NEW YORK (CNN/Money) -
Lumber companies better get ready -- the war in Iraq is already boosting demand for building materials in the Middle East, but once the war is over, wood could become as hot a commodity as oil in the rebuilding of Iraq.
Frank Johnson, spokesman for the Defense Supply Center in Philadelphia, a unit of the Department of Defense (DOD) that procures clothing, food, medical, and other industrial supplies for the military, said several top lumber suppliers have already been alerted about ramping up their product lines.
"About 60 percent of the lumber, plywood and other wood products going to the Middle East is for the U.S. Central Command Center in Doha, Qatar," Johnson said. "That material is being used to construct support structures for troops. Lumber hasn't gone into Iraq yet, but we'll need more of it to set up structures for troops in areas like Basra when it's safe to do so."
Tom Laversen, supervisor and commodity business specialist with the Defense Supply Center, said the DOD at the moment gets most of its lumber from smaller companies that subcontract from big producers such as Weyerhaeuser (WY: down $0.16 to $47.41, Research, Estimates) and Georgia-Pacific (GP: up $0.02 to $14.32, Research, Estimates), but those companies are also top plywood suppliers to the military.
But the big producers may be called to duty directly when the war ceases and the reconstruction phase in Iraq gets under way.
"Right now we're forecasting demand for that scenario," Johnson said. "We need to get an idea of the products that are required and the capabilities of our suppliers. The demand could be huge, and the contracts could be very big."
A spokeswoman for Atlanta-based Georgia-Pacific, the No. 2 building products company after International Paper (IP: down $0.02 to $34.63, Research, Estimates), said it has been contacted recently by the DOD in relation to "supply issues" but would not say whether that pertained to Iraq.
Weyerhaeuser spokesman Bruce Amundson said that although the Federal Way, Wash.-based company has not had any direct inquiries from the Pentagon, some of its smaller customers have.
Jennie Boardman, spokeswoman for Stamford, Conn.-based International Paper, said the company has no big U.S. military contracts.
"We have not yet had any contact from the Department of Defense regarding this matter. But obviously we would be more than happy to talk with them and give them any information they need about our products to determine how best to fill the supply need," Boardman said.
The Pentagon has an annual budget of about $7.8 billion for non-weapons-related military supplies, with about $2.5 billion earmarked for lumber and other products, Johnson said.
"The wood industry would certainly welcome boosted demand, especially since the pricing for wood hasn't been that strong despite a good housing market," said Steven Chercover, analyst with D.A. Davidson.
Industry watchers blame the pricing problem on stiff U.S. tariffs on softwood lumber imports from Canada. The United States imported nearly $6 billion of softwood lumber from Canada in 2001, about one-third of the American market.
"The policy appeared to have backfired. Production increased in Canada. So we had increased supply, less demand and prices fell," Chercover said. "But if Iraq is a source of incremental demand for wood, that would be fabulous. I really anticipate it being used for more temporary housing for troops in Iraq than for any broadscale infrastructure repair."
But Chercover said he was skeptical about whether the demand from the military would be big enough to move lumber prices higher. "We would really need for the DOD to quantify the demand to assess whether prices for wood could rise in the market as a result. I don't think the consumer has something to worry about right now."
Meanwhile, Portland, Ore.-based Sylvan Industries, one of the top suppliers of lumber to the DOD, with annual contracts from the military ranging between $5 million and $20 million, has been asked to ramp up its supply of lumber, "although it hasn't been substantial yet," said Cindy Blackman, manager of government sales for the company.
"We have to be ready to ship within seven days of getting an order," Blackman said. "I do anticipate the demand spiking significantly in the coming weeks."
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