Reducing waste and finding useful markets for wood residuals and waste byproducts is as important as ever. The U.S. forest products market has undergone a significant transformation since The Great Recession in 2008.
Concerned about the long-term viability of these residual wood fiber markets, the National Wooden Pallet & Container Association (NWPCA), the U.S. Endowment for Forestry & Communities, and Resources for the Future engaged Forest2Market to conduct a detailed analysis for the Pacific Northwest (PNW) and U.S. South markets. Forest2Market looked at economic conditions during two major periods, 2004-2009 (the pre-recession bubble and the Great Recession) and 2007-2017 (the Great Recession and recovery).
The research focused on the following:
• Uncovering the underlying market forces that impact the residual market
• Assessing the nature and implications of these impacts.
• Determining whether the changes occurring in the market are:
– Fundamental, structural changes that necessitate a systematic problem-solving approach or:
– Temporary, short-term, cyclical changes that require a corporate-level response.
To accomplish these objectives, this study focuses on economic conditions, changes in consumer preferences and changes in forest products preferences and demand for two time periods.
Consumer Changes
Demand for wood products, including residuals, is impacted by changing consumer preferences and demographic patterns. As digital media grows, demand for paper drops. Over the last decade, production of printing and writing papers has declined by 6% annually. With the boom in e-commerce, consumer demand for corrugated packaging has increased. Amazon for example ships 1.7 million packages worldwide each day. According to the American Forest & Paper Association, more than 95% of all products shipped in the United States are shipped in cardboard boxes. This product line is very well positioned for long-term growth.
Another use for residuals is pellets for fuel and energy production. This sector has grown thanks to strong demand for European countries seeking to meet green energy targets. Over the last 10 years, wood pellet exports from the United States have increased from less than 30,000 tons in 2008 to over five million tons in 2017. But it appears the demand from Europe has flatlined in 2017 and minimal growth is forecasted for the near future. However, there are burgeoning opportunities for wood energy in Asia that could lead to more growth for U.S. pellet exports.
The housing sector has recovered slowly since the Great Recession. But long-term trends point toward more multi-unit dwellings and more renting by younger generations, especially those strapped with significant college loans. The Baby Boomers are reaching retirement age, and the likelihood of down-sizing or renting could impact demand for wood products. The full effect is unclear although they are likely to want smaller, more purpose-built housing.
Overall Regional Market Considerations
Keep in mind that residuals tend to follow what happens with lumber market demand because those tend to be byproducts of more expensive wood products. Also, overall economic trends tend to hold true for all wood products, including residuals.
Over the last 10 years, the U.S. South mill landscape has undergone significant transformation. The Forest2Market report summarized “The permanent closure of three pulp and paper mills and three particleboard plants was met with the opening of 16 new industrial pellet facilities, which led to a 10% increase in the total number of residual wood fiber consumers (Table 6-1). Conversely, 36 pine sawmills and 66 hardwood sawmills have closed during the same period, which led to a 15% decrease in the total number of residual wood fiber producers. The combined total number of residual wood fiber consumers and suppliers has decreased by 12% over the last decade.”
Today, the region is experiencing some sawmill expansion, but only after years of mill closures and lean capacity. Over the last few years, most of the mill growth has occurred in the pine market while the hardwood sector has experienced declines. This trend could be further exacerbated as the Trump trade war with China has limited U.S. exports to that country, which has become a major market for hardwood logs and lumber.
Forest2Market reported, “The supply and demand and volume flows of all pine residual products surpassed 2007 levels by 2017, indicating a full recovery from—and adjustment to—the malaise of the Great Recession.”
The South is becoming America’s wood basket. Pine growth still outpaces removals by 82%, and this large supply of standing timber has made the region attractive for mill technology investment.
In contrast, the hardwood sector in the South has declined tremendously over the past 10 years. The number of hardwood sawmills declined by 66 between 2007 and 2017, while lumber production declined by one-third, along with production of hardwood residuals. The hardwood pulp fiber market in the region has declined precipitously too.
Forest2Market stated, “By any measure, whether number of mills and machines running, production or fiber demand, the hardwood market in the US South is in trouble. While hardwood fiber prices for pulpwood, chips and other residuals have increased over the period, volumes have declined by about one-third and show all signs of continued decline. Structural changes have affected the hardwood market in the South in ways that cannot be reversed.”
The market in the PNW is much different than the South when it comes to residuals. Forest2Market explained, “Since the early 1900s, this market has focused on lumber production and sawlog harvests. As a result, pulp mills were designed to consume only conifer sawmill chips, with no log handling equipment. Landowners are not accustomed to growing pulpwood, and thinnings for pulpwood are not common. This is the result of mill consumption needs and the fact that logging conditions (steep terrain and high logging costs) make thinnings only marginally commercially feasible.”
Conclusions
Forest2Market stated, “The softwood pulp industry has benefited from positive consumer trends such as growth in packaging and container demand and new-found demand for absorbent products. The demand for these products is growing between 2-4% annually, and the US South is well positioned to take advantage of these trends.”
In contrast, consumer trends and preferences are not favoring hardwood fiber as printing and writing papers, carton board and liquid packaging are all declining in demand.
The report determined, “The Northwest U.S. market is severely hobbled due to the tight log supply. The added demand of export markets further complicates the supply situation. PNW lumber capacity has never recovered from the spotted owl crises, let alone the aftermath of the Great Recession. Strangely, the PNW residual chip market is very much insulated from the production declines, as pulp mills make up residual chip deficits with primary chip mill chips.”
Editor’s Note: This report was provided to the Pallet Enterprise by one of the sponsors.
