As loggers and procurement foresters prepare for the 2020-2021 winter harvest season in the Lake States Region, they will be facing challenges due to decreases in pulpwood demand from mill curtailments and closures. This change in demand may have ramifications for other non-paper facilities as well.
In the Lake States Region (LSR), paper is king. The pulp and paper segment has been the primary economic base in the rural forest communities of the region for well over 100 years. The region’s pulp and paper sector employs nearly 52,000 people, and the value of shipments exceeds $19.2 billion annually. This represents more than 56 percent of the forest products sector economy in the Lake States Region.
The COVID-19 pandemic has hit the printing and writing (PW) paper sector the hardest, the mainstay of the LSR paper manufacturers. During the pandemic, demand was significantly reduced for PW paper from schools to businesses to printers. As a result, paper production is forecasted to be down 20 percent in 2020. Operating rates of the PW paper sector were at 65 percent in the second quarter of 2020. Rates are forecasted to improve in the 4th quarter, but not return to pre-COVID-19 operating rates until 2022. These forecasts seem to be holding as the PW paper segment has shown signs of a rebound in August.
Economic measures of the pulp and paper industry of the Lake States Region (source: https://afandpa.org/advocacy/economic-impact).
In the Lake States Region, the hardest announcements to take were paper mill closures. Three major mills in the region announced indefinite or permanent closures. Verso announced that mills in Minnesota and Wisconsin would be shut down indefinitely, while Domtar announced the permanent closure of the Port Huron, MI mill in the first quarter of 2021.
The forestlands in the Lake States are mixed forests that grow a variety of species and products (sawlogs, pulpwood) on the same acre. Pulp and paper mills serve a unique role in the Lake States wood supply chain. These mills utilize pulpwood logs that do not meet the specifications of sawmills or the species requirements for engineered wood products such as oriented strand board, and even other pulp or paper mills whose diet calls for only certain species. If a market does not exist for all the species on a timber harvest site, it may present challenges for procurement foresters who are looking for specific species utilized by their mills. Landowners may also find it challenging to maximize financial return through a timber harvest by utilizing all species on their properties from a timber sale. Some landowners, who have an option, may choose not to offer to sell their timber until markets improve.
A greater challenge may be for the logging businesses who purchase up to 75 percent of the sold timber stumpage in the region. Loggers harvest and haul logs to consuming mills. It is not uncommon for a logging business to market and deliver harvested trees to several mills from the same timber harvest site. The last winter’s harvest season markets were available for most species. This winter, these same markets may not be available in the procurement areas of the mills that have closed. This will leave limited markets for certain species or products. Production curtailments of other mills may result in less volume being purchased during the winter harvest season. A winter harvest season provides for more than 60 percent of some mills annual wood consumption.
A recent survey of logging businesses in the Lake States Regions suggests that the indefinite displaced volume resulting from mill closures will negatively impact 150-200 average-sized logging businesses. The actual impact will likely be spread across a far larger number of businesses, as loggers position themselves and compete to keep or gain market share in terms of volume sold. Logging businesses will need to make informed decisions regarding timber sales that they have purchased under previous market conditions and what timber sales they will be purchasing in the future to meet current and projected species demands.
To address the financial concerns of logging businesses, FRA has been working with the American Loggers Council to move legislation that would provide financial relief to logging businesses that can show an impact on their business during the COVID-19 pandemic. We have been in constant communication with White House staff on this issue over the last month in hopes of securing relief for logging businesses that have been impacted by mills curtailments or closures.
A silver lining in all this uncertainty is the unexpected increases in housing starts and home projects. Softwood sawmills and engineered wood product facilities are operating at full capacity in the region. This has provided improved markets of certain species for the region’s timber harvesters. However, the region’s paper markets will need to recover, and the remaining paper mills return to full operational capacity will be critical to maintaining a viable wood supply chain and healthy forest products industry.
Note: Flambeau River Papers has reopened the mill in Park Falls, WI, under new ownership. It is now operated by Park Falls Industrial Management. The pulp operation is currently running, and the three paper machines are anticipated to start in the next several weeks.