Mills struggle as home construction slow, lumber prices fall

Well before home prices cooled off during the past year, people at lumber mills knew the construction boom was over.

By the second half of 2006, they had cut production and trimmed shifts as lumber prices dropped.

With developers and builders struggling and demand for new homes still stalled, lumber prices still are 30 percent to 40 percent below 2005 levels.

“When you go from well over 2 million housing starts (on an annual basis) to about 1 million starts, it’s going to affect the prices,” said Adam Lingenfelter, president of Oso Lumber &Hardware Corp., one of the state’s largest independent lumber companies.

At the Arlington-based business, sales still are up, thanks to market share gains, Lingenfelter said. But the lower prices for lumber greatly affect profit margins on those sales. Oso has laid off some employees as a result.

Farther east on Highway 530 in Darrington, the lumber slump caused a series of short-term closures at Snohomish County’s largest lumber mill during the winter months.

The last closure came in February, when the mill’s 200 or so workers were idled for about a week and a half.

“We don’t have any plans at this time to take any more downtime,” said Steve Zika, chief executive officer of the mill’s owner, Portland, Ore.-based Hampton Affiliates.

The Seattle Snohomish Mill Co. in Snohomish has run with one shift, down from the usual two, since February. The work force stands at about 90, down from 135, said Bob Waltz, the company’s president.

“We’re going to remain that way until we see a marked improvement in prices,” Waltz said.

He and Zika both said the industry’s downturn doesn’t compare to a previous slow period a decade ago — it’s worse. Waltz said it’s the worst he’s seen the past 25 years.

After record production and demand for lumber in 2004 and 2005, the industry has seen a steep fall.

Last year, lumber production in North America fell by 11 percent compared to 2006, the largest single-year decrease in 34 years.

As with Hampton in Darrington, many mills around the country have repeatedly halted production for short periods, said Tim Cochran, an associate editor with Random Lengths, an Oregon-based industry publication. A few have announced permanent closures.

Random Lengths’ farming lumber composite price, an index for wood products used in home construction, was at $255 in mid-April. That’s down 37 percent from 2005 and 12 percent from just a year ago.

Anyone looking for a ray of sunshine didn’t find it in the new housing starts statistics for last month. New construction of homes in the U.S. hit a 17-year low in March, down nearly 12 percent from February. At this rate, fewer than 1 million new homes will be built this year. The National Association of Home Builders said it sees no hope for an upturn in home construction before 2009.

By that time, more mills will be closed. Since January, Federal Way-based Weyerhaeuser has announced the closure of a half-dozen mills in the U.S. and Canada. Locally, two mills in Snohomish County have closed since lumber demand peaked. The Interfor and Welco Lumber facilities, both in Marysville, shut in late 2005 and mid-2007, respectively.

Lower production, however, has helped the lumber supply come closer into balance with the flat demand. That’s moved up prices slightly in recent weeks, said analyst Paul Latta, who follows the lumber industry for McAdams Wright Ragen in Seattle.

At the Darrington mill, Hampton has invested in updating equipment, adding a power-generating cogeneration plant and ramped up production since taking over ownership in 2002. Zika said lumber orders for big customers, including home improvement chains, have kept the mill from slowing down any more. And, because of its size and efficiency, it should be well poised when the recovery comes.

Latta said most estimates he’s seen predict housing starts, and thus the demand for lumber, will begin improving either next year or in 2010. Zika agreed it could be a while.

“It always gets better,” Zika said. “It might just take longer than people want.”

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com

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