This is the fourth in a series related to the Mid-Year 2014 Forisk Forecast of U.S. timber prices. This excerpt comes from the feature article, which includes research on forecasting U.S. pulp and paper markets.

A private equity analyst recently told me, “Pulp and paper production in the U.S. is a sunset industry.”

Wrong, thanks for playing.  Rather, it’s an evolving industry that consumes 80% of the pulpwood harvested in the United States, continues to attract investment capital, and maintains an “ability-to-pay” for wood raw material that, on a cash basis, can exceed that of OSB plants by 50% and that of pellet facilities by over 100%.

While total U.S. paper and paperboard production has declined, results vary across product categories as profitable categories continue to grow.  Since 1996, total paper and paperboard production fell 12% while household and sanitary paper production increased 21%.  Wrapping and packaging paper declined 2% since 1996, but grew 3% over the last 10 years.  Newsprint has shown the greatest decline (61% since 1996), but it only accounted for 7% of total production in 1996.

To take a closer look at production trends of paper and paperboard products in the U.S., we worked with Dr. Jack Lutz of the Forest Research Group.  Key questions centered on the gross production in the industry given changes in the “digital economy” and how recycling trends may affect virgin fiber (pulpwood and chips) needs.

Key findings from our research include:

• Increases or decreases in paper and paperboard production will, on average, disproportionally affect pulpwood demand versus recovered fiber demand. Why? Recovered paper production has reached a practical maximum of ~60% of paper production and an increasing share of that is exported, while pulp imports and exports have been in balance for the past 45 years
• We use less paper per dollar of GDP.  We analyzed the relationships between paper categories and GDP to forecast paper production and found that paper and paperboard ratios have been falling since the mid-1990s. However, this does not mean we use less paper….
• Projections indicate that total U.S. paper use increases slightly.  Paper production inches up as growth in paperboard and packaging offsets declines in newsprint and printing and writing paper.

 

Overall demand for wood used to make pulp for paper holds steady, though a few markets for pulpwood remain vulnerable to closures of newsprint and printing and writing paper mills or machines.  When forecasting potential impacts on pulpwood prices, strong growth in pulpwood use ties to those markets with substantive OSB capacity and operating or viable wood pellet projects.

To learn more about the 2014 Mid-Year Forisk Forecast or Forisk’s market-specific forecasts of stumpage (timber) and delivered wood prices for individual wood-using facilities or timberland ownerships in the US, contact Brooks Mendell at bmendell@forisk.com, 770.725.8447.