Despite a blip in housing starts in the US, general construction, new housing and refurbishments remain a driving force for timber businesses. As the construction season got under way, the positive effect on first quarter earnings was apparent on both sides of the Atlantic.

This has led to continued activity among major corporates restructuring their construction-related operations for greater profit, and even some good news about the US-Canada countervailing duties (see below).

Travis Perkins plc increased pre-tax profits by 26.6% to £110.5m for 2001. Chief executive Frank McKay said there had been investment in timber milling operations to increase efficiency and the availability of products to branches, which will be rolling out ranges of engineered wood products, including Trus Joist‘s, Silent Floor system and I-beams.

Timber frame has also been riding high. Charles Grant, chairman of the UK Timber Frame Association, said: ‘Housing is clearly still driving forward at a brisk rate and timber frame is certainly buoyant as a result.’

UK housebuilder Westbury turned in a record 14% increase in annual profits for 2001 and says production at its Space4 prefabricated timber house factory will increase dramatically this year.

Pace Timber Systems increased turnover by 270% last year with a further 50% rise expected this year. The Milton Keynes-based company has been working with around 20 of the UK’s leading housing associations.

The Stewart Milne Group announced a 10% increase in operational profits with a new £10m timber frame factory at Witney.

Decking sales

Garden decking also had another year of bumper sales. Howarth Timber Importers, which markets the Arbordeck range, says its doubling of sales in 2001 could be followed by another increase by as much as 50% in 2002.

In the US, the world’s two biggest DIY retailers, Home Depot and Lowe’s, experienced soaring profits in the fourth quarter of 2001 with increases of 53% and 55% respectively. Both companies attribute the rise to demand for building.

Georgia-Pacific (G-P) has ordered the ‘strategic separation’ of its building products operations from its consumer products and packaging business. It is the final move in the creation of The Timber Company through the acquisition of Fort James Corp. G-P said that, for the past five years, it has been taking deliberate steps to unlock the full value of the company.

Building products helped G-P turn around a first quarter loss of US$23m last time into earnings of US$70m for 2001. Chief executive Pete Correll said: ‘Our first quarter 2002 results were positively impacted by significant improvement in our building products business. We are anticipating further improvement in our building products business as construction and remodeling activity enters its strongest season.’

One of the boom areas was OSB. Boise Cascade was one of several North American businesses that attributed improved sales of the material for better financial results. Boise Building Solutions made a profit of US$8.8m, compared with a loss of US$7.5m last time. A com-pany spokesperson said wood products prices, such as OSB, lumber and plywood, were significantly higher than the same period a year ago, but these were offset by weak paper and office products sales.

Nexfor, which recently acquired the OSB assets of International Paper at a cost of US$250m, believes OSB continues to be the most attractive opportunity for growth, along with European panels. Nexfor is now one of the world’s largest OSB producers with 10 mills in North America and the UK.

Buying into OSB capacity rather than adding it, is the key, according to Louisiana-Pacific (L-P). Chief executive Mark Suwyn said: ‘Our OSB operations were profitable with improving prices and production costs that were 10% below the same period last year. Unfortunately, we still have several businesses, including plywood and industrial panels, that continue to lag due to commo-dity pricing and our higher cost positions.

L-P cut its first quarter loss to US$3m from US$89m for the same period in 2001. Mr Suwyn said: ‘While our earnings are not yet at an acceptable level, we have made substantial progress in lowering our costs and improving our operations.’

In Europe, UPM-Kymenne continued to struggle with capacity under-used at 85%, although the company expects this to improve in the second quarter. Turnover in wood products was about the same as for the previous quarter. Sawn timber was sluggish, plywood weak, but building supplies progressed steadily.

Stora Enso reported operating profits in line with the previous quarter at e274m, equal to 8.5% of sales. Turnover was also virtually unchanged at e3.3bn.

Efficiencies helped Finnforest to boost profits for the first quarter to e9.8m from e2.1m, making profits before extraordinary items of e1.1m from a loss of e4.2m.

Countervailing duties

As the US introduced tariffs averaging almost 30% on Canadian lumber, Canada’s largest sawmill companies appear ready to absorb the duties – as long as prices are maintained.

Canfor Corp and Weyerhaeuser Canada have said they will settle for lower profits rather than lose customers – such as the massive Home Depot – in the middle of a US housing boom.

The price of lumber in the US has risen as the economy has improved and the US building products sector, fearful that its supply of inexpensive Canadian wood is about to be interrupted, has stockpiled large quantities.

Canfor shipped 10% more timber in the first quarter at prices 36% higher, which turned a C$13.8m operating loss into C$11m profits. Canfor remained Canada’s largest lumber producer at 2.26 billion bd ft last year, up 11 million bd ft.

Although there have been job losses and more are expected, the Canadian mills have posted good sales and profits in recent months. Industry experts in the US and Canada say Canadian companies, no longer constrained by a quota system, have enjoyed robust sales.

But one of British Columbia’s largest timber firms, Doman Industries, is already in financial trouble after missing an interest payment on part of its C$1bn debt. The company, which has nine sawmills employing about 4,000 workers, partly blames the softwood lumber dispute, citing significant disruption to operations, with major downtime at its sawmills. Year-end losses were C$413m, a dramatic increase on the C$39.8m loss in 2000.

The US International Trade Commission ruling to go ahead with the duties did not make them retrospective, so about US$760m in preliminary duties set aside since last year will now be refunded.

Canada’s international trade minister Pierre Pettigrew said that the Canadian government would not necessarily bail out its lumber mills and communities if the feared huge losses materialise.