Arkansas’ forest industry can expect demand for lumber, pulpwood and other products to continue to rise as the nation’s economy improves and pent-up demand for new homes continues, members of the Arkansas Forestry Association were told Wednesday.
Rick Holley, chief executive officer of Plum Creek Timber Co., said demand for U.S.-produced forest products, including lumber and pulp, will also be bolstered by shrinking Canadian lumber supplies and increased exports, particularly to China, Holley said in a speech at the association’s annual meeting in Little Rock.
“Even here in in Arkansas, you start to see stuff about building picking up and that sort of thing,” Holley said. “I think we’ve turned the corner.”
Plum Creek, based in Seattle, owns about 6.3 million acres in 19 states, including720,000 acres in 22 Arkansas counties. The company supplies forest products used to manufacture wood, pulp and paper products and wood chips. In 2012, it had revenue of $1.34 billion and net income of $203 million.
Holley said the forest-products industry was hurt by the nation’s economic downturn, which resulted in single- and multi-family housing starts dropping to nearly 554,000 annually in 2009, compared with 1.8 million in 2006. But in September, the federal government estimated that housing starts for new residential construction had reached an annual rate of 891,000 - below forecast, but 19 percent ahead for the same period a year ago.
Holley said that growth trend for housing will continue, predicting housing starts will reach 1.1 million in 2014. He expects that figure to eventually climb back to 1.5 million starts over the next few years since the demographics indicate the nation can easily sustain that pace.
That means that the forestry industry in Southern states is poised for growth, both in terms of supply and efficiency, according to Holley.
Current lumber production in the United States is around 54 billion board feet annually, Holley said. If demand for housing reaches the 1.5 million level, lumber production in North America will have to increase as well to an estimated 64 billion board feet, Holley said. That figure could grow by another 3 billion board feet to meet new demand by China, he said.
“The U.S. South [has] the lowest-cost producers in the U.S. today,” Holley said, citing figures indicating it costs the average mill in a Southern state $236 to produce 1,000 board feet of lumber, compared with $246 for a mill in British Columbia, $270 in the western United States and $315 in eastern Canada.
With other large U.S. and Canadian forest-product companies investing millions of dollars on equipment and facilities to meet projected demand, “Saw log prices have to go up,” Holley said.
Holley said other investments are creating a growing demand for wood pulp, noting that there are 14 plants that produce wood pellets for biomass plants either under construction or planned in seven Southern states. “Each uses about 1 million tons of pulpwood,” he said.
Holley’s comments encouraged many of those at the conference.
Arkansas Forestry Association President Ray Dillon, president and chief executive officer of El Dorado-based Deltic Timber Corp., said after Holley’s talk that Arkansas’ forest industry will benefit from rising demand that should be sustainable.
“In the end, trees grown here in Arkansas and lumber produced here in Arkansas will find its way to Orlando or San Jose, or Seattle, depending on where that demand is,” Dillon said. Deltic owns nearly 450,000 acres of timberland in Arkansas and north Louisiana and several sawmills. It also develops real estate in central Arkansas and Hot Springs.
In addition to meeting domestic demand, Southern yellow pine is starting to find markets in China and India, Dillon said. And, even though Deltic’s wood-products division focuses more on domestic sales, exports by other companies mean greater demand for Deltic’s products, he added.
How well the timber industry recovers as the economy improves is still up in the air, Holley said in his talk. Contractors saw the overall workforce shrink by as much as 25 percent since 2005. Even though production is up, fewer people are interested in the industry, given the cost of capital to buy equipment and hire workers.
That means that producers such as Plum Creek must build long-term relationships with its smaller contractors to stabilize incomes and encourage investment, Holley said in an interview.
“We have to make it a business that can be successful,” Holley said.
Several years ago, the industry focused on reducing costs.
“We need to get away from that,” he said. To become more efficient, large companies such as Plum Creek need to make commitments to contractors that enable them to find workers and get bank loans, he said.
“And suddenly its a vibrant business,” Holley said, as their contractors can afford good equipment and see less employee turnover.
Dillon agreed that fewer young people are entering the industry, which he said has become far more technical and equipment-intensive than in its early days. Loggers have to be familiar with electronics and hydraulic lines to keep equipment working in the field, while managers need access to capital to maintain and purchase equipment used to maintain and harvest forests.
And, more is being done with genetics to develop more hardy varieties capable of resisting disease and drought, even if planted in poorer soils, he said.
Business, Pages 25 on 10/03/2013
Print Headline: Forest-products demand seen rising