The success of manufacturing projects that rely on forest raw materials hinges on thorough due diligence and data-based business decisions made in the early stages of project development. In the current economic climate that is increasingly impacted by market uncertainty, forest industry leaders that focus on these objectives now will be well-positioned to take advantage of growth opportunities when the economic upswing begins.
Understandably, economic circumstances are at the forefront of daily business decisions right now. However, while economic conditions and incentives are helpful in determining new site locations for projects in certain industries, an approach that places these considerations at the forefront could jeopardize the success of a new mill facility in the long run. Why?
This is the case because wood raw material costs compose such a tremendous part of the overall operating cost of a mill facility – up to 75% in many instances. Siting a facility in an optimal wood basin is critical to ensuring that a sustainable and affordable wood supply is available throughout the life of the project. Additionally, developers must consider the following questions:
- Where should I build my mill or purchase an existing mill, and how large should it be?
- Is the supply infrastructure in an identified area sufficient to support my raw material needs?
- Who are the competitors for the raw material and how strong are they?
- What is the existing demand?
- What will my raw material costs be over the life of the project?
Forest2Market can answer all of these questions.
As a critical piece of a comprehensive due diligence strategy, a custom Forest2Market resource study employs unique and proprietary assets in the site selection methodology and analysis. For this task, Forest2Market uses geographic information system (GIS) technology to accurately pinpoint potential site locations.
Data variables that may be analyzed include fiber price, forest inventory, forest harvests and growth metrics, competitor consumption and proximity to major transportation routes. Using these datasets, Forest2Market spatially analyzes various layers of GIS data to identify locations that are favorable for each unique project.
The result is a bankable site qualification study that provides project managers with the tools they need to:
- Educate business partners and investors
- Identify factors that are critical to business success
- Assess current status of wood markets on a regional basis
- Compare potential supply areas
- Identify focus areas for detailed forecasts of supply and raw material costs
Forest2Market’s data and neutrality ensure a thorough and objective ranking of potential locations via a multi-layered analysis of supply and supply chain dynamics based upon site attractiveness criteria uniquely determined by the client.
Bankable Resource Studies Trusted by Lenders and Investors
Forest2Market is recognized in the financial community as the independent global wood supply chain expert. Our custom studies and consulting engagements present tabular and graphical data, along with expert commentary, to establish the significance and implications of the information; doing so is a necessity to provide comfort to lenders unfamiliar with the global wood supply chain.
A Forest2Market bankable study therefore arms project developers with the data they need to demonstrate project quality for investors and commercial lenders. These studies provide an independent, third-party assessment of supply and demand, and of feedstock sustainability and price.
As part of a comprehensive due diligence strategy, Forest2Market can assist in demonstrating project quality to investors and commercial lenders by:
- Calculating existing competitive demand and modeling the impact of incremental demand
- Forecasting availability of supply and cost
- Identifying risk and opportunities/SWOT analyses
- Developing an economic impact analysis to secure project development grants
- Informing the terms of supply agreements
Project developers working with Forest2Market can expect to receive a study that provides a thorough characterization of the forest assets and the forest products industry including ownership, inventory and competition in the supply region. We provide a comprehensive analysis of historical market prices and trends, as well as supply risk and opportunities including inventory and price forecasts, demand changes, pricing and sustainability.
Forest2Market also includes sensitivity analyses to address percentage changes in variables such as diesel price, GDP and the consumer price index, for instance. We then impose those scenarios on delivered wood costs and compare those prices to the original forecast. Developers can subsequently use these results to demonstrate to lenders project viability under stress conditions and to develop hedging strategies for the future.
It is a daunting prospect to plan for new or expanded projects in the current environment, yet visionary industry leaders are looking beyond the uncertainty and well ahead of the temporary downturn we find ourselves in. As consulting firm McKinsey & Company wrote in the wake of the Great Recession, “Manufacturers should view today’s environment as an opportunity. Now they can make changes—renegotiating contracts, consolidating manufacturing and distribution networks, launching aggressive productivity programs—that might not have been feasible earlier and may soon be difficult again.”