Prices of Washington Logs Sold to Japan Crashes
11/17/97
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Headline: Prices of Washington Logs Sold to Japan Crashes
Source: Puget Sound Business Journal
Date: 11/17/97
Author: George Erb, Staff Writer
Copyright 1997, Puget Sound Business Journal
Log export market crashes to earth
Japan's slump is partly to blame
The average price of Washington logs sold to Japan has
nosedived in what some industry experts are calling the
state's worst log-export market in more than a decade.
Prices for a benchmark grade of Douglas fir plunged
between 25 percent and 50 percent since the first of
the year, according to different industry estimates.
"It's terrible right now," said Jerry Hendricks,
executive director of Washington Citizens for World
Trade in Port Angeles, an association of log exporting
companies. "It's tanked."
Trade experts are blaming the downturn on Japan's
wobbly economy and a new tax that took the steam out of
Japan's home-building boom. Other nations also are
selling logs to Japan, contributing to the glut.
In the Northwest, companies are cutting down fewer
trees, taking logs out of the export market and selling
them in domestic markets instead. Dock workers have
less to do at the state's largest log-handling ports.
The downturn has even affected the earnings of some of
the Northwest's largest wood-products companies,
although not dramatically, according to analysts'
reports.
Log prices can fluctuate dramatically, but the sheer
speed of this plunge has surprised many market
observers.
The average price for a benchmark grade of Douglas fir
sold to Japan was $634 per 1,000 board feet in October
-- down 48 percent from $1,212 in late 1996, according
to the Washington Log Market Report, an industry
newsletter.
"What we're seeing is an absolute record collapse of
Douglas fir export prices," said Bruce Lippke, director
of the Center for International Trade in Forest
Products at the University of Washington.
Douglas fir accounts for most of the state's log
exports to Japan, which is by far the largest overseas
market for Washington logs.
Washington exporters first noticed the plunging prices
this summer. Since then, they've been adjusting to a
bear market in export logs.
The volume of logs shipped through the Port of
Longview, one of the state's largest log-exporting
ports, is down more than 10 percent from 1996, said
Gary Lindstrom, the port's marketing director.
"Ten percent is not anything to get overly concerned
about, but it's definitely going to slow down our
income statement," Lindstrom said. Wood products
account for a little more than one third of the port's
exports.
Companies are bailing out of the export market by
moving logs and lumber into domestic markets, industry
experts say. Now domestic prices have weakened,
apparently because so much more wood is staying at
home.
"Everybody has adjusted to this new level of demand,"
said Bill Brown, vice president of resource management
at Plum Creek Timber Inc. in Seattle.
Because of the market conditions, some analysts have
reduced their earnings estimates for some of the
Northwest's publicly traded wood-products corporations.
Piper Jaffray last month reduced its earnings estimate
for the Weyerhaeuser Co. of Federal Way, in part
because of the collapse of Japan's log market. Even so,
analysts kept their "strong buy" rating on the
company's stock.
Jensen Securities Co. of Portland recently cut its
earnings projections for Plum Creek, Weyerhaeuser and
Willamette Industries, partly because of log-export
woes. Nonetheless, the stock of all three companies
still merited Jensen's "outperform" rating.
Industry experts are pinning most of the blame for the
bear market in logs on Japan's weak economy and a
consumption tax of between 3 percent and 5 percent that
took effect April 1.
Japanese developers, many of whom were apparently
trying to beat the tax, started construction on more
than 1.6 million housing units last year -- one of the
busiest years on record.
But the pace of home construction is off as much as 18
percent this year. Japanese developers are now expected
to build between 1.3 million and 1.4 million units in
1997, industry experts say.
Most industry observers expect the log-export market to
stay in the dumps well into the first half of 1998.
Even then, few expect log prices to climb to the
heights seen in the last two years.