When will the sawmills come back?

Implications: The article very dramatically portrays the plight of the wood products industry and its workers in British Columbia and raises the question: " When will homebuilding pick up to the point where all the shut sawmills will be able to restart? But, more importantly, will all these shut mills still be able to start up?"

Analysis: Most of the current indicators point to a major recovery of the US homebuilding industry no sooner than late 2009 or early 2010.

For many North American wood products operations, especially those in Canada, that recovery alone will not be enough to allow them to restart.

Some operations, such as the Harmac paper mill featured in the article, are simply too inefficient in todays highly competitive environment to make a decent profit in any but the very best market conditions. The high capital costs to build a new paper mill or even retrofit an old one, combined with very high transport costs to evolving paper markets make any significant replacement (let alone expansion) of paper making capacity in North America unlikely - though some expansion in market pulp capacity is still a possibility.

For many Canadian sawmills, the relative strength of the Loony relative to the US dollar is as much a problem as the overall downturn in the demand for lumber in the US.  Even with a rise in lumber demand in the US, Canadian mills will have difficulty capturing that demand without a change in the relative values of the two currencies that keeps their lumber competitive.  The most efficient operations will still recover unless the currency factor is too extreme. There is also the possibility that overall world markets for lumber may be good enough to overcome the loss of much of the US market.  However, transportation costs significantly dampen the prospects of that being a likely factor.

In the US, while there has been significant shuttering of wood products operations and curtailing of production as a result of the current downturn, it has not been nearly as drastic as has happened in Canada.  Considerable attrition and consolidation in US wood products operations had already occurred in the US in the decade immediately before the current downturn,   While some of the more inefficient operations and those without a reliable supply of timber will likely not be able to start back up on a recovery of the market, most will, and some of the many that simply went to reduced output will likely increase their output. The loss of experienced workers may in some areas somewhat retard the speed with which they can ramp back up. And though most of the large timber companies have sold off their timberlands, in almost every case where that occurred, the seller retained long term supply agreements from the buyer.

So overall in the US, while the market downturn is likely to cause considerable attrition and consolidation of operations, when the market recovery does come, total production of the industry will likely be very close to what it was pre-downturn.