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Oversupply at the origin
Oversupply. It’s a word that’s been pounded into the pulp and paper industry’s conscience for so long now that you almost forget what all it can impact. Yes, there are the obvious means for removing tonnage from the market—consolidation, mill and machine closures, and downtime. But the impacts potentially dig deeper than that—right down to the roots (of the tree, that is).
Currently, there are indications that the slack demand for paper products is impacting the demand for seedlings, at least in 13 states comprising the southern timber industry. Even though they’ve cut back on production in recent years, some nurseries are having to destroy seedlings, which cannot be carried over to next year without planting.
Perhaps in an attempt to console its readers with the woes of another region with paper industry-related challenges, The Bangor Daily News printed an Associated Press article detailing the oversupply of seedlings and reduced number of plantings in the southern region. The heading, “Lower pine plantings reflect industry slump,” sums up the article’s connection of lower seedling demand in the South with a weak economy and poor paper demand. But is there any long-term threat to the southern region’s fiber supply?
GOING SOUTH? Is the southern timber supply really, um, going south? A four-year drought in the region has ended, and better planting conditions exist. However, landowners, most of whom are private as opposed to corporate, “seem to be riding out a slump that has led to mill closings, consolidations, the lowest pulpwood prices in years, and a surfeit of some types of timber,” says the article.
A representative of one major forest management company was quoted as saying it would plant two million fewer acres this year in the region. In response to this trend, many state and private nurseries are destroying millions of one-year-old seedlings. One nursery that planted 54 million seedlings in 1998 will have to destroy some of the 10 million seedlings it grew for 2003. Yet another that produced nearly 175 million seedlings in 1988 cited a surplus this year despite a cutback in production to around 50 million seedlings.
So, why the reluctance to plant? Representatives from various state forestry commissions weighed in with an assortment of opinions. One representative said the sluggish stock market and poor economy are causing landowners to scale back their investment in trees. He also noted the oversupply of pulpwood at low prices that provides no incentive to cut—leaving fewer places to plant. Another source mentioned the interruption in government programs this year that pay landowners to plant.
But a regeneration specialist indicated the timber industry is undergoing major changes that are hard to analyze. However, he stopped short of being alarmist in that the long-term timber supply will be threatened, noting that the industry “is no different from software or other industries having a slow period.”
NO BRIARS AND HONEYSUCKLES YET. Chris Lyddan, editor of Paperloop’s International Wood Fiber Report, tends to agree with the regeneration specialist in that the trend is troublesome, but not necessarily lethal.
“It is discouraging and somewhat alarming that the seedlings are being destroyed, but some of that is just overcapacity,” notes Lyddan. “It takes a few years to ramp up production, and the timber, as well as pulp and paper, industry has performed poorly in the meantime. The nurseries just grew too many for an inflated objective.”
Overall, Lyddan is not terribly concerned with the long-term supply of timber in the South—at least not yet. Without planting, the land has no productive potential. Plus, the cost of replanting is modest since states still support cost-share programs, even though the Federal farm bill was passed too late last year to help much with this year’s planting.
So, the timber and fiber supply in the South evidently remains secure for papermakers and other consumers of wood products. As with everyone else associated with the pulp and paper industry, landowners are apparently just trying to ride out the slump.
“Pulpwood and log values will have to stay low for a much longer period before landowners throw in the towel,” says Lyddan. “For now, they can hold timber from the market until prices go up so folks will wait things out. But it will take several years of such behavior before a trend could emerge where landowners have given up and are growing briars and honeysuckle.”
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