The total amount of precipitation the US South received in the fourth quarter of 2015 was a record high, making it one of the wettest periods of the last 15 years. While certain geographic areas are still recovering from the deluge and the accompanying flood damage, the unusually wet season did not dampen regional stumpage prices and timber markets.
In the thirteen-month period from November 2014 through December 2015, Maine lost markets for about 2 million green tons of pulpwood and mill chips. In a state where the total pulpwood use was 8.1 million green tons in 2014, that's a big deal. With mill closures in Bucksport, Old Town and a capacity reduction at Verso's Androscoggin mill in Jay, the state and the Northeast region have suffered real market losses. It was only a matter of time before these losses would affect fiber pricing, and it appears that time has finally come.
Last month, we covered the comprehensive Global Forest Resources Assessments (FRA) for 2015 released by The Food & Agriculture Organization of the United Nations (FAO), which provides a consistent overview of the world's forests and how they are changing at five- to ten-year intervals. FAO also recently released new data through 2014 noting that there has been a resurgence in global wood production.
Forest industry performance in November and December was reported by both the US government and the Institute for Supply Management. Total industrial production (IP) tumbled 0.6% in November (-1.2% YoY). It was the ninth month in 2015 with MoM IP declines, as well as the biggest MoM drop since March 2012. Historically, YoY declines in IP have often been associated with recessions.
We are currently experiencing a global resurgence in wood production, and as biomass derived from forest residues continues to become more popular as an alternative and renewable source of energy, questions regarding forest sustainability and land management inevitably become the focus of many discussions. And rightfully so. While a forest is so much more than its available timber, an important-and often overlooked-aspect of responsible forest stewardship concerns maintaining overall land quality.
While the housing starts metric stayed on course during December to finish 2015 just above its 1.1 million unit forecast, the final monthly number was surprising and disappointing to economists and industry watchers alike. The lackluster performance followed double-digit gains in November, unseasonably warm weather throughout most of the country for much of December, as well as 45,000 additional construction jobs-all of which was expected to boost activity.
Regardless of location, wood feedstock costs are the largest variable costs of wood-consuming manufacturing projects. It is therefore imperative to have a firm understanding of stumpage prices in a supply region not only during a site selection process, but also as an ongoing operating cost within that supply region.
