Wed March 12, 2014
Why Northwest Lumber Mills Want China To Buy Lumber Instead Of Logs
At Hampton Lumber's Tillamook sawmill on the North Coast of Oregon, workers are packaging a bundle of freshly milled lumber with plastic and staple guns. The boards look a lot like the rest of the lumber the the mill makes. But they represent a bright spot on an otherwise dismal landscape.
They've been measured and cut specifically for a customer in China. And mill manager Mark Elston says they could be the key not only to keeping the mill open but may even get the mill back up to full capacity for the first time since the U.S. housing market collapsed in 2008.
Elston: "This mill right now is at about 65 percent capacity. You can only do that for so long."
Running at less than full capacity means the mill isn't making nearly as much money as it should be. But so far it hasn't hasn't had close. That's something Hampton CEO Steve Zika really wants to avoid.
"That's 150 people, family wage jobs in Tillamook that could disappear. And I don't want to be the one – and I will be the one – who has to go down there and tell them."
The U.S. housing market is starting to recover, and there's more demand for lumber. But Northwest sawmills are still strapped. Their problem now is that Chinese companies are buying more and more logs from Northwest forests. Because of a building boom in China, they're willing to pay more for the logs than the mills in the Northwest.
Gordon Culbertson is a Northwest forest analyst for Forest2Market in Eugene. He says thats helped to make log prices in the Northwest among the highest in the world.
Culbertson: "Since the Recession, log prices have gone up, well, in some cases nearly doubled."
That's bad news for local sawmill owners. For them, Culbertson says, buying logs is about 70 percent of the cost of doing business.
Culbertson: "So when log prices rise that dramatically, of course it's going to have a huge impact on the cost of their doing business."
So, lumber markets in the U.S. are coming back to life. But Northwest sawmills are still struggling to make money because they have to compete with China for logs.
That means they're not too fond of the log export terminals popping up all over the region. But Zika says he doesn't want to stop all log exports. Instead, he's trying two other strategies. One is to convince timberland owners to sell their logs to his sawmills instead of China.
Zika: "And we're also trying to convince our Chinese customers to buy more lumber and less logs."
Selling more lumber to China could be the answer to Hampton's problems. China's building boom has driven up demand for both logs and lumber. But so far, China isn't importing nearly as much lumber as it is logs.
In the past five years, Hampton has made a big push to start exporting lumber to China. The company hired new people, changed its sales office hours and adjusted its sawmills to cut lumber in new dimensions. Zika flew overseas in search of customers.
Zika: "It takes some persistence. It's not just picking up a phone and saying hey here's the building products company of China. Do you want to buy 10 railcars or ships of lumber. It doesn't work that way. You have to develop relationships."
Once Hampton found some customers, it had to figure out how to get the lumber to them. To do that, the company hired global logistics manager Kit LaBelle. LaBelle says there are some extra steps to get lumber to China. But mastering those steps means the company could charge more for its products.
LaBelle: "If we get rid of a whole bunch of lumber here, it creates a bit of a shortage. Then the domestic price would go up because all of a sudden you have less wood because it's gone overseas, right?"
In other words, the same kind of competition that drove up log prices in the Northwest – lots of Chinese buyers vying for a limited number of logs – could have the same effect on lumber prices. Zika says that's what he's hoping to see happen. If his mills can sell their lumber at higher prices, they can afford to pay more for logs.
Zika: "If lumber prices continue to go up, then we can outcompete the Chinese for logs."
In Tillamook, Elston says half of the lumber his mill makes now is getting shipped overseas. For his mill, he says, investing in lumber exports has already paid off.
Elston: "I'll tell you, had we not, we may not be here today."
If Hampton's strategy works well enough to get his mill up to full capacity, he says, he could add another 60 to 80 jobs in Tillamook.
Copyright 2014 Earthfix