Article by DK Knight
Executive Editor/Co-Publisher
As spring makes its 2017 mark, the state of the logging industry as a whole appears to be a mixture of good, steady, so-so, not so good, and for some, as challenging as shoveling thick fog.
Market conditions may be the best in the West, where supply and demand reportedly remain pretty well balanced. In the northern tier, most mills are said to be in decent shape with inventory, but there are some concerns about short-term supply going forward. Stumpage prices, particularly in Wisconsin and Michigan, remain stubbornly high, as I understand it. From those states to Maine, markets for softwood pulpwood generally are tight if not non-existent. Pay rates have also dropped.
Conditions are worse in the South, where for months now many loggers continue to struggle with short work weeks triggered by overflowing mills. Those delivering to a few mills that have curtailed or temporarily stopped output due to unexpected repairs, routine maintenance or market-related reasons have been hit particularly hard. For the more fortunate not thus impacted, stress is building from prolonged quotas; long lines; frequent job relocations; ongoing labor-equipment-insurance expenses; purchased timber commitments; weather interruptions; trucking woes and lower rates. In some locations factor in excessively long distance hardwood pulpwood markets, if they exist at all.
If these conditions persist, and they probably will, odds are they could lead to some logging business casualties in coming months. Two to three years ago the region’s logging community did what the softwood sawmill collective usually does when demand exceeds supply: It invested heavily in machines and expanded capacity to its own detriment. There is simply too much logging capacity in place, and until that capacity is diminished or demand rises, the pain will continue.
Pulp-Paper Backslide
Not to be negative, but out of realism, let’s consider the nation’s consolidation-prone pulp-paper sector, by far the largest consumer of fiber. It continues to gradually contract, having given up 9 million tons across the 2012-2016 period, according to RISI, a reputable global forest industry information provider. RISI estimates 2016 pulp-paper fiber consumption—down roughly 1% from 2015—at 250 million tons, a level not seen since the dreary days of 2009. RISI reports more than 4 million tons of capacity evaporated last year alone due to mill closings, paper machine shuts, repairs, and so on. Consumption could slip again in 2017 due to various types of outages and ever-weaker demand for printing paper grades and newsprint, not to mention offshore competition.
Interestingly, the last new pulp-paper mill to be built in the U.S. (1990) was Willamette’s facility at Bennettsville, SC. However, a new one, much larger, may be on the horizon in the form of Shandong Sun Paper, a Chinese firm that says it intends to invest $1.3 billion in a pulp-paper and bio-products mill in southwestern Arkansas just south of Arkadelphia. At full capacity, the facility would require almost 4 million tons per year. The site reportedly has been purchased and the project is said to be in the permitting and engineering phase. Some are skeptical that the so-called Gum Springs mill will become a reality, but right now it looks promising and certainly would be a positive turn for pulp-paper.
Lumber Looks Good
What about other markets, particularly sawmills, panel plants, and pellets? Looking at this group, and considering the remainder of this year and this decade, it appears that related wood fiber demand will increase, depending on where you get your mail.
A stronger economy is expected to spur housing starts, prolong remodeling/repair momentum, and fortify retail sales, all of which would require additional building materials and packaging. A new softwood lumber trade deal with Canada is likely forthcoming and would be a sweetener. Also, commercial pellet demand could increase abroad, resulting in a few more new plants. A wild card could be the European Union, which reportedly may start buying more U.S. logs, and possibly lumber, to meet growing housing demand there.
Softwood sawmill capacity continues to expand, extending a three-year trend, and with Arkansas in the spotlight. Weyerhaeuser’s gigantic new mill at Dierks should be ready late this year, and Caddo and Conifex are respectively reviving mills at Glenwood and El Dorado. Last year G-P completed a major expansion at Gurdon and earlier Interfor modernized its facility at Monticello.
Investments in Mississippi include Biewer’s new sawmill at Newton and Weyerhaeuser’s updated sawmills at Philadelphia and Bruce.
In Alabama, Weyerhaeuser is converting its Millport stud mill to a dimension mill and a new company, Two Rivers, is building a new sawmill near Demopolis.
In the Carolinas, West Fraser is increasing output at Newberry, SC by 33% and has upgraded its mills in Seaboard and Riegelwood, NC. Klausner’s new sawmill at Enfield, NC awaits startup, but its future is uncertain. Problems persist at the Austrian company’s first U. S. sawmill, a European model that opened in White Oak, Fla. in 2015. A recent setback there came at the first of the year when most loggers delivering to the mill balked after the company failed to pay them for several weeks. Operating the mill only part time, Klausner has since chipped away at those debts and says it will make all suppliers whole. Even so, look for the Enfield mill to open later than sooner.
Other recent new/expanded sawmill projects include JD Irving, Ashland, Me.; West Fraser, Mansfield, Ark.; Interfor at Meldrim, Ga., Georgetown, SC and Longview, Wash.; Sierra Pacific, Shelton, Wash.; the Jordan family’s mills at Barnesville, Ga. and Mt. Gilead, NC; Fly Tie & Lumber, Granada, Miss., and Red Oak Lumber, Culpepper, Va.
On the hardwood lumber side, demand for flooring and upper grades should hold steady or possibly increase, but demand for industrial products near-term could remain flat. If infrastructure projects take off, hardwood industrial products would benefit.
One potential downside to all this sawmill investment is that sawmills produce chips, sawdust and bark, and in some locations an increase in these byproducts could impact the pulp-paper sector’s appetite for roundwood, not to mention chips and boiler fuel coming out of the woods.
Panels A Plus
On the panel side, OSB output should advance again this year and next, with the big news coming out of Texas in RoyOMartin’s big new mill at Corrigan. Huber has announced it will restart its facility in Spring City, Tenn., and LP may restart the former Ainsworth plant it now owns in Cook, Minn. There could be another plant restart or two in the mix.
According to RISI, U.S. OSB plants took in just over 24 million tons of pulpwood fiber last year and this is expected to increase by about 5% in 2017 and advance again next year.
Other panel projects recently completed or in the works include Swanson’s rebuilt plywood plant in Springfield, Ore., Arauco’s massive particleboard plant in Grayling, Mich.; Kronospan’s multifaceted expansion near Oxford, Ala.; and Swiss Krono’s fiberboard and laminate flooring’s investment in Barnwell County, SC.
Pellets Too
On the pellet front, three new plants—Colombo Energy, Greenwood, SC; Highland Pellet; Pine Bluff, Ark.; and Enviva, Sampson, NC—have come on line in recent months and are gradually increasing production. Collectively, they will require perhaps 1.5 million tons of fiber annually at full capacity. On the downside, production problems persist for two plants in Alabama; Enviva has shut its small plant in Wiggins, Miss., and the large German Pellets facility in Urania, La. remains idle.
However, brighter days may be ahead for the pellet sector. That’s the outlook of Enviva’s top executive, John Keppler, who visualizes a global pellet demand/supply imbalance of perhaps 6 million tons by 2020. The company is currently building another large plant at Hamlet, NC. Anticipating new demand from Asia beginning in the next year or two, Enviva, along with Drax, another major pellet producer, and at least one other party, is interested in that German Pellets plant in Louisiana, and another German Pellets facility in east Texas. As well, Enviva may be favoring Abbeville, Ala. for a new greenfield plant.
U.S. pellet plants could consume roughly 10 million tons or more of pulpwood fiber in 2018.
An orderly, efficient balance in the wood supply chain is very hard to come by and, when found, doesn’t seem to last all that long. Perhaps it has always been this way, and it is not likely to change going forward.