A lot of things have broken right for Potlatch Corp., helping the Spokane-based forest-products company in its successful quest to return to profitability this year, Chairman and CEO L. Pendleton Siegel told securities analysts earlier this month.


Higher prices for the companys products, an easing of oversupplied markets, the U.S. dollars softening against foreign currencies, and a favorable labor agreement at Potlatchs Lewiston, Idaho, complex all have undergirded the companys efforts, Siegel told the analysts in Portland.


To say the least, the current year is decidedly more positive for Potlatch than 2002, Siegel said.


Potlatch, a 100-year-old company that operates 15 manufacturing facilities and employs 4,200 people, reported profits of $22.2 million, or 77 cents a share, for the third quarter, and $20.1 million, or 70 cents a share, through the first nine months, compared with steep losses in both year-earlier periods.


In April, prices for oriented-strand board began to rise in response to strong demand, low inventories, and the falling U.S. dollar, Siegel says.


The increases continued into the fourth quarter, fueled by a variety of factors, he says. Oversupplied lumber and panel marketspanel refers to both plywood and oriented-strand board, a plywood substitute used in 70 percent of residential constructionhad held down prices for all wood products in 2002, Siegel says.


This year, the combination of high demand and low inventories, coupled with weather-related curtailment of timber harvesting in the South and wildfires in western Canada, have driven panel prices higher, Siegel says. Potlatch spokesman Mike Sullivan said last week that news reports about the U.S. governments placing of an order for oriented-strand board for the rebuilding of Iraq also got buyers attention, even though by itself, the order wasnt enough to affect pricing.


Siegel also told the analysts theres increasing evidence that duties imposed by the U.S. government two years ago on Canadian softwood lumber imports, coupled with the Canadian dollars appreciation against the U.S. dollar, are slowing imports from that country. In 2002, lumber prices fell to historic lows as imports accelerated in spite of the U.S.-imposed duties. Now, Siegel says, We are hopeful that a long-term negotiated solution will finally resolve our long-standing concern over Canadas subsidized resource-allocation practices.


In the third quarter this year, average oriented-strand board prices were nearly double those in the year-earlier period, while more modest improvements in plywood prices and increased shipments of both plywood and lumber in the first nine months helped bolster Potlatchs latest earnings, Siegel says.


As welcome as the run-up in panel prices has been, a seasonal reduction in demand this winter will cause pricing to decline, although most observers expect the OSB (oriented-strand board) and panel markets to remain relatively robust for the foreseeable future, he says.


Meanwhile, the companys paperboard business has enjoyed generally improved demand this year, with extended order backlogs beginning early in the year, Siegel says. He says that at both of its paperboard mills, in Cypress Bend, Ark., and Lewiston, Potlatch continues to focus on quality and customer service.


Due in large part to the continued dedication and commitment of its work force, our Lewiston pulp and paperboard operation began achieving expanded quality targets late in 2002 and into 2003 as well as making significant improvements in productivity, Siegel says. As we demonstrate consistent quality, we are concentrating on upgrading Lewistons product mix.


He says Potlatch is competing aggressively for a bigger slice of the market for high-end packaging, particularly for cosmetics, and expects that market to grow as the economy improves.


Yet, Siegel gave Potlatchs paperboard operation no more than equivocal approval, saying that the performance of the companys pulp and paperboard assets is far from where we believe it can be.