one always has to explore log cost comparisons from year to year. Two mill men report lower log costs-one indicating timber bidding has been slightly lower and one evidently can purchase logs 15 to 20s/o cheaper than a year ago. Everyone else I talked to stated flatly log prices have not weakened at all. Overall the Oregon sawmill industry will cut a log which rvill cost perhaps l09o more in l98l than 1980.

Production in Oregon is on a slow bell basis. According to the Western Wood Products Association, pro- duction in 1980 was 8590 of normal. In my opinion association figures are simply off target. Production was closer to 7090 for the year and is currently in the 65-7090 range. cient to bail out those who have paid $450 to $550 for timber in the past few years.

Cutbacks have been made by eliminating two shifts, by eliminating Saturday production, by reducing days per week, by reducing hours per day, by extending down "repair" periods, by temporary closures and by simply folding up.

More than one "temporary" sawmill closure will become permanent if there isn't a near term and dramatic price improvement. Running a sawmill at less than full production raises the unit cost of lumber appreciably.

Nor is this the whole story of western American sawmill distress. Canadian mills produce almost as much lumber as we do. Most Canadian production comes from government timber but Canadian sawmills do not compete with each other for logs. The Canadian government fixes stumpage prices periodically (this can be as often as every 30 days) based on lumber and chip market prices. There is a floor below which they do not go-3s/o of the combination value for lumber and chips. The current "consensus" number for Douglas Fir timber in western Canada is about $25.00 per M.

The Canadian sawmill can operate to maximum efficiency in the same market which is clobbering our mills.

If there isa single haPPY American sawmill operator in this winter of l98l I wouldn't know where to find him.

The Lamon Lumber Co., which Ralph Lamon heads, is a Son Francisco, Ca., wholesale firm that was established in 1952. - ed.

Sawmills are bleeding. It will take a $10 to $75 per thousand across the board price increase to bring the industry to a break even point. Even this sort of a raise will not be suffi- l98l lumber demand: Export markets this year are suspect. Due to weakening worldwide economic conditions it is doubtful if l98l will be as good as 1980. Japanese buying has slackened a bit but Japan in 1981 will be buying a substantial amount of wood.

To summarize the supply side: costs are up, prices are too low to permit efficient production; mills are operating at perhaps 7090 of capacity; supply can respond rapidly to strong price/demand factors if necessary.

Any significant weakening of current price levels would promptly further reduce lumber production.

At home our most respected crystal gazers are postulating a 1,500,000 to 1,600,000 housing start year compared to 1,300,0(X) in 1980. Responding to this analysis that great lumber authority (and former wholesaler) Menill Lynch advices in a market letter dated January 13, 1981, to expect a 65s/o profit gain for forest products industries as compared to 1980. Assuming these assumptions have merit, lumber prices have to advance sharply and soon.

Could be.

On the other hand (any selfStory at a Glance respecting prognosticator has to have more hands than a bridge deck) there are other factors deserving comment. President Reagan (may he rein and rein) is committed to change which will not initially favor our industry. Actually quite the contrary.

Red ink sawmillyear. plenty ol lumber . . . building a little better (or a little worse) . . strong d-i-y, remodeling demand weak oxport market ...don'tbuyasawmill.

In 1980 at this time we had a very real carry over of building programs from a good 1979 year. In 1980 at this time we had substantial long range financial commitments at good interest rate levels. While we did have abrupt and sharp increases immediately ahead, this was offset by several months of acceptable interest costs. Who is to say if l98l will produce a like period?

In 1980 we had banks and savings and loans making long range mortgages. In l98l the savings & loan industry is a shambles and banks collectively are dodging home loans at a furious pace.

The major sources of home financing are out to lunch in February 1981.

No one denies housing demand and housing needs. We haven't used the word demographic yet but it is out there somewhere. Effective demand is in the wings. Will it emerge in l98l? I wonder.

To sum up.

(1)A tough, difficult, essentially red ink sawmill year for 1981.

(2)Plenty of lumber.

(3)A building year a little better or a little worse than 1980.

(4)Continued strong (but difficult to measwe) "do it yourself" and remodeling demand.

(5)A weaker export market due to worldwide recessionary trends but continued strong Japanese demand.

(6)A normal ebb and flow due to seasonal factors. So far we have had much more ebb than flow but lumber demand always improves with the advent of the building season. Prices should show seasonal improvement.

(7)A very limited downside price potential. Mills that are running have thoughts of closing which even small further drops will trigger.

(8)No significanl price increases until we do a lot more building than can currently be expected. If someone tries to sell you a sawmill-don't.

EX0TIC AMENITIES with voluotuous use of space and premium clean redwood plywood are characlerized as prize winning features in this home in Arroyo Grande, Ca., which won the single family residence category in the Simpson redwood plywood contest.

Redwood plywood contest

Imaginative landmarks created with redwood plywood siding are recognized in the Redwood Imagination Awards program sponsored by Simpson Timber Co., Seattle Wa.

Entries are now being accepted for the l98l competition with judging on the basis of outstanding design and construction. An outstanding number of entries were submitted for the fust contest last year with awards made on a national basis.

Grand award, the highest honor, went to 2,500 sq. ft. home tucked back among a stand of trees in Woodside, Ca. According to the jury, "the natural materials used for the siding reinforced the wooded environment of this carefully selected site. A varietyof interior spaces was nicely reflected in the exterior elevations."

GRAND AWAR0 in the first annual Redwood Plywood lmagination Awards program sponsored by Simpson Timber Co. went to this home in Woodside, Ca., for amono other things, reinforcing the wooded enviroriment of the site.

The winning entry in the single family residence category was the V. Z. Smith residence in Arroyo Grande, Ca. Considered an extensive addition and remodeling project, the 4,500 sq. ft. home cost $400,000. "The voluptuous use of space and premium clear redwood plywood creates a setting for an apparent grandiose lifestyle," according to the jury.

Wholesalers Fight Back

More than 6090 of the wholesale distributor members of the National Building Material Distributors Association suffered sales and gross profit decreases during 1980, Jack Gillespie, NBMDA president, reported this week.

Results of a current NBMDA business conditions survey indicate that despite favorable weather conditions last year, the recession and poor conditions in the construction industry had a serious impact on building material activity, resulting in an average sales decrease of about l5t/0. Gillespie, president of the Hansen Corp., Walled Lake, Mi., further advised that wholesalers in the midwestern states, whose trading areas were affected by the auto and steel slowdown, were more dramatically hurt, while 26s/o of NBMDA firms actually showed sales increases for last year.

Gillespie also said, "Of course, the recession and reduced housing starts were no surprise during 1980. We tried to prepare for reduced business, and as a result inventories and receivables were gradually brought into line. Our owners are good, conservative managers, and it has been very encouraging to see how well everyone seems to be surviving."

In this connection, the survey showed that the l59o of companies with 1980 sales increases expected to maintain continued sales growth in first quarter, 1981. Of those reporting,20r/o expected sales to be about the same as the first quarter last year, and 6590 were uncertain about the current quarter. One-third of the wholesalers in this latter group anticipated a sales decrease for the first quarter.

Encouraged by the number of distributors reporting new promotion programs to stimulate retail sales, Gillespie observed that "wholesalers and retailers can't sit idly by and be eaten up by inflation, recession, and fixed expenses. We've got to fight back, and that will be the game plan for most wholesalers in 1981."

Headquartered in Chicago, NBMDA is a trade association made upof about 400 wholesale distributors of building materials and an equal number of manufacturers who supply the distributors.