The International Wood Markets Group's 2008 annual ranking of top lumber producers said West Fraser also displaced Washington-state-based Weyerhaeuser Co. (NYSE: WY) from its "perennial position" as North America's largest softwood lumber producer.

West Fraser, which ranked number two in the industry in 2007, switched spots with Canfor because it was able to cut less production in 2008, said Gerry Van Leeuwen, vice-president of the forest consultant group behind the report.

"Companies with less downtime are perceived to be lower cost producers," Van Leeuwen said.

"The highest cost mills should be shutting down. Highest cost, greatest loss."

The report shows West Fraser's production at 12 mills fell four per cent to 3.4 million board feet in 2008, compared to Canfor's 20 per cent production drop at 15 mills to 3.3 million board feet.

Van Leeuwen said West Fraser also surpassed Weyerhaeuser because the U.S. company is purposely shifting away from manufacturing.

While lumber producers lost money in 2008 as a result of the U.S. housing collapse, Van Leeuwen said West Fraser's top spot shows its commitment to lumber production and its strength in Canada, "relative to economic times."

Analysts say West Fraser's rise to the top isn't surprising because the company is considered one of the most cost-efficient lumber producers in Canada.

"Historically, they have had better margins than Canfor," said BMO Capital Markets analyst Stephen Atkinson.

Lumber prices, currently at their lowest level in about 25 years, are not expected to recover any time soon as the number of unsold new homes in the United States - where the bulk of Canada's lumber is shipped - remains near record highs.

Unsold inventory was at 12.2 months in February, up moderately from the record high of 12.9 months in January. A balanced market is considered to be about six months of supply.

Total softwood lumber production in Canada dropped by a "staggering" 20.5 per cent in 2008 to 23.8 billion board feet, compared with 29.95 billion board feet in 2007, according to Wednesday's consultant report.

Despite production curtailments, the top 20 firms in Canada increased their share of total Canadian softwood lumber production from 68.5 per cent to 71.8 per cent. The top six companies accounted for 50.5 per cent of total Canadian production.

While 2008 was an ugly year in the industry, the report said the continued downturn in the U.S. housing market will likely lead to more production curtailments, and possibly even some bankruptcies in 2009.

"The Top 20 company production statistics for 2008 indicate that the pain will not be felt equally and this is expected to lead to further changes in the Canadian lumber industry landscape," the report states.

It predicts a "sustained rebound" in 2010."

West Fraser shares closed up 15 cents at $23.56 on the Toronto Stock Exchange Wednesday, with a 52-week range of $20.03 to $39.84.

Canfor shares closed up six cents at $4.72, with a 52-week range of $3.86 to $11.10