U.S. Lumber Producers Optimistic About 2004 Capital Improvements

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Calendar 2003 was another tough year for American producers of softwood lumber. Depressed prices, fueled by oversupply and competitively priced imports, led to production cutbacks and some plants closing. Ultimately, market conditions deprived many mills of much needed capital improvements. Looking ahead, producers are optimistic that spending in 2004 will be favorable, due to three main factors: (1) an apparent resolution to the longstanding U.S.-Canadian lumber trade dispute; (2) and the simple need to upgrade aging equipment and systems, and (3) the benefit of advancements in technology.

Many of the nation's lumber mills are still using pre-1990 technology, and could increase their production efficiency and reduce operating cost by making capital improvements. However, companies cannot justify large capital outlays at a time when most of them are losing money and others are closing. Hence, spending budgets for the year will be short on multi-million dollar projects, and even fewer on projects that carry a cost of over $10 million. Instead, companies plan to implement cost saving projects that require smaller investments offering higher, short-term returns. These projects generally range in value from $50,000 to $200,000, and are geared towards log optimizations and energy conservation.

Click on the image at right to view a listing of major U.S. lumber mill projects.

Randy Godet, Pulp and Paper Group Manager, with Industrialinfo.com, an industrial market research firm, which has a database of more than five hundred of the countryýs major mills, states that, "Some companies will consolidate assets, in turn, neutralizing the need for capital projects." Meanwhile, Industrialinfo.com estimates that in 2004, capital investments towards construction and upgrades among the leading lumber companies will be between $300-$400 million. More than 65% of that amount will come in the form of projects that have a value of less than $500,000.