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Evaluating Mill Risk and Investments when Analyzing Timber Markets and Wood Baskets

When assessing timber markets and wood baskets for forest industry and timberland investments, one line of analysis focuses on the “riskiness”, likelihood and competitiveness of existing and announced wood-using manufacturing facilities in and near the market. Timberland investors want to confirm that (1) announced mills get built and (2) existing mills remain open to buy their trees and logs. Existing wood-users have interest in the health of current and potential competitors for wood raw material. And new wood-using projects – such as greenfield sawmills or firms expanding capacity – want a sense for the sustainability of local timber supplies, labor pools, and markets for manufacturing residuals.

When analyzing mill risk and the viability of announced wood-using investments, consider three categories of analysis:

  1. End markets. Are the end markets – such as newsprint versus fluff pulp versus linerboard – served by the mill strong or weak? The answer to this question is observable and can be answered with readily available data. During an expansion in housing markets, timberland investors get more excited about the impact of a new local sawmill than a pellet plant. The high level answer to this question, along with the requisite breakdown of mill capacities by type in the market, provides a powerful, first-cut at the situation for mills in the market.
  2. Firm commitment. Ultimately, are the corporate parent and owners demonstrating high or low commitment to the continued operations of the mill or the construction of their new project? We maintain a checklist of items that, for the most part, are answerable with publicly-available information. Questions on this list include, for example, employment levels and hiring activity, signs of community involvement, and capital allocation as disclosed in press releases or public filings. [This process has been useful in tracking projects such as Sun Paper over time.]
  3. Facility health. Is this facility, in its structure and equipment, old or new? Does it employ cutting edge technology? What is the “ability to pay” for raw material? How efficient is the plant relative to others in its industry and market? While this is the most difficult of the three categories to assess, strong conclusions on “end markets” and “firm commitment” usually correspond with conclusions associated with facility health. In this way, each of the categories serves, at some level, as a proxy for the others.


Forisk will discuss risk, capacity and utilization analysis of wood-using mills during “Timber Market Analysis” on June 19th in Atlanta, a one-day course that details how to track, analyze and rank timber markets and wood baskets. For more information, click here.

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