The South Australian Government says it is prepared to pour millions of dollars of assistance into a major timber business in the south east.
Timber company Carter Holt Harvey says it is losing millions of dollars at its Mount Gambier milling facilities.
The company says the losses are partly caused by having to pay too much to the government-owned Forestry SA for logs.
It says more than a thousand workers would lose their jobs if its mill facilities closed and has also blamed cheap imports for lowering prices.
Treasurer Jack Snelling says the Government cannot force Forestry SA to lower its prices but has offered Carter Holt Harvey a multi-million-dollar assistance package.
"In the past we've made significant financial commitments to companies such as Holden in order to protect jobs and we're prepared to do that again with Carter Holt Harvey," he said.
"We hope we're in a position very soon to go back to Carter Holt Harvey with another offer of assistance." Mr Snelling says it is not up to Forestry SA to slash log prices because companies are struggling.
"Forestry SA have an independent board.
Like most government enterprises, they operate at arms length from government and they have a statutory obligation to run their business on a commercial basis," he said.
"They can't go discounting their timber, their saw log, in a way that is uncommercial." Workers protest Brad Coates from the Forestry Union (CFMEU) says workers may hold industrial action to force the Government to negotiate the price of raw timber.
"We've met with our members at Carter Holt Harvey yesterday and today," he said.
"We discussed a number of things we believe we should be doing about it.
One of those includes possible protest action against the State Government if we can't get the parties together to resolve this issue." He says it is within the Government's power to intervene and lower log prices.
"The industry needs some relief on log prices and we think that the forward sales should be deferred and that the Government and the company all should get back round the table and be serious about getting some sort of a solution," he said.
Forward sale backlash Family First MP Robert Brokenshire says the situation proves plans for the privatisation of state forests should be put on hold.
Mr Brokenshire chaired a parliamentary inquiry which recommended the planned forward sale be scrapped.
"This is just the start of what we could see over the next five to ten years if it's privatised.
It's the wrong decision," he said.
"Now that a major miller has come out and said they're at risk, stop the sale and guarantee sustainable supply." Mount Gambier Mayor Steve Perryman says the company has made its position clear over possible job losses.
"The words of the five page letter that Carter Holt Harvey have released yesterday really bring that into true focus," he said.
"They're saying there's a choice between having a local manufacturing sector or a forestry industry that simply exports logs.
They're being squeezed from both ends." But the Treasurer says the situation has nothing to do with a State Government plan to sell Forestry SA's assets.
"This is entirely related to market conditions for structural timber in Australia and those market conditions are caused by the high Australian dollar, a flood of cheap imports of structural overseas and the slow housing market," he said.
Mr Snelling says an announcement on the proposed sale of forest assets is expected in coming weeks.