National housing construction slowdown has impact

A virtual shutdown of Minnesota’s biggest oriented strand board (OSB) producer since late August has spurred an all-out response from lawmakers, state business development agencies, mill operators and loggers to shore up the industry.

Ainsworth Lumber Co. permanently closed one of two production lines at its Bemidji OSB plant in late August. Then on Sept. 22, the company closed its OSB mills in Grand Rapids and Cook indefinitely. It leaves just 150 workers employed in Bemidji out of a payroll of 620 at the three mills before the production curtailment.

Executives at British Columbia-based Ainsworth blamed a deteriorating structural panel market hard hit by a national housing construction slowdown this year. That slowdown has dramatically reduced both OSB unit sales and prices.

OSB is a substitute for higher-priced plywood in building construction. OSB was developed by the Minnesota forest products industry in the 1970s, and invested heavily in state-of-the-art production equipment.

With efficient production processes and a plentiful supply of cheap aspen, the Minnesota industry weathered housing construction downturns in the 1980s and early 1990s well in comparison to its plywood competition in the South and West.

But demand and prices for aspen has soared in Minnesota, and the housing downturn has unmasked a northern Minnesota OSB industry — including the loggers who supply it — that has lost its competitive edge.

Aspen, a softer hardwood, was considered a waste wood and selling for a few dollars a cord when it first was used to produce OSB. In the 1990s, an expanding papermaking industry added aspen to its wood fiber mix as well. As demand grew, so did stumpage prices — the fee that loggers pay landowners to cut timber from federal, state, county and private land.

In mid-2005, when the housing construction sector was still humming, aspen prices in the region rose as high as $90 a cord, said Wayne Brandt, executive vice president of the Minnesota Timber Producers Association in Duluth. Members include loggers and small mill operators.

With the OSB slowdown, stumpage prices have dropped back to the $45-65 range, he said.

“We have the highest stumpage prices in the world, particularly for aspen,” he said, noting the decline in prices “is a good thing.”

Caught in the reversal, however, are area loggers holding contracts to cut stumpage, and no outlets for their wood. Several paper mills also have surplus wood supplies and have curtailed procurement in the face of a soft market for paper. “In my 17 years here I don’t remember a time when all finished products groups are experiencing difficulty at the same time,” Brandt said.

On Sept. 29, Brandt and other forest products executives asked Gov. Tim Pawlenty for state support of the industry’s action plan to reduce wood prices further and reverse its downturn.

Among key provisions, the action plan asks:

• The state Department of Natural Resources to extend all timber permits through 2007, and reduce the per cord price of all existing timber sale contracts.

• Pawlenty to re-convene the Governor’s Task Force on the Competitiveness of Minnesota’s Primary Forest Products Industry, and to review DNR decisions about its management of state forest lands.

• For extended unemployment benefits to workers affected by current conditions.

• For low interest state loans or loan guarantees to loggers to prevent defaults on equipment loans.

• For increased truck weights on Minnesota highways to improve competitiveness and reduce vehicle emissions and fuel costs.

“These market driven actions occur at a time when few loggers were able to work this summer because of these conditions and high wood inventories at mills following last winter’s logging season,” Brandt stated in a cover letter to Pawlenty delivered with the industry plan.

After their meeting, Pawlenty said he had agreed to extend all permits for at least a year to give loggers more time to cut, and to sell their own unsold inventories. Iron Range Resources, a state agency, also will offer low-interest loans to help eligible loggers pay off higher-interest lines of credit.

In the middle of his reelection campaign, Pawlenty also agreed to reconvene his primary forest products industry task force. He also promised to direct DNR to look for ways to streamline its timber management processes, and to ask the 2007 Legislature to consider ways to help reduce the industry’s tax burden and other costs.

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