April 13, 2020
What a difference a month makes. Housing data released for February showed that housing starts hit 1.60 million units, a 39% increase from last year. Demand for shelter was improving dramatically and so was pressure on the existing housing inventory. February projections by trade publication RISI indicated that we could have averaged 1.4 to 1.5 million housing units for 2020. We haven’t reached those numbers since the Great Recession of 2008. One month later, with the arrival of COVID-19 the economy has upended. We are seeing government shutdowns of construction sites, restaurants, and general economic activity. Shelter-at-home, or work from home, orders apply to any business that is considered a “non-essential industry”. Manufacturing of wood products is essential during COVID-19 and as shutdowns continue that has been clearly seen.
We are considered an “essential industry” and are still trying to manufacture wood products until we receive additional governmental guidance. The immediate example of the “essential” nature of wood products manufacturing are empty shelves of paper products in stores. Chips are a residual, or by-product, of our primary manufacturing. They are a vital portion of our revenues and essential to the production of currently hoarded toilet paper. Structural wood products are also essential during COVID-19 and crucially important in construction. These products are used to create temporary housing for the sick and build additional hospital capacity. Traditional “stick framing” is still one of the most cost-effective means of building construction under four stories.
Long term considerations
Another longer-term concern is the ability of the State and Federal landowners to effectively manage our forest resources without the revenue that comes from timber harvest. If Oregon experiences another dangerous wildfire season, can our firefighting teams practice safe “social distancing” when typically traveling together in vehicles and remaining in close quarters. Would more smoke in the air lead to additional respiratory issues to those impacted by the virus?
With construction sites shut down, many wood products producers in Oregon have already announced curtailments and closures.This in turn has led to more logs on the market with no one to buy them due to the uncertainty about future business. Recently, Swanson Group announced the closure of their Glendale panel plant and the layoff of 300 people. Lumber producers across the state, such as Seneca, have already announced two-week minimum closures.
Current production levels
We are trying our best to maintain typical production levels, but it will be difficult to do so indefinitely without plywood and veneer sales. We have been running on an extended plywood order file but are now producing for inventory. There are some good orders for the next couple of weeks for dry veneer from Plant 4. However, with so much uncertainty in the market, our customers are planning day to day as well.We cannot stack wood indefinitely and will likely face some hard decisions in the very near future. The question is not really price, but whether a market currently exists. Reports from other trade publications indicate that wood products markets are functioning at 20-30 % of the typical levels. If this persists, anticipate widespread market curtailments until producers receive positive guidance from the government that society can begin operating again.
If market insight from our new Mass Ply plant is any indication, construction sites are anxious to open for business. Construction is ready to move forward as soon as uncertainty surrounding COVID -19 alleviates. We hope for a rapid recovery and rebound back to where we thought 2020 was heading just a couple of weeks ago. This health crisis will not last forever. We are already looking forward to getting back to business as usual as soon as it is safe and permissible to do so.
Tyler Freres, Vice President of Sales
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