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How will investment in the South’s lumber industry affect timber demand in the coming years?

The US South’s softwood lumber industry is in the middle of its largest expansion in over 40 years. During the first half of 2018, plans to build seven new lumber mills have been announced (Table 1). This is in addition to five new mills already announced/constructed since 2016 and numerous investments aimed at increasing capacity and productivity at existing facilities throughout the region. In total, Southern lumber capacity is expected to rise to nearly 24 billion board feet (BBF) of capacity over the next 5 years, a 17% increase relative to the industry’s size at the height of the housing boom in the mid-2000s.

Table 1: New Softwood Lumber Mills in the US South

In addition to expanding, the South’s lumber capacity is shifting to bigger mills owned and managed by larger companies. Historically, the South’s lumber industry was characterized by smaller, independently-owned sawmills. In the mid-2000s, a third of the South’s capacity was composed of lumber mills less than 100 million board feet (mmbf) in size, while mills larger than 200 mmbf accounted for only 20% of the capacity. By 2022, FEA estimates that this will flip, with the share of capacity in smaller mills dropping to less than 20%, and larger mills increasing to over a third of the capacity. And a greater portion of the capacity is being concentrated in larger companies operating multiple mills. Ten years ago, the region’s ten largest companies controlled roughly half of the South’s softwood lumber capacity. They now account for nearly two-thirds of the South’s capacity.

What does this all mean for timber demand going forward? Even with a declining volume of logs needed per unit of lumber output, log demand at southern sawmills will exceed the peak levels of the mid-2000s for much of the next decade due to the strong rise in lumber production expected in the region. In addition, with more production occurring at large-scaled mills focused on maximizing recovery and productivity, the portion of harvest sourced from managed pine plantations will continue to increase.

Article by Rocky Goodnow.  Rocky is Vice President of the Timber Service at Forest Economic Advisors (FEA), the leading economic consulting firm for the North American forest products and timber industry. In this role, Rocky is responsible for FEA’s outlook on the North American timber markets. Rocky is the primary author of FEA’sTimber Quarterly Forecasting Service publications and is a contributor to other FEA publications and studies. Rocky has spoken at numerous conferences as a recognized expert on North American timber markets.
 
 

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