This is the fourth in a series related to the analysis of timber markets and wood baskets.

While foresters in Germany and in the U.S. South both drink beer and eat meat, they work in local timber markets trending in different directions. In Germany, the price of sawmill residuals such as sawdust has fallen quarter-over-quarter, and year-over-year (data source: EUWID). On the other hand, in the South, sawmill chip prices have increased quarter-over-quarter, and year-over-year since Q2 2014 (data source: Timber Mart-South). Interestingly, pine and hardwood pulpwood stumpage prices have fallen South-wide over these same time frames.

How does comparing, as in this example, German sawmill waste to pine pulpwood prices in Southern states provide helpful insight for capital investments and timber forecasts? What are strategic implications?

While wood pellet plants buy wood raw material locally, consumers buy pellets globally. This speaks specifically to the Germany-versus-South comparison. The European Union (EU) is the world’s largest producer and consumer of wood pellets, but raw material costs and availability have limited “local” production. Germany, for example, has operable, idled wood pellet capacity ready to produce. And this production sits an entire ocean closer to the final consumer. Increased residuals at lower prices in Germany can reduce, moderate, mitigate – pick your term – demand for imported wood pellets from the U.S. and elsewhere.

Capacity changes tell stories of technological warfare. In the South, pulp-manufacturing capacity peaked in the 1990s. Then, the sector contracted. In Alabama alone, mill capacity declined 21% by 2011, while pulp and paper jobs declined 43% (data source: US Bureau of Economic Analysis). The 2-to-1 labor-to-capacity per unit reductions demonstrate the increasingly capital intensive and technologically driven nature of forest products manufacturing.

This case extends to the raw material side, as producers learned to use multiple types and forms of trees. In “Pulpwood and Pulp: Long-Term History” (Forest Landowner, Vol. 64, No. 1), an article I co-authored with Tom Harris and Sara Baldwin a decade ago (!!), we note how pine roundwood went from 87% of total pulpwood production in 1953 down to 44% in fifty years. As pine pulpwood prices rose and as manufacturers invested in new capacity, they learned to use hardwood and residuals.

For those of us studying local timber markets, it’s remarkable to think that in the 1950s, sawmill residuals accounted for less than 1% of pulp mill consumption. Today, the cost and availability of residuals, on a localized basis, help drive capital projects by sawmills, pulp mills and bioenergy plants. This is as true in Germany as it is in Georgia or Louisiana or Arkansas.

 

Forisk will teach “Timber Market Analysis” on August 4th in Atlanta, a one-day course for anyone who wants a step-by-step process to understand, track, and analyze the price, demand, supply, and competitive dynamics of timber markets and wood baskets.