As the housing recovery moves into high gear, the timber industry is in its usual place--tagging right along.
And that's fine when things are on the upswing, as they are now. But it also means that, after years of trying, the forest products industry remains unable to find a way off the housing roller coaster.
This inability is particularly troubling as the industry faces several long-term trends: demographic projections that show slackening of household formation, and hence of housing demand in the 1990s; steadily declining dwelling size, meaning less demand for wood per unit, and fundamental changes in the way housing is financed, which may lead to repeated booms and collapses like those of the past few years.
The trough this time was particularly deep, "by far the worst in our modern history," Weyerhaeuser Co. President George H. Weyerhaeuser told the New York Society of Security Analysts last month.
"Prices for some products dropped in real terms to the levels of the 1930s," he said, and in percentage terms the decline was even worse. He cited, as "an extreme example," the average price for Douglas fir in western Oregon, which dropped from $450 per thousand board feet in the third quarter of 1981 to $80 last August.
At the bottom of the cycle, the last quarter of 1982, unemployment topped 30 percent in some segments of the industry, and plant utilization hovered around 65 percent.
The worst is plainly over now, but the imprint of the recession, plus trends that were evident before the slump, is expected to reshape the industry in several important ways:
Capacity. There is widespread agreement in the industry that a significant number of the closed lumber and plywood plants will never reopen.
"The betting is that maybe 10 percent of that capacity won't come back," said George Adler, an analyst with Smith Barney Harris Upham Co. in New York. But he warned that there is always the possibility of a super-heated housing boom in which "even the most marginal plants would come back."
"You should never use the word 'never.' " he said.
Technology and new products. The plants that survive are becoming much more automated. Weyerhaeuser's Thomas Ambrose notes that where once sawmills employed highly-skilled men to determine the most economical way of cutting each log--so many 2x12s, so many 4x4s, etc.--this work is now being done by laser-screening devices and computers.
Mill employes are "much more machine-tenders now," he said.
At the same time, products such as waferboard and oriented-strand board are being improved for exterior and structural use, allowing them to compete with plywood in many markets. These products are made of pieces of wood glued together into sheets.
In waferboard, randomly oriented chips are used. In OSB, parallel strands of wood are employed; the finished board consists of several layers, the strands in each layer turned 90 degrees to those in the layers above and below.
The result is a material of strength comparable to plywood, but which can be made out of smaller and lower-quality trees.
Regionalization. Steadily rising transportation costs have compressed the market area that any given mill can economically reach. Weyerhaeuser's West Coast mills, for example, "are effectively shut out of any market east of the Rockies," Ambrose said.
Adler said that in 1960, 23.2 percent of the nation's production of Douglas fir, a western tree, was consumed in New England. By 1980, the figure was 2.9 percent.
At one time, he added, builders paid a premium for West Coast plywood because it was thought to be superior. "Today the builder says, 'What's the difference?' " and buys whatever is cheapest. As a result, "now western plywood sells for less than southern at the mill door to make up for the transportation" cost.
Waferboard and OSB also are