Economic Outlook
The U.S. economy is now “essentially moving sideways, if not contracting,” said the Organization for Economic Cooperation and Development. The Federal Open market Committee has concluded that “a prolonged and severe economic downturn [can] not be ruled out.” We expect the dollar to strengthen only in anticipation of an interest rate hike by the Fed late in 2008. A wave of home foreclosures in the U.S. should result in lower prices that will stimulate sales activity in late 2008; housing starts will follow suit several months later. Monthly average crude oil prices will flirt with $110 per barrel and then drop back to the $100 level.

The foreclosure picture may actually be worse than official statistics let on, since many lenders are allowing owners to stay in their homes - oftentimes rent-free - in an effort to reduce the threat of theft and vandalism. These borrowers will eventually push the number of delinquencies even higher and send more homes into an already glutted market. Not surprisingly, builders do not feel very confident. Demand for solid wood products will not pick up substantially until led by a sold turn-around in permits.

The above is an excerpt from the April issue of the Forest2Market� Economic Outlook. To learn more about the F2M� Economic Outlook or to subscribe, click here .

Forest Industry Positioned to Survive Housing Downturn
Despite the slowing housing market and subsequent downturn afflicting lumber mills, forests in the Pacific Northwest remain a valuable resource with important products that are still in demand, an expert in the forest industry said Monday.

The lumber industry is down 20 percent from normal production levels as many mills reduce shifts, take downtime or permanently shut down, said Gordon Culbertson, Pacific Northwest region manager for price information provider Forest2Market. But, loaded log trucks are still moving down the highway – delivering raw materials unique to the Pacific Northwest.

To read more, click here.

South Carolina's Pulpwood Prices Boosted by Housing Slump, Exports
Despite the slowing national economy, pulpwood prices in coastal South Carolina have been resilient because of decreased lumber production and increased exports, an expert in the forest products industry said Tuesday.

Pulp mills operate on small logs and wood chips – a byproduct of lumber production. But the weak housing market has forced lumber mills throughout the South to cut production, including a mill in Sampit, S.C., and another in Conway, S.C., said Daniel Stuber, operations manager for timber price information provider Forest2Market. To maintain production levels, pulp mills have had to rely on more logs.

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Next Stop For the Paper and Forest Products Industry: Cellulosic Ethanol?
Why not cellulosic ethanol? That is the question some members of the paper and forest products industry seem to have answered with a definitive, if not resounding, yes. NewPage Corp., a leading paper manufacturer, recently received a $30 million grant from the U.S. DOE for construction of 5.5 million gallon capacity cellulosic ethanol plant at its existing Wisconsin Rapids paper mill. Completion of the NewPage facility is projected to be in 2012. Liberty Chips Corp. received a $4million Farm-To-Fuel Grant from the Florida Department of Agriculture to open an energy park for cellulosic ethanol and bioenergy production near its chip mill in Lowry, Fla. Even lumber producers seem to be joining the fray. Weyerhaeuser Co. recently announced a joint venture with Chevron Corp. to develop cellulosic ethanol technology. The 50-50 joint venture will be called Catchlight Energy LLC.

Recent events beg the next question: who better to produce a liquid wood fuel than the industry which has been using WOOD FUEL to power their mills for decades already?

The Rising Cost of Wood Chips
A number of factors have propelled wood chip costs in the Pacific Northwest 50 percent higher during the 1Q2008, underscoring the interconnectedness of the global economy. International politics and market dynamics, as well as refinery issues in the U.S. and escalating investor speculation in oil have pushed mills’ freight costs incrementally higher. The value of the U.S. dollar has helped exports, but continues to add inflationary pressure. The rock that made things fall apart, of course, is the housing slump. Remodeling is down and the glut of unsold new and existing homes likely will keep new starts depressed until late 2008 or early 2009. Home foreclosures will continue feeding the over-glutted existing home inventory and add to general economic unease, which is anathema to construction of any kind. Low demand for lumber has caused a number of sawmills to reduce or shutdown production – sawmills reduced production by 15 percent in 2007. The upshot is residual wood chip supplies have been devastated by the reduction in sawmill production and wood chip prices have gone up accordingly.

Find out the average cost of delivered raw materials in the Pacific Northwest using the Forest2Market Delivered Price Benchmark Service. To learn more, click here .

Chips, Chips, Everywhere: Salvaging Timber in the Pacific Northwest
Timber landowners in Oregon, who lost about 17,320 acres of forest, face additional financial and regulatory hurdles in the aftermath of the December storm. Landowners who choose to salvage their downed wood could be walloped with another one-two punch – first from actual salvage costs and second from state ruled replanting obligations. Landowners who salvage downed-timber must replant in order to meet forest density requirements under the state’s Forest Practices Act. According to Ted Lorenson of the Oregon Department of Forestry, these costs may outweigh the value of the downed trees due to the depressed lumber market. “The dilemma with this type of scenario is, the landowners need to put money upfront and sometimes that’s the barrier,” said Lorenson.

Wood chips could be the silver lining in this story, however. Decreased lumber production has cut a huge swath from residual chip supplies and forced prices up to 50 percent higher, said Kathy Troupe of the Boise paper mill in St. Helens. Storm-downed lumber too damaged for lumber could “fill the gap,” said Troupe, who has joined a number of interested parties in asking the Oregon Board of Forestry to help bring the storm-damaged trees quickly to market. One option to reduce salvage costs for landowners, according to Lorenson, is to temporarily suspend the replanting rule.

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