Article by Dan Shell
Roughly a decade after the wheels came off the U.S. housing market and threw the economy into a tailspin that resulted in historic lows for lumber prices and a major drop in housing starts, signs within and outside the industry are showing a positive thumbs up. And while there hasn’t been a return to the white-hot markets of say, early 2006, when housing starts were banging along at a 2.2 million annual rate, strong and steady (especially since mid 2012) has been the rule: Housing starts have rebounded from a low of around 475,000 in April 2009 to today’s 1.2 million annual rate.
This issue reflects the lumber industry’s turnaround in several key areas, and the 2017 <em>Timber Processing</em> Sawmill Operations and Capital Projects Survey is a great place to start. Now, I’ve sat down with many sawmill managers and owners, and getting one to say lumber prices are good is quite tough to do—like pulling spotted owl teeth. But when 87% of mill owners and operators report that their “lumber business situation” is either good (59%) or excellent (28%), it’s clear evidence the industry is in a positive growth mode.
Additional evidence showing positive markets is reflected in quarterly reports from industry bigs Weyerhaeuser ($1.7 billion in net sales, with earnings more than doubling in first quarter 2017 compared to 2016) and CanFor (net income of $66.1 million for first quarter 2017, compared to $38 million for the fourth quarter of 2016 and $26 million for the first quarter of 2016), which both recently reported solid business results the first three months of the year.
Exhibitors at the Southern Forest Products Assn. Forest Products Machinery & Equipment Exposition in Atlanta’s World Congress Center June 14-16 are understandably looking to step up their own sales during this time of expanding industry recovery. Almost half (46%) of softwood mills have committed at least $1 million in new capital investment since the beginning of 2016. And looking at projects completed since early 2016, almost three-fourths (71%) of sawmill survey respondents reported that ROI on such projects was “good to excellent.”
Of course, this recovery has been different than those in the past: This time around, super-low interest rates haven’t really done the trick; wages haven’t kept pace with housing costs in many regions; and household formation in general is happening later for many young adults, who are delaying home purchases. Yet there’s undeniable pent-up demand and new demand out there. A week after claiming the recently-imposed preliminary countervailing duty on Canadian lumber would horribly damage the housing market, the National Assn. of Homebuilders now says builder confidence is at its second-highest level since the downturn.
Those investments already made and currently planned have a two-fold benefit by not only making a mill more successful in terms of productivity, recovery, efficiency and profitability, but also ensuring more viable positioning in a global economy where the competition never sleeps.
So if you haven’t yet and if you’re waiting for a sign or a better Random Lengths pricing report, you can quit waiting and let us assure you: It’s definitely time to invest.