SPI readies for economic recovery

VERTICALLY INTEGRATED: Family-owned and operated for three generations, Anderson-based SPI owns nearly 2 million acres of timber lands and operates 11 sawmills, eight bio-mass cogeneration plants, millworks, window and door manufacturing operations in California and Washington.

Despite recent headlines touting an uptick in new home construction and existing home prices, West Coast and Canadian lumber producers are hunkering down and awaiting confirmation that the U.S. recession has truly hit bottom.

"We thought there might be a bit of a bump up in the fourth quarter (of 2009) so this is welcome news," said Mark Pawlicki, director of government affairs for Sierra Pacific Industries. "It is too early to put on our party hats, but the market is better than it was."

Based in Anderson, Sierra Pacific Industries or SPI is a third-generation, family-owned and operated forest products company that is the second-largest lumber producer in the United States with sales in 2008 estimated at $1.5 billion.

Only Weyerhaeuser Company, based in Federal Way, Wash., which had 2008 sales of $8 billion, is larger.

But with wholesale lumber prices near what they were in 1991 and housing starts for 2009 projected at a fraction of what they were in 2005, the lumber market has a deep hole from which to dig itself out, said Mark Lathrop, SPI's community relations manager.

"The best industry-wide guess it that there will be 750,000 housing starts this year. That is better than in the most recent years past, but compared to a few years ago when there were 2.3 million housing starts, you can see that it is still a fraction of what it once was," Lathrop said.

Indeed, since January, SPI has eliminated a third shift (24 jobs) at its small log sawmill in Anderson, cut the work week at its mills in Burney, Quincy and Sonora to 32 hours, reduced production at its Arcata sawmill (48 jobs), closed its small sawmill in Quincy (140 jobs) and Camino (164 jobs) in June and plans in August to close its sawmill and a biomass-fueled electric power plant in Sonora (146 jobs.)

The loss of those 522 jobs represents a nearly 12 percent reduction in total employment from the 4,400 jobs SPI traditionally reports, Lathrop explained.

Pawlicki cited several reasons for the mill closures including market, regulatory and legal concerns:

- drops in new home construction that has reduced both the demand for lumber and the price of finished products

- dramatic reductions in national forest and private timber for sale that have made supplies uncertain

- increasing complexity and costs of California's timber harvest plan review process that has slowed plan approval while at the same time making it more difficult for the company to adjust to market conditions.

Shasta County's Crop Report for 2008 shows significant increases in timber harvests for each of the past two years, yet the value of that harvested timber continues to drop almost as precipitously, noted Pawlicki.

"The fires that occurred last summer in a large area west of Redding have resulted in a lot of salvage harvests and the value of salvage logs is down considerably from green timber. And with housing starts so low, even green timber values are down quite a significant amount," he said.

Even with lumber prices at their lowest mark in nearly 20 years, home remodeling is off by at least 50 percent, Pawlicki noted.

"We are a cyclical industry that follows the markets, primarily the housing market. If you go back to 1991, the average price of 1,000 board feet of framing lumber was about $240 while in 1994 it soared to nearly $410. Prices peaked in 1997 at $425 per 1,000 board feet. For most of 2009, we've been just below $200 per 1,000 board feet," Pawlicki said.

According to Random Lengths Publications, Inc., a lumber industry newsletter based in Eugene, Ore., the U.S. consumed 64 billion board feet of framing lumber in 2005.

This year, the projections are for 32 billion board feet.

How does SPI intend to survive the downturn and ready itself for the anticipated upswing in construction?

"We have very efficient operations so we can produce lumber at very low cost. We also have state-of-the-art equipment and we continue to upgrade that equipment even during bad times. When the market does turn around, we are usually the first to come out of it. We'll be there and ready for the market when it does rebound," Pawlicki said.

Meanwhile, the company is exploring several other avenues for maximizing its assets, which include ownership of nearly 2 million acres in California and Washington.

SPI has developed some of its land and built subdivisions on parcels that are close to existing communities, Lathrop said.

In one case, the Amador Central Buisness Park, an old mill site was transformed into a modern retail center 40 miles southeast of Sacramento.

Closer to Anderson, Mt. Lassen Woods on the outskirts of Shingletown is a four season, single-family development while Baily Creek at Viola is a four season large-lot subdivision offering timbered lots ranging in size from 40 acres to 60 acres along Bailey Creek.

SPI has also participated in several subdivision in and around Redding

While fines for greenhouse gas emitters don't kick in until 2012 in California, SPI is also exploring trading credits earned by its timber producing lands in a complex and somewhat controversial plan often referred to as carbon offsets.

"We are participating in the protocol development process on the issue of carbon offsets because we grow so much wood," Pawlicki added.

And with its six biomass co-generation plants in California and another two in Washington State, the company is a net producer of energy that consistently sells about 100 mega-Watt hours of power.

Over the course of a year, a mega-Watt hour is enough electricity to completely power 750 to 1,000 houses, Pawlicki said.

The company is also managing its forest lands to protect 247 different species of animal and plant life.

"We are proud of what we do and we have a lot going on," Pawlicki added