BUSINESS ‘It’s a Crisis’; Lumber Mills Slash Jobs as Trade War Cuts Deep
Date: Thursday, September 26, 2019
Source: The Wall Street Journal
U.S. exports of hardwood lumber to China have fallen 40% this year
The big bet that U.S. hardwood lumber companies placed on China over the past two decades is collapsing.
China was a savior of sorts for the industry after the financial crisis last decade. Customers there kept buying oak and ash boards in large quantities, while construction and furniture production fell in the U.S.
Now, after Beijing placed retaliatory tariffs of up to 25% on imports of lumber and other U.S. wood products, exports of hardwood lumber to China have fallen 40% this year.
The lower demand pushed U.S. hardwood lumber prices down 20% in August from a year earlier and prompted companies to seek government assistance. A slowing Chinese economy also has reduced demand.
“It’s a crisis the likes of which we just never had to deal with before,” said Matthew Gutchess, president of Gutchess Lumber Co. in Cortland, N.Y. “The demand elsewhere is just not absorbing what China is dropping.”
Gutchess’s revenue has fallen 25% this year. In response, the company reduced overtime and suspended contributions to employee 401(k) retirement plans.
Baillie Lumber Co. of Hamburg, N.Y., another large producer, has eliminated several dozen jobs. Lumber processor Northland Corp. of La Grange, Ky., has cut its workforce of 75 people in half.
“Were we relying too much on East Asia and China? Of course we were,” said Orn Gudmundsson Jr., chief executive of Northland. “But there were no viable alternatives.”
Northwest Hardwoods Inc. of Tacoma, Wash., one of the largest domestic producers of hardwood lumber, is closing plants in Buena Vista, Va., and Mt. Vernon, Wash., that together employ 100 people.
Northwest Chief Executive Nathan Jeppson said the Trump administration’s attempt to win trade concessions for the U.S. overall has had an opposite, detrimental effect on a hardwood lumber industry that is reliant on exports to China.
“We feel stuck in a much larger chess match,” Mr. Jeppson said. “My fingers are cramping from how long they’ve been crossed.”
The White House has said the president is standing up to unfair trade practices that harm U.S. manufacturers.
China is the top export market for U.S. hardwood, especially for higher-grade materials used to make furniture like oak cabinets and cherry dining tables. Lower grades remain in demand in the U.S. to make shipping pallets and railroad ties. Softwoods, like pine, are used mainly for construction.
U.S. lumber mills started ramping up exports to China two decades ago. At first it was fashioned there into furniture and exported to countries including the U.S.
Now most of it stays in China to feed a growing fondness for oak furniture and cabinets among the country’s growing middle and upper classes, according to Michael Snow of the American Hardwood Export Council, a trade group.
The U.S. sent 54% of all of its exported hardwood lumber by volume to China in the first seven months of 2018, up from less than 5% in 2000, according to the council. In the first seven months of this year, the share of exports dropped to 41%.
Other countries have been increasing their share of the Chinese market. Russia and Gabon now account for 17% of imports by value through July, up from 12% through July of last year.
Mr. Snow said the closure of U.S. lumber mills could lead to more American logs being shipped overseas to be cut into lumber there. He said it is unclear if those mill jobs would return when the trade dispute eases.
Some lumber companies want to encourage U.S. consumers to buy more hardwood products such as furniture and flooring as the trade dispute continues.
Jim Hourdequin, chief executive of Lyme Timber Co., a private-equity firm focused on land for growing hardwood timber, wants the industry to fund a marketing campaign similar to the “Got Milk?” advertisements the dairy industry produced in the 1990s. A push for such a program failed in 2015 after opposition from some parts of the hardwood industry.
The U.S. Agriculture Department has given more than $5 million to the hardwood lumber industry through its Agricultural Trade Promotion Program, a department spokesperson said.
Some lumber company executives have met with members of Congress and the Trump administration to request aid similar to the assistance that farmers have received since China cut back purchases of U.S. crops and livestock. The Commerce Department said it doesn’t have a mechanism to distribute trade relief to the industry.
“There is no question that these tariffs have virtually destroyed a segment of our industry,” said Steven M. Anthony, president of Anthony Timberlands. “If they are passing money around, I guess we’ve got to get our share.”