By Sherri Taylor
News Editor

Like a long row of dominoes standing end on end, factors in the timber industry fell one by one during the first half of 2003 culminating in the skyrocketing of plywood prices nationwide with Oriented Strand Board following close behind. The price of around $13 per panel for 5/8 inch plywood rose to $23.95 in most retail stores by November. Several elements - including the war in Iraq - influenced the upswing.

"Basically, it was a confluence of supply and demand ingredients," said Robin Keegan, media consultant for Georgia-Pacific Corporation at their headquarters in Stamford, Connecticut. She also noted that previously the price of plywood had been at an all time low.

Records show that in May, 2003, half-inch plywood stood at $11.89 per 4x8 panel. In mid-November at Harrel Builders in Winnfield, Louisiana, the same wood costs $19.99. Half-inch treated was $15.95 while 3/4 inch plywood was $17.95. Those now stand at $27.95 and $29.95 respectively. Treated 3/4 inch costs $34.95. There is a slight difference in price at the larger outlet stores. Unsanded 5/8 inch plywood costs $21.56 at Lowe's of Bossier City, Louisiana on Tuesday, November 18, while it can be $2 higher in smaller retail outlets. Oriented Strand Board in its most popular size of 7/16 is $16.49 per sheet.

Mike Dawson of Random Lengths, a forest industry technical publication which surveys trends in wood product prices, places the beginning of the phenomenon back to over a year ago when many big companies started closing smaller plywood mills, thus shoving production onto the few plants left in operation.

"At the beginning of 2003, there were four less mills than in 2003," Dawson said. One of those closed was in Urania, Louisiana.

However, most large corporations reported sizable inventories at the first of the year.

"The companies had wood in their warehouses and they began to cut production on us," said a logging contractor. Prices paid for raw wood went down as inventories built. Some mills took downtime for maintenance, others because demand was slow.

That's when the rain started in the Southeastern United States.

"We've had the wettest year on records," reported Ms. Keegan.

That meant loggers in West Virginia, the Carolinas and other heavy timber industrial areas could not bring logs to the mills to make more plywood. The weather also delayed construction of new homes, since foundations could not be put in during rain storms.

On the other hand, a different problem caused a slowdown in production on the west coast.

"In the Northwest, it was a very dry year," Ms. Keegan said. "There were fires and threats of more." Environmental concerns and fears that equipment might spark more forest fires kept many logging contractors at home. Thus, production slowed for another reason.

When the rain began to stop, loggers went back to work, mills geared up and houses began to be built, but the margin had been cut too thin.

"When the housing starts picked up, the plywood needed was not readily available," said Dawson. "The housing market was strong."

Added to that strength was the delayed homes that began to go up as well. Mortgage rates were low, new home buyers feared rates would quickly rekindle, so took advantage immediately, and began to build houses they had planned for the future.

"Signs of economic growth emerged in the middle of the third quarter," said the Meyers Group, housing market analysts.

Playing into that already tightened scenario was the purchase by the U.S. military of plywood for use overseas during July. Sources report that International Paper sold all the plywood they would build into the month of November to the government.

"The timing was impeccable," said Dawson. It caused a "slingshot effect" in plywood prices, he said.

That threw other mills into seriously high production to make up for demands.

Georgia-Pacific Corporation showed a third quarter profit in building products segment of $157 million versus only $27 million for the same period in 2002. Louisiana-Pacific Corporation produced 16,444 thousand lineal board feet of composite decking for the first six months of 2003. In 2002 they only produced 8,449 thousand, almost doubling production. In fact, LP reported a second quarter net loss but a third quarter earnings of $124 million with OSB jumping from sales of $56 million in 2002 to $197 million in third quarter 2003, because of the demand for panels.

"The strength of the structural panel and softwood lumber markets provided a long-awaited improvement in our Wood Products segment," said Steve Rogel, chairman, president, and CEO of Weyerhaeuser Corporation. Weyerhaeuser's third quarter report shows their wood products segment jumping from a minus $18 million in 2002 to $151 million in 2003. The companies were raking in money while retailers took the flak from buyers.

Since retailers needed plywood and Oriented Strand Board (OSB) to supply their customers, they were willing to pay higher prices. Contractors lost a portion of their profits.

"I need 200 sheets of plywood for the job I'm working on now," said David Tucker of Tucker Construction Company in Jonesboro, Louisiana. "Six months ago I would have paid $2,600 for 200 sheets of 5/8 inch decking." In today's market, he will pay $4,790 for the same quantity and quality lumber. Three quarter inch plywood decking stands priced at $29.95 per 4X8 sheet. Housing contractors have no choice but to pass that cost on to the buyer.

"They try to find ways to cut costs in other areas," Tucker said. As for using OSB, he said flatly that he "believes in plywood."

"For the last 10-12 weeks, the prices have been steady," said Carl Thibodeaux, at Allied Building Supply in Monroe, Louisiana. "Three-quarters rated sheeting, sturdy floors is still firm. BC and sanded specialty is still at a premium."

However, market watchers said Friday, November 14 that prices were beginning to show weakness. That means retailers who ordered plywood at high prices for delivery in late November may be in a bind as prices begin to decline.

As Ms. Keegan explained, the wood market is cyclical. Prices go up and down regularly.

"This price rise was perfect for struggling mills. It was their turn," said Thibodeaux. "I've never seen anything like it." He also reported that OSB set records during this same period.

"There is a screaming demand for OSB right now," he said.

While the products may appear similar, Thibodeaux explained that OSB is used where needs are structural rather than aesthetic. Either way, the price was high.

"It took a bite out of the construction business," said John Robinson, manager of Turpins Building Supply in Jonesboro, Louisiana.

As for the future, Thibodeaux believes prices could hold steady if the weather doesn't turn rainy again. If demand remains high and mills don't churn out an over supply, he thinks both companies, retailers and contractors will do well in this market. However, if companies play into the pricing, produce more plywood and OSB, Thibodeaux sees the same picture in reverse: more inventory than demand can purchase.

"Our home building businesses continue to operate with a strong backlog and wood pricing is expected to decline seasonally, but remain strong relative to fourth quarter last year," said Rogel of Weyerhaeuser. Others aren't so certain, but everyone in the lumber business is taking the price rise in stride, all the way to the bank.

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