Area sawmills keeping production down
Written by GORDON HOEKSTRA, Citizen staff
Wednesday, 10 September 2008
Lumber producers in the Northern Interior continue to maintain their reduced production levels, despite a run-up in lumber prices this summer and a drop in the value of the Canadian dollar.
Dunkley Lumber and Lakeland Mills both continue to run on reduced shifts: Dunkley has cut its sawmill shift to three days a week, and Lakeland has cut both its sawmill and planer shift to four days a week.
There has also been no change in Canfor's status: it has two sawmills and an oriented strand board plant shut indefinitely, in Mackenzie, Chetwynd and Fort Nelson, and has cut the third shifts at several mills in Prince George, Vanderhoof and Houston.
West Fraser, which has reduced shifts as well in B.C.'s Northern Interior, has also not announced any changes in its production status.
While lumber prices climbed from March to August, with prices for the benchmark random-length two-by-four increasing to the $280 US mark from the $190-mark, producers note that the fundamentals in the housing market still have not changed. An actual increase in lumber demand will still take time, they say, which is why the mills continue to operate at reduced rates.
"We're running a tight operation," said Dunkley Lumber manager Blair Mayes.
He said that while they have taken advantage of the uptick in prices by putting a bit more production through their planer, the change is relatively small.
Mayes said the reduced shift at the mill, south of Prince George, will be maintained.
Lakeland Mills president Keith Anderson said his gut feeling is that a turnaround won't happen until 2010.
West Fraser official Bill Tice said to his knowledge the company had not ramped up production.
The lumber producers have been hit by an unprecedented collapse in the U.S. housing sector.
Housing starts have plummeted from a peak of more than 2 million in 2005 to less than one million this year.
Companies had also been hit by a run-up in the value of the Canadian dollar to the U.S. currency, with the dollar trading above par at one point this year. The dollar has now dropped down to 93 cents U.S.
The value of the loonie has a direct impact to Canadian lumber producers' bottom lines when sales to the U.S. are converted to Canadian currency.
Canfor official Ken Higginbotham noted, however, that while the decrease in the Canadian dollar was a welcome development, it had nothing to do with lumber demand in the U.S.
Two weeks ago, Canfor president and CEO Jim Shepard said he believed the uptick in lumber prices was a "false down" and there were no plans reopen shuttered mills or restart dropped shifts.
Higginbotham said Wednesday there was no change in that position.
The producers also noted that the U.S. housing sector downturn has been exacerbated by the sub-prime mortgage crisis.
Foreclosures are up, the inventory of unsold homes remains at 10 months and home prices are sliding.
In the most recent news, the U.S. National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 per cent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8-per-cent below year-ago levels.
The U.S. government just took over mortgage giants Fannie Mae and Freddie Mac, a move meant to offer hope for easing the crises in the credit and housing markets. Under the plan, the two government-sponsored enterprises will get government-appointed chief executives, and an injection of up to $100 billion to restore the firms to financial health.
Forest industry analyst Paul Quinn said the credit crisis will prolong any recovery in the housing market.
He said before a turnaround can take place, the existing housing inventory will have to be eaten up and the credit situation will have to improve. A fundamental problem is it is tough to get a mortgage in the U.S. now, said Quinn, an analyst based in Vancouver with RBC Capital Markets.
Quinn said "no way" is there going to be a turnaround in the market in 2009.
He said he believed that lumber producers will continue to lose more money next year, and that not until 2010 would markets in the U.S. start to turn around.
