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Top 3 Stories from the May Issue
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INDUSTRY AT A
GLANCE
From Forest2Market's Economic Outlook
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New manufacturing and
service sector orders provide some short-term optimism for Forest2Market's economic outlook.
Up during eleven of the last twelve months, new orders at the total manufacturing level
increased $5.0 billion (1.3 percent) to $391.5 billion in March. New orders for nondurable goods
provided most of that impetus by increasing $6.0 billion (2.9 percent) to $212.8 billion. But
durable goods orders dropped by $1.0 billion (0.6 percent) to $178.7 billion, after three
consecutive monthly increases. Excluding transportation (the biggest "negative"), new durables
orders increased 3.1 percent.
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HOUSING MARKET
UPDATE
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Sales of both existing
and new homes climbed once again in April. According the National Association of Realtors (NAR),
existing home sales were 7.6 percent higher on a month-over-month basis and 22.8 percent on a
year-over-year basis. The Census Bureau reported new home sales were 14.8 percent higher on a
month-over-month basis and 47.8 percent stronger on a year-over-year basis (Table 1). The NAR's
pending home sales index climbed in March, up 7.1 percent versus last month and 23.1 percent year
over year. In April, pending home sales increased again: up 6.0 percent month over month and 22.4
percent over the previous year.
For existing sales, 49 percent of homes in April were sold to first-time buyers, repeat
buyers purchased and 36 percent investors bought 15 percent.
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CHIP PRICES IN THE SOUTH
AND PNW
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Chip Prices Near Parity
For many years, pulp and
paper mills in the Pacific Northwest have been at a disadvantage to those in the South. A
combination of high fiber costs and advancing age have caused many mills to struggle with
efficiency barriers and marginal profitability. Over the last six months, however, this competitive
disadvantage has improved significantly. For the first time in years, wood fiber costs in the
Pacific Northwest are roughly equivalent to those in the South. It appears the lengthy trend of
disproportionately high PNW fiber costs has been reversed--at least for now.
Higher delivered pulpwood costs in the South are one of the reasons for this parity. Since
3Q2009, delivered pulpwood prices have been trending significantly higher in the South. In 1Q2010,
pine pulpwood (total fiber) prices increased 7 percent from 4Q2009 and 12 percent from 1Q2009.
Hardwood pulpwood prices (total fiber) increased even more dramatically, climbing 18 percent
quarter over quarter and 19 percent year over year.
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"GOT TREES?"
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Forest Products Industry
 Check-Off Programs
"Wood, the Other 'Green' Building Material." "Got Paper?" "Happy Trees." In the near
future, slogans like these might be coming to you from your TV or favorite magazine.
In March 2009, after conducting a
feasibility study, the US Endowment
for Forestry and Communities formed a Blue Ribbon Commission and charged it with developing a
check-off program for the softwood lumber market. The check-off would support a long-term strategic
program to market wood, increase the volume of softwood lumber sold and expand market share and
returns. In March 2010, the American Forest and Paper Association and the US Endowment for Forestry
and Communities each donated $150,000 to fund a similar feasibility study on creating a check-off
program for the paper and packaging industry.
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COMMON GROUND IN THE FOREST
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The prevailing narrative
describing the relationship between environmentalists and the forest products industry may be about
to change. In May, the two groups signed The Canadian Boreal Forest Agreement. The agreement covers
170 million acres of boreal forests; it calls for the immediate suspension of new logging on 75
million acres, the intent of which is to protect caribou habitat, and for the two sides to spend
the next three years defining restrictions for the remaining 95 million acres. In return, the
environmental groups that signed the agreement will suspend "do not buy" campaigns and eventually
endorse products produced by those forest products companies that signed and follow the agreement.
"Do not buy" campaigns in Canada have focused on the customers of major forest products
companies, and they have been remarkably successful. In the early 2000's, ForestEthics, one of the
environmental groups that signed the agreement, ran campaigns against Staples and Office Depot,
encouraging consumers not to shop in these stores. In response, both companies revised their
procurement policies, sourcing only environmentally sustainable paper.
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NEWS
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Georgia-Pacific Buys Alabama River from Parsons and Whittemore
Georgia-Pacific, which
owns 39 mills throughout the mid-South, has reached an agreement with Parsons and Whittemore, the
owner of Alabama River and Alabama Pine pulp mills in Perdue Hill, Ala., to purchase the two mills
and their assets.
The additional assets included in the deal are Alabama River Woodlands, chip mills at Elba
and Jacksons Gap, a pulpwood yard at Demopolis, a tall oil plant and a biodiesel plant. These
assets will join the seven pulp and paper mills, five chip mills and one woodyard that
Georgia-Pacific currently operates in the South.
Dixie Pellets' Assets Sold
On May 17, U.S.
Bankruptcy Court approved the sale of Dixie Pellets' assets. At the time it filed for bankruptcy in
September 2009, Dixie Pellets reported $70 million in debt. When announced, the plant was expected
to cost $75 million to build.
How much money did Dixie raise in the sale? The bulk of the money was raised from the sale
of the plant. Zilkha Biomass Energy of Houston, a company that develops small-scale combined heat
and power projects using its Zilkha Biomass Unit, purchased the facility for $6.25 million. No
report on what Zilkha plans for the site or the equipment. Also included in the sale were 10
barges, which sold to BKM Holding LLC for $3.8 million and a tugboat that sold for $30,000.
In total, the $10 million raised in the bankruptcy sale will not go far. Dixie Pellets'
current debt includes over $35 million in claims from creditors, $188,000 in property taxes, plus
undisclosed amounts for attorneys' fees and other recovered charges allowed under bankruptcy
law.
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MEET SAM HOUSTON AT THE
COFE ANNUAL MEETING
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Sam Houston, Manager of
Supply Chain Services at Forest2Market, will be speaking about Biomass supply and demand at the
33rd Annual Council on Forest Engineering meeting in Auburn, Ala. on June 7. The meeting takes
place June 6-9. More details about the
meeting.
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