By Tim Portz
The combined export value of wood pellets, ethanol and biodiesel for U.S. producers has flirted with $3 billion since 2012, and depending upon how the final numbers shake out for last year, 2016 may very well be the year this milestone is surpassed. For both wood pellets and fuel ethanol, export numbers have never been higher than they are right now, and all three sectors are eyeing foreign markets as a means to significantly grow their businesses.
An analysis of the same data reveals key and informative differences. While foreign markets are an important part of the overall market picture for fuel ethanol and biodiesel producers, exports account for less than 10 percent of annual production while, from a volumetric perspective, wood pellet production in the U.S. is heavily reliant on foreign markets.
Now, the looming question is, what impact will a Trump administration, which campaigned on a promise to revisit the nation’s trade agreements, have on the export opportunities for each of these industries?
Global Market Leaders
In both the fuel ethanol and wood pellet categories, the U.S. can boast the largest production capacity and the largest share of the global export market. In both cases, U.S. exports outstrip the closest competitor by a wide margin. Wood pellet export volumes for U.S. producers were well over 4 million tons, while Canada has yet to surpass 2 million tons of exports. Brazil is the world’s second leading producer of fuel ethanol, and while production and export volumes there vary from year to year, in 2015, its export volumes were about half of what U.S. producers achieved. Additionally, Brazil is a prominent market for U.S. ethanol producers taking over 100 million gallons in 2015.
Organizers of last week’s International Mass Timber Conference in Portland, Ore., devoted a whole track of the three-day event to environmental and sustainability aspects of the mass timber sector — an indication of the importance of sustainability to the tall timber building brand.
Manufacturing of cross laminated timber, or CLT — the product used to construct tall timber buildings — has the potential to revitalize the timber sector and the rural communities in Oregon that have fallen on hard times because of the widespread closure of timber mills across the state, reports Oregon Business.
But experts concede the environmental benefits of CLT are complex and difficult to measure.
Structural engineers look at the lifecycle emissions of CLT when assessing the environmental impact of tall timber buildings. The lifecycle analysis takes account of the greenhouse gas emissions from the harvesting of the wood, through the manufacturing and construction of tall timber buildings, to their eventual demolition.
When taking this cradle-to-grave assessment, the environmental benefits of CLT are not clear.
Lumber prices continue to be robust two months in a row. Logs are also strong. Home values continue improving with relatively brisk sales and building. Industry manufacturing has improved. Recent trends of lumber, logs, home construction, and housing markets, are compared.
Statistics look quite good this month. Median home value continues to rise, mortgage rates have somewhat stabilized, unsold inventories of homes remain low, albeit creeping up, and housing starts and building permits remain consistently in the 1200s, which is an improvement. But lumber prices and log prices are a big story, along with real estate selling briskly in both Portland and Roseburg.
The log price is holding up at $720. The lumber price has also held for two months in a row, at $360. This is the highest price for studs since 2013, and before that, since 2005. 2013 was the year the snails-pace recovery began in earnest. One year earlier, in 2012, median home prices hit rock bottom ($151,600 in January, 2012). Housing starts moved from the 800’s in 2012 to 1000’s in 2013 and there was a feeling of optimism. During the midst of the Great Recession, mill production levels were at their lowest and the increased demand in 2013 raised the lumber prices. Once mill production increased from basement levels, in anticipation of increased housing starts, prices dropped again. Now we are entering a new cycle.
Higher prices and stronger wood product, paper packaging and market pulp demand offsetting rising input costs and lower paper demand will keep the outlook for the global paper and forest products industry stable, says Moody’s Investors Service in a newly published global outlook for the sector. Consistent with the stable outlook, the rating agency expects consolidated operating income increases of 2-4% for its 46 globally-rated forest product companies over the next 12-18 months.
Moody’s expects that the consolidated operating income of the 29 North American companies it rates will remain essentially flat, with 2-4% growth over the outlook period. Such growth is consistent with analysts’ expectations of modest operating income growth from North American paper packaging, wood products and timberland producers being partially offset by lower operating earnings from pulp and paper companies. Significantly, these same companies account for about 60% of the global rated industry’s operating income.
A growing source of fiber furnish in both countries consists of sawmill byproducts and forest residues, together accounting for more than 80 percent of the total feedstock in British Columbia, Canada, and almost 50 percent in the U.S. South.
Over the past 10 years there has been a clear shift in fiber-sourcing for pellet manufacturers in the U.S. South from logs to residues, says the NAWFR. In 2008, when the first large pellet plant was built, practically all fiber consumed by the plant was “low-quality, small-diameter logs from adjacent forests,” says NAWFR. It describes that fiber source as a “high-cost fiber furnish, since it needs to be chipped, hammered and dried before it can be processed to pellets, which adds substantial cost to the manufacturing of pellets.”
Increasingly, pellet plants throughout the southern states have turned to sawmill byproducts
and forest residues that in the past were left at harvesting sites. The NAWFR says for the past five years it has tracked the fiber sources for the pellet industry each quarter in the two major producing regions of North America (British Columbia and the U.S. South), and it has seen two clear trends:
In British Columbia, pellet companies have moved from entirely relying on inexpensive sawdust from the local sawmills for its fiber furnish to increasingly supplementing its dominant fiber source with forest residues in the form of tree tops and branches left after harvest operations; and
In the U.S. South, there has been an increase in the usage of residuals at the expense of cut logs.
By Anna Ringstrom
Nordic forestry firms racing to replace paper business lost to the internet are trying to transform their pulp mill by-products into glue, biofuel and carbon fiber for aircraft and wind turbines.
A new generation of energy-efficient pulp mills are allowing the likes of Stora Enso, UPM-Kymmene, Metsa Group, SCA and Holmen to look for more profitable uses for by-products they have traditionally mostly burned to help power the mills.
Growing global demand for fossil-free materials is also helping to spur the innovation.
Much of the research is at an early stage, and many companies have not even decided which markets to target.
But after years of painful restructuring, some investors are starting to hope the industry could get a new lease of life.
“If they can develop new materials to replace fossil based materials, the market is endless for them,” said Sasja Beslik, head of sustainable finance at Nordea, one of the Nordic region’s biggest asset managers and Stora Enso’s seventh largest shareholder.
One early success story has been Stora Enso’s work with kraft lignin – a refined version of lignin, a substance which accounts for at least a quarter of wood and binds tree fibers together.
The Finnish company opened a kraft lignin plant in 2015, the first of its kind in the region, using a new technology developed in Sweden and marketed by Finland’s Valmet, and decided to focus on using the material as a replacement for petroleum-derived phenols in glue.
Canada’s forest sector is vital to a strong Canadian economy. Enhanced collaboration between federal and provincial governments will help to keep our forest sector, and the workers and communities that depend on it, strong and resilient.
Today, Canada’s Minister of Natural Resources, the Honourable Jim Carr, announced the creation of the Federal–Provincial Task Force on Softwood Lumber, which will share information and analysis to understand potential impacts and assess how to address the needs of affected workers and communities. Minister Carr will chair the domestic task force, while Canada’s Minister of Foreign Affairs, the Honourable Chrystia Freeland, leads softwood engagement with the United States.
There has been ongoing engagement with the provinces, territories and industry over the past two years as the Government of Canada has sought to negotiate a new deal with the U.S. on softwood lumber. This is the next step in our strategic approach to this issue, which strengthens our ongoing efforts on a priority file for the Government. Canada believes that a negotiated agreement that brings predictability and stability to industry on both sides of the border is the best possible outcome. The Government will continue to work closely with provinces, territories and the softwood lumber industry to vigorously defend the interests of the middle-class Canadians who depend on the industry. This work will continue outside of the task force.
The new Federal–Provincial Task Force on Softwood Lumber will assess current federal and provincial programming and ensure coordination of government initiatives to promote innovation, market diversification and transformation of the forest sector.
The forest sector is an important part of Canada’s economy. It directly employs more than 200,000 people across Canada. Softwood lumber exports were valued at $8.6 billion in 2015 — close to 70 percent of which was exported to the U.S.
The Forest Stewardship Council (FSC) today announced its decision to immediately disassociate from the Austrian timber giant Holzindustrie Schweighofer (Schweighofer), one of its largest members, due to the company’s persistent and indiscriminate sourcing of illegal timber in Romania. The decision follows a year-long investigation by an FSC Expert Panel, which concluded that Schweighofer had created a business “culture” favoring cheap wood over legal wood in its Romanian sourcing.
By ROSS MAROWITS
The head of Eastern Canada’s largest lumber producer said he is confident he can demonstrate to American authorities this month that the region deserves free and unencumbered access to the U.S. market.
The forestry sectors of Ontario and Quebec are modelled after the market-based systems in the U.S., and that should convince the U.S. Commerce Department that the region doesn’t engage in the unfair trade of softwood lumber, Resolute Forest Products Inc. CEO Richard Garneau said.
“So based on this, I think that we deserve the right to have access in Central Canada – in Quebec and Ontario – to the U.S. market,” he said in an interview after Resolute released its fourth-quarter and 2016 results.
The Montreal-based company was recently selected by the U.S. Commerce Department – along with B.C. companies West Fraser Timber Co. Ltd., Canfor Corp. and Tolko Industries – to provide details on how they operate as part of its investigation into alleged unfair trade.
The producers are required to respond to a questionnaire by the end of the month. A U.S. auditor will then visit the four companies for follow-up.
By Hannes Lechner & John Dawson-Nowak
In 2016, the wood pellet market in Europe reached a size of 19 million tons per annum (Mtpa), while production capacity stood at 23.5 Mtpa, and consists of two largely independent sectors with only limited interaction. The industrial market is focused on large-scale bioenergy generation, while the premium market is focused on small-scale residential and commercial heat generation.
Besides more growth potential in the industrial market to 2025, the likely expansion of the premium sector post-2020 offers an opportunity for North American producers to soften the impact of predicted demand decline for industrial pellets post-2027.