North American lumber industry significantly leaner post-recession, with loss of some 111 sawmills, representing 9.5 bbf of gross capacity, though some closures made way for new mills; sector on track to hit 69 bbf lumber capacity in 2014: FEA study
January 28, 2014
(Forest Economic Advisors LLC)
– With the process of recovery from the 2009-11 lumber recession underway, FEA’s biannual report on the status of North American sawmills comes at a timely moment. The length and depth of the downturn caused the size and structure of the lumber industry to significantly shrink. Curtailments took the form of indefinite closures, long term idling of facilities or outright abandonment. As demand started to recover, some of these measures are gradually being unwound. However, the downturn left in its wake structural impediments that have complicated and slowed the process.
Some of the impediments include the loss of logging capacity, the loss of markets for residues with the closing of pulp mills, the loss of usable fiber supply due to widespread forest die off in consequence of beetle epidemics and finally insolvency, leading to permanent abandonment of facilities. The FEA report puts the current state of the industry into perspective and shines a light on its probable future course.
Since 2006 we have tallied 207 facilities were affected in some form or another by a curtailment action that lasted over an extended period. Between them, these 207 complexes added up to 19.5 billion feet of capacity constituting a quarter of the industry at its 2006 apex.
After the lumber cycle bottomed in 2009 prices began to recover and by the end of 2013 they had about doubled. Once again sawmilling enjoyed comfortably positive margins, leading to measures to revive some of the dormant facilities.
For 111 out of the 207, however, the recovery has come too late as they have been, or are scheduled to be, permanently removed. That would represent a gross loss of 9.5 billion feet of capacity broken out as 28% each to the US West and eastern Canada, 22% for BC interior and 17% for US South. However, because some of these closures were made to make way for newer, more modern mills, the net loss was less severe.
Over the course of the downturn a great many mills were put into “indefinite idle” status. Many of those have since being restarted but, as of the end of 2013, 28 of them remained in limbo. Their current aggregate capacity stands at 2.7 billion board feet. The latest such closure is located in Prince Albert, Saskatchewan which was doubly handicapped by the continued shuttering of a nearby pulp mill and the loss of adequate logging capacity. Among the returnees are two mills in BC which were idled by explosions but are set to return in early to mid 2014 and a mill being rebuilt in Ashland, Maine.
In between the dismantled and idled plants is a class of mills that have been closed without any specific timetable for reopening. While the recovering market for lumber has led to some of these mills finding salvation, 19 with a capacity of 1.4 billion feet remain inactive. Most appear unlikely to be revived though periodically investors appear who return them to active status. Recent examples included the former Abitibi mill in Albertville, AL, a long abandoned mill in Saratoga, WY, an insolvent mill in Montrose, CO and a shuttered mill in Coushatta, LA.
Of the 207 mills, 49 with 5.7 billion feet of capacity have resumed production. Leading the recovery were mills in eastern Canada which was among the hardest hit during the recession. All told, with net closing, reopening and capacity expansion, North America’s lumber capacity is on track to hit 69 billion board feet in 2014, representing a 25 percent recovery of the shrinkage sustained during the recession.
The sawmill report itemizes the dynamics of these changes in a state by state, province by province enumeration of the principal softwood sawmill population. For more information click here.
FEA is the best source for independent analysis and third-party forecasts for the forest products industry. With a full-time staff that includes the most experienced and respected economists in the industry, FEA performs cutting-edge economic analysis on lumber, wood panels, timber, biomass energy and macroeconomics sectors. Founded in 2009 and based in the Boston area, FEA delivers best-in-class analysis, forecasts and personal consultation to help clients make the right business decisions.