The worst may be over for beleaguered Northwest sawmills. That's according to a 2010 forecast for the region's lumber industry. It was produced by the Western Wood Products Association. They say their industry hit bottom in 2009 and can now look forward to a slow recovery. But that outcome largely depends on one big factor — a revival of the US housing market. Correspondent Tom Banse has the tale of two mills from one timber town — Shelton, Washington.

Sawmilling is in Dwight McKay's blood. He manages the Simpson Lumber Company's operations in Shelton. McKay's father was the mill manager here before him.

Dwight McKay: "Actually, I've worked for Simpson almost 35 years. That's how long I've been in the lumber business. It's probably been personally my roughest year."

McKay and his boss, Simpson Lumber General Manager Doug Reed, put in earplugs before taking me for a walk through the cavernous mill buildings. It's policy and habit. Listen if you think it's necessary.

Sound: [Telling sound of a silent mill.]

Dwight McKay: "This was the sound of 2009 way too much."

Doug Reed: "If you were here when it was running it would be pretty deafening. Just lots of lumber falling and stacking. Big pieces — 20 foot 2x12's — slapping into each other. They make a lot of noise."

Sawmills and woodworkers have paid a heavy price during this downturn. An industry newsletter out of Eugene estimates since 2007 at least 35 mills have gone out of business in the West. The waterfront mill I'm visiting has reduced from two shifts down to one. Doug Reed says the remaining shift lately works for about a week, than goes on furlough for a week because of anemic demand.

Doug Reed: "We've been curtailing a lot. Our hopes for 2010 are basically that we're not planning to add any more shifts. In the long term, we need to add shifts in order to make this business profitable. We're not planning to add shifts. We just want to run the shifts that we've got on a more consistent basis."

Doug Reed says his company spent tens of millions of dollars to modernize at the beginning of the recession. He says improved efficiency is a key to survival. It makes it possible for mills to make money despite lower lumber prices.

Company executives here and elsewhere are exploring new revenue sources such as carbon credits or burning sawdust, shavings and tree trimmings to generate "green power." But Reed says future profitability still comes down to the health of US home construction.

Doug Reed: "Housing starts have fallen through the bottom of the floor basically. We're trying to make more lumber that might go to home center applications — called the over–the–shoulder trade — where people do something in their backyard. But obviously, the big horse for us is housing. We probably won't feel really good until housing gets better."

Simpson Lumber owns the most prominent mill in Shelton, but it's not the only one.

Sound: [Operating lumber mill ambience.]

Tom Banse: "About five miles away as the crow flies is Mason County Forest Products, another slightly smaller mill. Here it's more the typical racket you imagine. Discarded ear plugs litter the parking lot. The reason this mill is running according to CEO Phil Johnson is exports."

Phil Johnson: "Early on, we were zero percent export. I think probably except for a few lower grade items, right now we're really 100 percent export, and have been for the last two quarters."

Johnson is an Oregon native and comes from a longtime timber family. Near the peak of the housing boom, he bought two Washington lumber mills. Now, one of them in the small town of Winlock is shutdown indefinitely. The other one here in Shelton survives because it has been retooled to supply overseas markets.

Phil Johnson: "We understand and we talk metric now. You know, we don't make 2x4's. We make 45x90's."

The mill sells boards, studs, and trim to Japan, China, the Philippines, Taiwan, France and Germany. Healthier economies and the weak US dollar combine to feed demand from overseas.

Johnson figures he's done laying off people. In fact, he says he's added a few workers recently.

Phil Johnson: "I agree with what everyone's thinking. Domestically, we're going to have a slow, hopefully steady improvement."

But this industry veteran also warns overcapacity remains in the Northwest. There just isn't enough demand to sustain all the mills that are left.