The Shortage of Mill Residue in the Northwest Market Area

Pacific Northwest pulp mills, board plants and users of wood fuels have long relied on sawmill residuals as the primary source of raw material. The depressed housing market—and the resulting 22 percent curtailment of regional lumber mill production—has dramatically reduced the availability of wood residues. This scarcity of residuals has both given rise to higher fiber prices and brought about a number of innovations in supply chain management.

Traditionally, residue has supplied more than 80 percent of northwest wood chips for pulp. Since 2006, however, the annual volume of sawmill residual wood chips in the Pacific Northwest has declined by more than 1,700,000 bone dry tons. Although this phenomenon has contributed greatly to the shortfall, other demands such as wood energy have aggravated the situation. Today over 45 percent of the Northwest Region’s total pulp mill supply comes from whole log chips.

One of the reasons for the surging whole log chip supply can be traced to the December 2007 windstorm. Salvage of blow down timber created an abundance of low value wood to feed Western Oregon and Washington whole-log chip plants. Presently west side wood yards and chip inventories are flush and storage piles at over-flow capacity. As a consequence third quarter 2008 chip prices have declined slightly in much of the region. Because of permanent mill closures and deeper long-term production constraints, supply in the inland west remains more uncertain, and this has prompted an up-the-Columbia-River material flow.

While the harvest of salvaged timber has been abundant to date, it is also finite. As clean-up of the salvage nears conclusion—projected to occur sometime in 2009—wood chip supplies could easily become acute. Unless housing recovery kick-starts sawmill productivity, further supply disruption and higher prices are a distinct possibility.

Supply of wood fuels is also becoming an issue. Only 18 months ago sawmill residue bark value was irregular; while occasionally in demand on the spot market, much of this material was traded for merely the hauling cost. Because of the expansion of several new wood fired electric co-generation plants in western Oregon, this has changed; these plants now require more than 150,000 additional green tons of fuel annually. Coming at a time with declining availability, average prices have more than doubled to the high $40’s per bone dry ton.

Operators increasingly rely on creative sources to supplement the decrease in hogged fuel from sawmills. Public and private forest land managers alike have teamed with fuel users to collect and utilize logging slash. Sale of material provides little direct economic return, but benefits foresters by eliminating costly site preparation activities such as piling and burning. The Deschutes National Forest in Central Oregon, for example, will generate over 85,000 green tons of fuel and wood chips in 2008, the majority of it hauled 125 miles or more to operators west of the Cascade Mountains.

Increased diesel prices have contributed to the woes of fuel buyers transporting material in ever-widening operating circles. Under typical circumstances, woody biomass is transported about 50 miles economically. The State of Oregon offers a $10 per green ton tax credit incentive to encourage the use of wood fuels. While the legislation was intended for other purposes, the tax credit eases slightly the burden for collection of incremental fuel supply from distant sources. With the price of diesel fuel expected to remain both high and volatile, transportation issues will remain a concern.

Construction and demolition debris and urban wood are gaining increased attention as well. This urban biomass contributes significantly to the supply of boiler fuel, furnish for pellet mills and even pulp chips. At least a dozen urban wood collection sites from Eugene to Portland along Oregon’s I-5 corridor are now busily accepting and processing this material. It is likely that this number will grow throughout the region.

Spirited competition for chips, sawdust, shavings and fuel has pinched the profitability of operators demanding these raw materials. New capacity, such as a large co-generation facility in the Puget Sound area, will expand needs for additional fuel and fiber. The likelihood that a shortage of residuals will continue is high. To feed demand going forward, operators will benefit from finding additional innovative and cost effective resources of wood fiber. This ability to substitute smartly will be critical for the industry until the housing market recovers and — perhaps — beyond.