The Portland-based Western Wood Products Association anticipates that demand for wood products will decline modestly next year, but even if it falls as much as the association projects, 2006 still wouldnt be a bad year.


Its a matter of perspective. Butch Bernhardt, the associations spokesman, says that U.S. lumber consumption, after hitting a record 61.8 billion board feet in 2004, was supposed to fall in 2005. Instead, it shot upand now is expected to come in at 63.5 billion board feet for another new high.


In 2006, however, lumber consumption is expected to drop to 61.4 billion board feet, down by 3 percent from this year, but not far below 2004s previous record level.


U.S. housing starts, meanwhile, should top 2 million this year, and the association projects that while they will drop in 2006, theyll only fall to 1.9 million, which Bernhardt says would be not a bad year.


We still believe that interest rates, particularly long-term rates, will rise, Bernhardt says. That will create some inflation, and the Federal Reserve is pledged to fight inflation by raising its own rates, to which many lenders peg their rates, he says.


Bernhardt says the supply of wood products has been strong and should remain that way. In 2005, production at western and southern U.S. lumber mills, Canadian imports, and European imports all were up, and the Canadians expect to boost their production in 2006, partly by harvesting bug-killed timber. The Europeans, who will ship more than 2 billion board feet of lumber into the U.S. this year after sending none here as recently as eight years ago, also plan to boost their shipments to the U.S. Yet, Production in western U.S. mills is projected to be down.


In 2005, the healthy supply caused prices to fall from their lofty levels of 2004, says Shawn Church, editor of Random Lengths, a Eugene, Ore., publication that reports price information.


Prices were largely in retreat in 2005, compared with 2004, until Hurricane Katrina hit, and then there was a peak as far as structural panels were concerned, but not as much with lumber, Church says.


On Sept. 30, structural panels, or plywood and oriented-strand board, peaked in the North American market at $524 per 1,000 board feet before settling back, Church says. They were at $381 last week, but had fetched a historic high of $610 in 2004. In 2005, framing lumber climbed as high as $405 per thousand board feet on Sept. 23, but sold at $362 last week.


Potlatch Corp., the diversified Spokane forest products company, is hoping for improved prices in the markets for paperboard, which it sells for packaging, and for tissue, says Mike Sullivan, the companys spokesman. With the exception of those price improvements, the company is expecting a repeat of 2005, says Sullivan.


He notes that the lumber market has not been gangbusters, but building has held its own. The issue in that market, too, is prices. Theyre not as we would like them, and business is not as strong as we would like it to be, Sullivan says. For now, he says, lumber prices are sufficient to produce an adequate return, but Potlatch will watch interest rates, knowing that a big jump in them could hurt construction and the lumber market.