Timberland investors depend on the demand for wood from forest industry manufacturers. No wood demand = no cash flow. Fortunately, for these investors, topline wood demand in the U.S., while slow and stuttered, continues to grow. Analysis in the Q3 2015 Forisk Research Quarterly (FRQ) compares these trends regionally and across forest industry segments to distinguish and rank timber markets on a local basis.
Sawmills in three geographies account for ~95% of the softwood lumber used in the United States: the South, the Pacific Northwest, and (primarily Western) Canada. Lumber from the Lake States, Northeast, and countries other than Canada typically comprise less than 5% of U.S. consumption. The U.S. South projects to continue to be the largest lumber-producing region in the U.S. At 1.11 million housing starts, we forecast softwood lumber production in 2015 to be 14.97 BBFT in the West, 17.19 BBFT in the South, and 1.55 BBFT in the North. Increasing utilization rates regionally align with capital investment activity; mills continue to move South. Mill-by-mill tracking indicates that open and idled sawmills in the U.S. have the capacity to produce 40 BBFT of softwood lumber.
Reduced demand for pulpwood from projected declines in newsprint and writing paper production is offset by projected increases in paperboard production; through 2020, total paper and paperboard increases at a 1.7% compounded annual rate. The pulp and paper sector has been and continues to make substantive capital investments. Beginning in 2012 and through 2015, the pulp and paper sector has invested $1.4 billion into U.S. facilities. Sector-by-sector analysis finds that household/sanitary production attracted the most capital and improvements. Moving forward, over $1 billion of capital investments have been publicly announced for completion in 2016 and beyond.
Forisk covers regional forest industry capacity by sector during “Investing in Timberland and Timber REITs” in Atlanta on October 8h, a one-day course that details the operations, financial performance, risks and costs of available timberland investment vehicles.