US Forest Products Industry Shows Signs of Getting Out of the Woods in Late 2002

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The following is an advisory by Industrialinfo.com (Industrial Information Resources, Inc; Houston, Texas). The year ahead will be challenging for America's forest products industry, much like 2001. Weak demand for some products combined with a sluggish economy will continue to plague the industry through most of 2002. Getting out of the woods will be determined by how well manufacturers match production to demand, more industry consolidation and by limiting capital spending.

Capacity expansion is mostly non-existent and growth will be less than 1%, as plants will still have to contend with production curtailments through the first half of 2002. Producers have indicated that machines will no longer run outright, but instead run closer to demand. By the third quarter of next year, producers expect to see a significant reduction in high inventories that could trigger long awaited price increases.

Industry consolidation has become necessary for growth as well as a way to survive in a global marketplace. More mergers and acquisitions are in line for the industry next year. In the midst of shuffling manufacturing assets, business groups and marketing strategies, more of the country's plants will close permanently. Additionally, consolidation will lead to some US plants falling into the hands of foreign companies. For some plants, new ownership could mean an injection of much needed capital investments.

Industrial Information Resources recently published 2002 Industrial Outlook (http://www.industrialinfo.com/indoutlook.htm), available on CD-ROM, projects a whopping 20% decline in capital spending compared to 2001. Though seemingly dismal, spending will be sustained by environmental projects, the need to replace aging equipment and by investments that yield high returns in the short term.