With demand for logs so high, prices have been driven up to over $600 per thousand board feet. Millers are saying this price is too high to even make a profit on milling raw lumber.
Following Porter's Five Forces, the milling industry has become less attractive because supplier power has increased, substitutes have increased, and industry rivalry has increased. Suppliers to the mill industry are raw lumber producers; with demand so high, they have more power to expect high prices and be more selective who they sell to. For lumber producers, it is cheaper to ship lumber to China than it is to truck it up to Washington for milling. With China able to pay more for lumber and with costs lower to ship to China, it is no wonder the US milling industry is struggling.
Additionally, sawmill operators now compete with paper mills and wood chip vendors. This increased rivalry is due to the fact that the US housing market collapsed and lumber is in lower demand.
This analysis shows that it is not a good idea to enter the lumber mill industry. As long as China keeps demanding raw lumber, prices will be pushed ever higher for mills. It is hard to dramatically increase the supply of logs because there is limited land space and it takes a long time to grow trees. Companies in the mill industry will have to find a way to either increase their prices and pass rising costs on to consumers or enter other profit pools.
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